----

----

----

|      |                                                                                           |
|-----------|------------------------------------------------------------------------------------------------|
| o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| OR |
|----|
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|-----------|--------------------------------------------------------------------------------------|
|      | For the fiscal year ended December 31, 2009                                          |
| OR |
|----|
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|-----------|------------------------------------------------------------------------------------------|
|      | For 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 Market                  |
|                                                                                                                                                |
| The NASDAQ Global 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                                                    | 35 |
| ITEM 4A. UNRESOLVED STAFF COMMENTS                                                    | 67 |
| ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  | 68 |
| ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    | 85 |
| ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             | 102 |
| ITEM 8. FINANCIAL INFORMATION                                                         | 106 |
| ITEM 9. THE OFFER AND LISTING                                                         | 108 |
| ITEM 10. ADDITIONAL INFORMATION                                                       | 109 |
| ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 121 |
| ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 124 |
| ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 124 |
| ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 124 |
| ITEM 15. CONTROLS AND PROCEDURES                                                      | 124 |
| ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            | 126 |
| ITEM 16B. CODE OF ETHICS                                                              | 126 |
| ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      | 126 |
| ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  | 127 |
| ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      | 127 |
| ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACOUNTANT                           | 127 |
| ITEM 16G. CORPORATE GOVERNANCE                                                        | 127 |
| ITEM 17. FINANCIAL STATEMENTS                                                         | 127 |
| ITEM 18. FINANCIAL STATEMENTS                                                         | 127 |
| ITEM 19. EXHIBITS                                                                     | 127 |
| GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS                                         | 131 |

----

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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

ITEM 3. KEY INFORMATION

----

| IFRS                                  |   | Year ended December 31,                                        |   |
|---------------------------------------|--------|----------------------------------------------------------------|--------|
|                                  |   | 2008                                                           |   |   | 2009 |   |   | 2009 |   |
|                                  |   |   New Israeli Shekels in millions (except per share data) |   |   |  US$ inmillions (1) |   |
|                                  |   |                                                           |   |   |   |   |   |   |   |
| Consolidated Statement of Income Data |   |                                                           |   |   |   |   |   |   |   |
|                                  |   |                                                           |   |   |   |   |   |   |   |
| Revenues, net                         |   |                                                           | 6,302  |   |   |   | 6,079 |   |   |   | 1,610 |   |
|                                  |   |                                                           |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues                      |   |                                                           | 3,868  |   |   |   | 3,770 |   |   |   | 998 |   |
|                                  |   |                                                           |   |   |   |   |   |   |   |   |   |   |
| Gross profit                          |   |                                                           | 2,434  |   |   |   | 2,309 |   |   |   | 612 |   |
|                                  |   |                                                           |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing Expenses        |   |                                                           | 388    |   |   |   | 387 |   |   |   | 103 |   |
| General and administrative Expenses   |   |                                                           | 284    |   |   |   | 290 |   |   |   | 77 |   |
| Other income - Net                    |   |                                                           | 64     |   |   |   | 69 |   |   |   | 19 |   |
|                                  |   |                                                           |   |   |   |   |   |   |   |   |   |   |
| Operating profit                      |   |                                                           | 1,826  |   |   |   | 1,701 |   |   |   | 451 |   |
|                                  |   |                                                           |   |   |   |   |   |   |   |   |   |   |
| Finance income                        |   |                                                           | 30     |   |   |   | 28 |   |   |   | 7 |   |
| Finance expenses                      |   |                                                           | 214    |   |   |   | 204 |   |   |   | 54 |   |
| Finance costs, net                    |   |                                                           | 184    |   |   |   | 176 |   |   |   | 47 |   |
|                                  |   |                                                           |   |   |   |   |   |   |   |   |   |   |
| Profit before income tax              |   |                                                           | 1,642  |   |   |   | 1,525 |   |   |   | 404 |   |
|                                  |   |                                                           |   |   |   |   |   |   |   |   |   |   |
| Income tax expenses                   |   |                                                           | 444    |   |   |   | 384 |   |   |   | 102 |   |
|                                  |   |                                                           |   |   |   |   |   |   |   |   |   |   |
| Profit for the year                   |   |                                                           | 1,198  |   |   |   | 1,141 |   |   |   | 302 |   |

----

| IFRS                                                         |   | Year ended December 31,                                                |    |
|--------------------------------------------------------------|--------|------------------------------------------------------------------------|---------|
|                                                         |   | 2008                                                                   |    |   | 2009 |   |   | 2009 |   |
|                                                         |   | New Israeli Shekels in millions (except share and per share data) |    |   | US$ inmillions(except shareand per sharedata) (1) |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |
| Earnings per ordinary share and per ADS                      |   |                                                                   |    |   |   |   |   |   |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |
| Basic:                                                       |   |                                                                   | 7.71    |   |   |   | 7.42 |   |   |   | 1.96 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Diluted                                                      |   |                                                                   | 7.65    |   |   |   | 7.37 |   |   |   | 1.95 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares outstanding (in thousands) |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Basic:                                                       |   |                                                                   | 155,350 |   |   |   | 153,809 |   |   |   | 153,809 |   |
| Diluted:                                                     |   |                                                                   | 156,520 |   |   |   | 154,817 |   |   |   | 154,817 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Other Financial Data                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Capital expenditures  (2)                          |   |                                                                   | 589     |   |   |   | 522 |   |   |   | 138 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| EBITDA(3)                                                    |   |                                                                   | 2,298   |   |   |   | 2,304 |   |   |   | 610 |   |
| Dividend per share (4)                                       |   |                                                                   | 5.45    |   |   |   | 6.86 |   |   |   | 1.82 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Statement of Cash Flow Data                                  |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                    |   |                                                                   | 1,915   |   |   |   | 1,753 |   |   |   | 463 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Net cash used in investing activities                        |   |                                                                   | (514    | ) |   |   | (732 | ) |   |   | (193 | ) |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Net cash used in financing activities                        |   |                                                                   | (1,365  | ) |   |   | (876 | ) |   |   | (232 | ) |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Balance Sheet Data (at year end)                             |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Current assets                                               |   |                                                                   | 1,472   |   |   |   | 1,807 |   |   |   | 479 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Non current assets                                           |   |                                                                   | 3,693   |   |   |   | 3,816 |   |   |   | 1,011 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Trade receivables                                            |   |                                                                   | 417     |   |   |   | 474 |   |   |   | 126 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Property and equipment                                       |   |                                                                   | 1,935   |   |   |   | 2,064 |   |   |   | 546 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| License and other intangible assets                          |   |                                                                   | 1,260   |   |   |   | 1,260 |   |   |   | 334 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Deferred income taxes                                        |   |                                                                   | 81      |   |   |   | 14 |   |   |   | 4 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Derivative financial instruments                             |   |                                                                   | – |   |   |   | 4 |   |   |   | 1 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Total assets                                                 |   |                                                                   | 5,165   |   |   |   | 5,623 |   |   |   | 1,490 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Current liabilities (5)                                      |   |                                                                   | 1,734   |   |   |   | 1,915 |   |   |   | 507 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Long-term liabilities (5)                                    |   |                                                                   | 1,699   |   |   |   | 1,746 |   |   |   | 463 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Total liabilities                                            |   |                                                                   | 3,433   |   |   |   | 3,661 |   |   |   | 970 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                   |   |                                                                   | 1,732   |   |   |   | 1,962 |   |   |   | 520 |   |
|                                                         |   |                                                                   |    |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity             |   |                                                                   | 5,165   |   |   |   | 5,623 |   |   |   | 1,490 |   |

----

| US. GAAP                                                                      |   | Year ended December 31,                                |    |
|-------------------------------------------------------------------------------|--------|--------------------------------------------------------|---------|
|                                                                          |   | 2005                                                   |    |   | 2006 |   |   | 2007 |   |   | 2008 |   |
|                                                                          |   | New Israeli Shekels in millons (except per share data) |    |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |
| Statement of Operations Data                                                  |   |                                                   |    |   |   |   |   |   |   |   |   |   |
| Revenues, net                                                                 |   |                                                   |    |   |   |   |   |   |   |   |   |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |
| Services                                                                      |   |                                                   | 4,620   |   |   |   | 5,027 |   |   |   | 5,329 |   |   |   | 5,546 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equipment                                                                     |   |                                                   | 503     |   |   |   | 580 |   |   |   | 785 |   |   |   | 756 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                          |   |                                                   | 5,123   |   |   |   | 5,607 |   |   |   | 6,114 |   |   |   | 6,302 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues                                                              |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Services                                                                      |   |                                                   | 3,022   |   |   |   | 3,088 |   |   |   | 3,090 |   |   |   | 3,209 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equipment                                                                     |   |                                                   | 744     |   |   |   | 812 |   |   |   | 1,002 |   |   |   | 843 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                          |   |                                                   | 3,766   |   |   |   | 3,900 |   |   |   | 4,092 |   |   |   | 4,052 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                                                  |   |                                                   | 1,357   |   |   |   | 1,706 |   |   |   | 2,022 |   |   |   | 2,250 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing Expenses                                                |   |                                                   | 273     |   |   |   | 309 |   |   |   | 392 |   |   |   | 389 |   |
| General and administrative Expenses                                           |   |                                                   | 181     |   |   |   | 184 |   |   |   | 231 |   |   |   | 256 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating profit                                                              |   |                                                   | 903     |   |   |   | 1,214 |   |   |   | 1,399 |   |   |   | 1,605 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Financial expenses, net                                                       |   |                                                   | 345     |   |   |   | 162 |   |   |   | 121 |   |   |   | 158 |   |
| Loss on impairment of investments in non-marketable securities                |   |                                                   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before tax                                                             |   |                                                   | 557     |   |   |   | 1,052 |   |   |   | 1,278 |   |   |   | 1,447 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax expenses                                                                  |   |                                                   | 203     |   |   |   | 371 |   |   |   | 338 |   |   |   | 396 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before cumulative effect of a change in accounting Principles          |   |                                                   | 355     |   |   |   | 681 |   |   |   | 940 |   |   |   | 1,051 |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative effect, at beginning of year, of a change in accounting Principles |   |                                                   | – |   |   |   | 1 |   |   |   | – |   |   |   | – |   |
|                                                                          |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income for the year                                                       |   |                                                   | 355     |   |   |   | 682 |   |   |   | 940 |   |   |   | 1,051 |   |

----

| U.S.GAAP                                                     |   | Year ended December 31,                                           |    |
|--------------------------------------------------------------|--------|-------------------------------------------------------------------|---------|
|                                                         |   | 2005                                                              |    |   | 2006 |   |   | 2007 |   |   | 2008 |   |
|                                                         |   | New Israeli Shekels in millions (except share and per share data) |    |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |
| Earnings per ordinary share and per ADS                      |   |                                                              |    |   |   |   |   |   |   |   |   |   |
| Basic:                                                       |   |                                                              |    |   |   |   |   |   |   |   |   |   |
| Before cumulative effect                                     |   |                                                              | 2.19    |   |   |   | 4.43 |   |   |   | 6.01 |   |   |   | 6.77 |   |
| Cumulative effect                                            |   |                                                              | – |   |   |   | 0.01 |   |   |   | – |   |   |   | – |   |
|                                                         |   |                                                              | 2.19    |   |   |   | 4.44 |   |   |   | 6.01 |   |   |   | 6.77 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted:                                                     |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Before cumulative effect                                     |   |                                                              | 2.17    |   |   |   | 4.40 |   |   |   | 5.96 |   |   |   | 6.73 |   |
| Cumulative effect                                            |   |                                                              | – |   |   |   | 0.01 |   |   |   | – |   |   |   | – |   |
|                                                         |   |                                                              | 2.17    |   |   |   | 4.41 |   |   |   | 5.96 |   |   |   | 6.73 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares outstanding (in thousands) |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic:                                                       |   |                                                              | 161,711 |   |   |   | 153,634 |   |   |   | 156,415 |   |   |   | 155,350 |   |
| Diluted:                                                     |   |                                                              | 163,617 |   |   |   | 154,678 |   |   |   | 157,787 |   |   |   | 156,520 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Financial Data                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures (2)                                     |   |                                                              | 502     |   |   |   | 507 |   |   |   | 499 |   |   |   | 590 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| EBITDA(3)                                                    |   |                                                              | 1,569   |   |   |   | 1,846 |   |   |   | 2,009 |   |   |   | 2,257 |   |
| Dividend per share (4)                                       |   |                                                              | 1.22    |   |   |   | 2.63 |   |   |   | 4.77 |   |   |   | 5.45 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Statement of Cash Flow Data                                  |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                    |   |                                                              | 1,006   |   |   |   | 1,216 |   |   |   | 1,446 |   |   |   | 1,839 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash used in investing activities                        |   |                                                              | (547    | ) |   |   | (442 | ) |   |   | (529 | ) |   |   | (531 | ) |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by used in financing activities            |   |                                                              | (460    | )  |   |   | (701 | ) |   |   | (846 | ) |   |   | (1,273 | ) |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Data (at year end)                             |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current assets                                               |   |                                                              | 1,171   |   |   |   | 1,274 |   |   |   | 1,520 |   |   |   | 1,542 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investments and long-term receivables                        |   |                                                              | 264     |   |   |   | 356 |   |   |   | 535 |   |   |   | 499 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed assets, net                                            |   |                                                              | 1,769   |   |   |   | 1,748 |   |   |   | 1,728 |   |   |   | 1,756 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| License and deferred charges, net                            |   |                                                              | 1,321   |   |   |   | 1,247 |   |   |   | 1,154 |   |   |   | 1,061 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deferred income taxes                                        |   |                                                              | 87      |   |   |   | 76 |   |   |   | 94 |   |   |   | 110 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                 |   |                                                              | 4,612   |   |   |   | 4,701 |   |   |   | 5,031 |   |   |   | 4,968 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities (5)                                      |   |                                                              | 987     |   |   |   | 1,028 |   |   |   | 1,157 |   |   |   | 1,734 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term liabilities (5)                                    |   |                                                              | 2,810   |   |   |   | 2,418 |   |   |   | 2,219 |   |   |   | 1,794 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities                                            |   |                                                              | 3,797   |   |   |   | 3,446 |   |   |   | 3,376 |   |   |   | 3,529 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                   |   |                                                              | 815     |   |   |   | 1,255 |   |   |   | 1,655 |   |   |   | 1,439 |   |
|                                                         |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity             |   |                                                              | 4,612   |   |   |   | 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, 2009, of NIS 3.775 = 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. Capital expenditure in our previous Annual Reports on Form 20-F was reported net of disposals. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | EBITDA is a non-GAAP financial measure that represents earnings before interest, taxes, depreciation and amortization. EBITDA is presented because it is a measure commonly used in the telecommunications industry and is presented solely to enhance the understanding of our operating results. EBITDA, however, should not be considered as an alternative to operating income or income for the year as an indicator of our operating performance. Similarly, EBITDA should not be considered as an alternative to cash flow from operating activities as a measure of liquidity. EBITDA is not a measure of financial performance under generally accepted accounting principles and may not be comparable to other similarly titled measures for other companies. EBITDA may not be indicative of our historic operating results nor is it meant to be predictive of potential future results. For a reconciliation of EBITDA to Operating Cash flow, see below. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The dividend per share was calculated in respect of the period for which it was announced.  For the year 2009, the Company distributed dividends  and declared a final dividend on March16, 2010 (with respect to the fourth quarter of 2009), which in the aggregate amounted to approximately NIS 1,059 million (US$ 281 million), or NIS 6.86 per share, representing a payout ratio of approximately 93% of our annual net income for the year. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | See Notes 13, 14, and 15 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 |   |   | 2009 |   |
|                                                                        |   | New Israeli Shekels in millions |   |   | US $ inmillions(1) |   |
|                                                                        |   |                            |   |   |   |   |   |   |   |
| Reconciliation Between Operating Cashflow and EBITDA                        |   |                            |   |   |   |   |   |   |   |
| Net cash provided by operating activities                                   |   |                            | 1,915  |   |   |   | 1,753 |   |   |   | 463 |   |
| Liability for employee rights upon retirement                               |   |                            | (5     | ) |   |   | (1 | ) |   |   |   |   |
| Accrued interest, exchange and linkage differences on long-term liabilities |   |                            | (182   | ) |   |   | (167 | ) |   |   | (44 | ) |
| Increase (Decrease) in accounts receivable:                                 |   |                            |   |   |   |   |   |   |   |   |   |   |
| Trade                                                                       |   |                            | (47    | ) |   |   | 229 |   |   |   | 61 |   |
| Other (*)                                                                   |   |                            | (4     | ) |   |   | 16 |   |   |   | 4 |   |
|                                                                        |   |                            |   |   |   |   |   |   |   |   |   |   |
| Decrease (Increase) in accounts payable and accruals:                       |   |                            |   |   |   |   |   |   |   |   |   |   |
| Trade                                                                       |   |                            | (10    | ) |   |   | (43 | ) |   |   | (11 | ) |
| Parent group-trade                                                          |   |                            | (1     | ) |   |   | 17 |   |   |   | 5 |   |
| Other (*)                                                                   |   |                            | 468    |   |   |   | 296 |   |   |   | 78 |   |
| Increase (decrease) in inventories                                          |   |                            | (8     | ) |   |   | 33 |   |   |   | 9 |   |
| Decrease (Increase) in asset retirement obligation                          |   |                            | (1     | ) |   |   | 1 |   |   |   |   |   |
| Financial expenses (**)                                                     |   |                            | 173    |   |   |   | 170 |   |   |   | 45 |   |
|                                                                        |   |                            |   |   |   |   |   |   |   |   |   |   |
| EBITDA                                                                      |   |                            | 2,298  |   |   |   | 2,304 |   |   |   | 610 |   |

----

|  U.S. GAAP                                                             |   | Year ended December 31,         |   |
|-----------------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                                        |   | 2005                            |   |   | 2006 |   |   |  2007 |   |   | 2008 |   |
|                                                                        |   | New Israeli Shekels in millions |   |
|                                                                        |   |                            |   |   |   |   |   |   |   |   |   |   |
| Reconciliation Between Operating Cashflow and EBITDA                        |   |                            |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                                   |   |                            | 1,009  |   |   |   | 1,216 |   |   |   | 1,446 |   |   |   | 1,839 |   |
| Liability for employee rights upon retirement                               |   |                            | (9     | ) |   |   | (11 | ) |   |   | (18 | ) |   |   | (16 | ) |
| Accrued interest, exchange and linkage differences on long-term liabilities |   |                            | (108   | ) |   |   | 5 |   |   |   | (60 | ) |   |   | (94 | ) |
| Amount carried to deferred charges                                          |   |                            | 14     |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Gain (loss) from assets in respect of severance pay funds                   |   |                            | (3     | ) |   |   | 5 |   |   |   | 6 |   |   |   | (16 | ) |
| Increase (Decrease) in accounts receivable:                                 |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade                                                                       |   |                            | 262    |   |   |   | 255 |   |   |   | 329 |   |   |   | (47 | ) |
| Other (*)                                                                   |   |                            | 27     |   |   |   | 311 |   |   |   | 2 |   |   |   | (13 | ) |
|                                                                        |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Decrease (Increase) in accounts payable and accruals:                       |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade                                                                       |   |                            | (113   | ) |   |   | 58 |   |   |   | (101 | ) |   |   | (9 | ) |
| Related parties                                                             |   |                            | (11    | ) |   |   | (5 | ) |   |   | 12 |   |   |   | (1 | ) |
| Other (*)                                                                   |   |                            | 76     |   |   |   | (50 | ) |   |   | 276 |   |   |   | 476 |   |
| Decrease (Increase) in inventories                                          |   |                            | 108    |   |   |   | (87 | ) |   |   | 9 |   |   |   | (8 | ) |
| Decrease (Increase) in asset retirement obligation                          |   |                            | -      |   |   |   | (1 | ) |   |   | (1 | ) |   |   | (1 | ) |
| Financial expenses (**)                                                     |   |                            | 320    |   |   |   | 150 |   |   |   | 109 |   |   |   | 147 |   |
|                                                                        |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| EBITDA                                                                      |   |                            | 1,572  |   |   |   | 1,846 |   |   |   | 2,009 |   |   |   | 2,257 |   |

----

|                                                               |   | At December 31, |   |
|--------------------------------------------------------------------|--------|-----------------|--------|
|                                                               |   | 2007            |   |   | 2008 |   |   | 2009 |   |
|                                                               |   |            |   |   |   |   |   |   |   |
| Industry Data                                                      |   |            |   |   |   |   |   |   |   |
|                                                               |   |            |   |   |   |   |   |   |   |
| Estimated population of Israel (in millions) (1)                   |   |            | 7.2    |   |   |   | 7.4 |   |   |   | 7.5 |   |
| Estimated Israeli cellular telephone subscribers (in millions) (2) |   |            | 9.0    |   |   |   | 9.1 |   |   |   | 9.6 |   |
| Estimated Israeli cellular telephone penetration (3)               |   |            | 124    | % |   |   | 124 | % |   |   | 127 | % |

|                                                                                       |   | Year ended December 31, |   |
|--------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                       |   | 2005                    |   |   | 2006 |   |   | 2007 |   |   | 2008 |   |   | 2009 |   |
|                                                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Partner Data                                                                               |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Subscribers (000’s) (at period end) (4)                                              |   |                    | 2,529  |   |   |   | 2,668 |   |   |   | 2,860 |   |   |   | 2,898 |   |   |   | 3,042 |   |
| Pre-paid subscribers (000’s) (at period end) (4)                                     |   |                    | 754    |   |   |   | 781 |   |   |   | 792 |   |   |   | 745 |   |   |   | 811 |   |
|                                                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Post-paid subscribers (000’s) (at period end) (4)                                    |   |                    | 1,775  |   |   |   | 1,887 |   |   |   | 2,068 |   |   |   | 2,153 |   |   |   | 2,231 |   |
|                                                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Share of total Israeli subscribers (at period end) (5)                                     |   |                    | 32     | % |   |   | 32 | % |   |   | 32 | % |   |   | 32 | % |   |   | 32 | % |
| Average monthly usage per subscriber (“MOU”) (mins.) (6)                       |   |                    | 294    |   |   |   | 311 |   |   |   | 336 |   |   |   | 365 |   |   |   | 364 |   |
| Average monthly revenue per subscriber including in roaming (“ARPU”) (NIS) (7) |   |                    | 159    |   |   |   | 161 |   |   |   | 161 |   |   |   | 161 |   |   |   | 151 |   |
| Churn rate (8)                                                                             |   |                    | 13.6   | % |   |   | 15.6 | % |   |   | 15.0 | % |   |   | 17.8 | % |   |   | 17.7 | % |
|                                                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Estimated coverage of Israeli population (at period end) (9)                               |   |                    | 97     | % |   |   | 97 | % |   |   | 97 | % |   |   | 98 | % |   |   | 98 | % |
|                                                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number of employees (full time equivalent) (at period end) (10)                            |   |                    | 3,403  |   |   |   | 3,714 |   |   |   | 4,130 |   |   |   | 4,671 |   |   |   | 5,670 |   |

| (1) | The population estimates are as published by the Central Bureau of Statistics in Israel as of December 31, 2009. |
|-----|------------------------------------------------------------------------------------------------------------------|

| (2) | We have estimated the total number of Israeli cellular telephone subscribers from information contained in published reports issued by, and public statements made by, Pelephone Communications Ltd. (“Pelephone”) and Cellcom Israel Ltd. (“Cellcom”), or by their shareholders, and from Partner subscriber data at December 31, 2007, 2008 and 2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (7) | We have calculated Partner average monthly revenue per subscriber by (i) dividing, for each month in the relevant year, the Partner revenue during the month, excluding revenue from equipment sales 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 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 subscribers who disconnect from our network, either involuntarily or voluntarily, in a given period expressed as a percentage of the average of the number of our subscribers at the beginning and end of such period. Our churn rate includes subscribers who have not generated revenue for us for a period of the last six consecutive months ending at a reporting date. This includes subscribers who have generated minute revenues only from incoming calls directed to their voice mail. Involuntary churn includes disconnections due to non-payment of bills or suspected fraudulent use, and voluntary churn includes disconnections due to subscribers terminating their use of our services. |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | We measure coverage using computerized models of our network, radio propagation characteristics and topographic information to predict signal levels at two meters above ground level in areas where we operate a network site. According to these coverage results, we estimate the population serviced by our network and divide this by the estimated total population of Israel. Population estimates are published by the Central Bureau of Statistics in Israel. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

|          |   | Year ended December 31, |   |
|---------------|--------|-------------------------|--------|
|          |   | 2005                    |   |   | 2006 |   |   | 2007 |   |   | 2008 |   |   | 2009 |   |
|          |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average(1)    |   |                    | 4.485  |   |   |   | 4.457 |   |   |   | 4.108 |   |   |   | 3.588 |   |   |   | 3.927 |   |
| High          |   |                    | 4.741  |   |   |   | 4.725 |   |   |   | 4.342 |   |   |   | 4.022 |   |   |   | 4.256 |   |
| Low           |   |                    | 4.299  |   |   |   | 4.176 |   |   |   | 3.830 |   |   |   | 3.230 |   |   |   | 3.690 |   |
| End of period |   |                    | 4.603  |   |   |   | 4.225 |   |   |   | 3.846 |   |   |   | 3.802 |   |   |   | 3.775 |   |

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

|   |   | September 2009 |   |   | October 2009 |   |   | November 2009 |   |   | December 2009 |   |   | January2010 |   |   | February 2010 |   | March 2010(throughMarch 15) |   |
|--------|--------|----------------|--------|--------|--------------|--------|--------|---------------|--------|--------|---------------|--------|--------|-------------|--------|--------|---------------|--------|-----------------------------|--------|
|   |   |           |   |   |         |   |   |          |   |   |          |   |   |        |   |   |          |   |                        |   |
| High   |   |           | 3.807  |   |         |   | 3.780  |          |   |   | 3.826         |   |   |        | 3.815  |   |          |   | 3.765                       |   |   |   | 3.796 |   | 3.787 |   |
| Low    |   |           | 3.729  |   |         |   | 3.690  |          |   |   | 3.741         |   |   |        | 3.772  |   |          |   | 3.667                       |   |   |   | 3.704 |   |   3.715 |   |

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

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

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

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

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

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

| • | In December 2004, we commercially launched our 3G network. |
|---------|------------------------------------------------------------|

| • | In March 2005, we completed a debt offering, raising NIS 2.0 billion in a public offering in Israel of notes due 2012. |
|---------|------------------------------------------------------------------------------------------------------------------------|

| • | In April 2005, we repurchased approximately 33.3 million shares from our Israeli founding shareholders, representing approximately 18.1% of our outstanding shares immediately before the repurchase. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| • | In 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 5.7 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). See “Item 4B. Business Overview – Services and Products – Value-Added Services”. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | 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 – 46.23% of our shares and voting rights are indirectly controlled by a single shareholder”. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | the cellular business segment, our core business, which represents approximately 99% 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. (Subscribers to both cellular and fixed line services are counted separately for each service for the purposes of subscriber count). |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| • | the establishment of Private and Business Customers Divisions:  Each Division incorporates all aspects of customer care, including sales of a wide variety of fixed and mobile products, customer services, technical support and retention activities; and |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | the amalgamation of the current Fixed Line Division into the new structure in order to maximize the synergy between the fixed line and the mobile services and also enlist existing sales channels to the new fixed services sale efforts. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | 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 75% 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, 2009 of 127% representing more than 9.52 million subscribers out of an estimated population of approximately 7.5 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 and Media Service Provider. 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. 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. In the foreseeable future, however, we do not anticipate that revenues from these services will be material compared to our total cellular revenues. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | 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 outstanding reputation for network quality, innovation, and customer service to develop our 3G business in order to benefit from that growth. We consistently launch new 3G based products to attract new customers and to increase consumption of data services. We also aim to offer desirable content and to make our 3G services widely accessible and affordable. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | 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, including in connection with our 3G services. We also intend to support our branded image by continuing to focus on customer service, innovation and the quality of our network. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

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

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

| • | 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 1,401 million and NIS 1,021 million for the years ended December 31, 2008 and 2009, 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. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | • | The number of VoIP lines in Israel was estimated at the end of 2009 to be 750 thousand lines. This estimate is based on two major VoIP operators, who published reports for September 2008 and December 2008, respectively.  The number of Public Switched Telephone Network (“PSTN”) lines (excluding VoB) in Israel is estimated by IDC to be 2.6 million lines at the end of 2008. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | ISOI 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. |
|--------|---------|-------------------------------------------------------------------------------------------------------------|

----

----

| • | 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. Under the “orange time” brand, our on-line media shop offers premium on-demand video (mainly full-track feature films and television series’ episodes), music tracks and PC (portable computer) and mobile games, under a variety of payment plans. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | • | 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. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

|   | • | A “door to door”sales-force focuses on individual and small business customers. |
|--------|---------|---------------------------------------------------------------------------------------------|

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

----

----

----

| • | 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. |
|---------|------------------------------------------|

----

----

| Market Share*                                                                                                                                                                                                                                                                                                   |   | 2005   |   |   | 2006   |   |   | 2007   |   |   | 2008   |   |   | 2009   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Partner                                                    |   |   | 32     | %      |   |   | 32     | %      |   |   | 31.7   | %      |   |   | 32     | % |   |   | 32 | % |
| Cellcom                                                    |   |   | 33     | %      |   |   | 34     | %      |   |   | 34.1   | %      |   |   | 35     | % |   |   | 35 | % |
|                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pelephone                                                  |   |   | 30     | %      |   |   | 29     | %      |   |   | 29.0   | %      |   |   | 29     | % |   |   | 29 | % |
| MIRS                                                       |   |   | 5      | %      |   |   | 5      | %      |   |   | 5.2    | %      |   |   | 4      | % |   |   | 4 | % |

----

----

----

----

----

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

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

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

----

| • | The Ministry of Communications is evaluating the cost of roaming and may introduce new regulations that would limit fees charged by Israeli cellular companies for calls made by the customers of foreign network operators while they are in Israel and using our network, as well for calls made by our own customers using their handsets abroad. Recently, the 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, by October 15, 2009.  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". |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | The Ministry of Communications is conducting a hearing afterwhich the Bezeq group may receive permission to market bundled services of all the group's companies. This will allow Bezeq to offer customers a full range of bundled telecommunication services in one transaction, including landline services, cellular services, international call services, broadband access, broadband internet services and multi channel television services,  an offer that the Company cannot compete with including the ability to offer its subscribers competitive multi channel television like the services offered by YES satellite services. Such an offer may be attractive to existing subscribers and to potential subscribers of the Company in a manner that would decrease the recruitment of new subscribers for new products of the Company or increase the churn of existing subscribers. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | In September 2009, the Ministry of Communications began conducting a new hearing to examine the interconnect tariffs for completing a call or transferring SMSs to a cellular network. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | The Ministry of Communications has began conducting a new hearing to address various consumer issues in order to increase transparency and the consumers' ability to choose telecommunication services. We are currently in the process of examining the matter and cannot yet assess the impact this will have on the various areas of our business if our license is amended as a result of the hearing. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

| • | 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. |
|---------|---------------------------------------------------------------------------------------------------------|

| • | 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. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | 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. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

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

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

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

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

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

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

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

----

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

| • | “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

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

----

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

|   | · | Cost of revenues – equipment |
|--------|--------|------------------------------------|

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

|   | · | Wages and employee benefits expenses (including car maintenance) |
|--------|--------|------------------------------------------------------------------|

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

|   | · | costs of replacing or repairing damaged handsets |
|--------|--------|--------------------------------------------------|

|   | · | Network maintenance |
|--------|--------|---------------------|

----

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

|   | · | Royalties paid to the Israeli Government under our license |
|--------|--------|------------------------------------------------------------|

|   | · | Wages and employee benefits expenses (including car maintenance) |
|--------|--------|------------------------------------------------------------------|

|   | · | Advertising and marketing |
|--------|--------|---------------------------|

|   | · | Selling commissions |
|--------|--------|---------------------|

|   | · | Depreciation |
|--------|--------|--------------|

|   | · | Wages and employee benefits expenses (including car maintenance) |
|--------|--------|------------------------------------------------------------------|

|   | · | Allowance for doubtful accounts |
|--------|--------|---------------------------------|

|   | · | Professional fees |
|--------|--------|-------------------|

|   | · | Credit card commissions |
|--------|--------|-------------------------|

|   | · | Depreciation |
|--------|--------|--------------|

|   | · | Interest income on trade receivables |
|--------|--------|--------------------------------------|

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

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

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

|   | · | Fair value gain from derivative financial instruments, net |
|--------|--------|------------------------------------------------------------|

|   | · | Net foreign exchange rate costs |
|--------|--------|---------------------------------|

|   | · | Interest expenses in respect of liability for employees rights upon retirement, net |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | Factoring costs, net |
|--------|--------|----------------------|

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

----

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

|   | • | average monthly revenue per subscriber; |
|--------|---------|-----------------------------------------|

|   | • | average monthly minutes of usage per subscriber; and |
|--------|---------|------------------------------------------------------|

|   | • | churn rate. |
|--------|---------|-------------|

----

----

|                              |   | 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, 2009 |   |
|                                                                       |   | In millions                       |   |
|                                                                       |   | Cellular segment                  |   |   | Fixed line segment |   |   | Reconciliation for consolidation |   |   | 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                                       |   |                              | 26     |   |   |   |   |   |   |   |   |   |   |   | 26 |   |
| EBITDA                                                                     |   |                              | 2,387  |   |   |   | (83 | ) |   |   |   |   |   |   | 2,304 |   |
| Reconciliation of EBITDA to profit before tax  :                 |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      - Depreciation and amortization              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (577 | ) |
|     -  Finance costs, net                    |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (176 | ) |
|     -  Other                                 |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (26 | ) |
| Profit before tax                                                          |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | 1,525 |   |
| Allowance for decline in value of  inventories                   |   |                              | 7      |   |   |   | 2 |   |   |   |   |   |   |   | 9 |   |

----

|                                                                       |   | 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 |   |   |   |   |   |   |   | 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 |   |

----

| In milllions            |   | NIS    |   |   | Conveniencetranslationinto US dollars |   |
|-------------------------|--------|--------|--------|--------|---------------------------------------|--------|
|                    |   |   |   |   |                                  |   |
| Year ended December 31: |   |   |   |   |                                  |   |
|                    |   |   |   |   |                                  |   |
| 2010                    |   |   | 750    |   |                                  |   | 199 |   |
| 2011                    |   |   | 750    |   |                                  |   | 199 |   |
| 2012                    |   |   | 187    |   |                                  |   | 49 |   |
| Total                   |   |   | 1,687  |   |                                  |   | 447 |   |

----

| In millions             |   | NIS    |   |   | Conveniencetranslationinto US dollars |   |
|-------------------------|--------|--------|--------|--------|---------------------------------------|--------|
|                    |   |   |   |   |                                  |   |
| Year ended December 31: |   |   |   |   |                                  |   |
| 2013                    |   |   | 112.25 |   |                                  |   | 29.75 |   |
| 2014                    |   |   | 112.25 |   |                                  |   | 29.75 |   |
| 2015                    |   |   | 112.25 |   |                                  |   | 29.75 |   |
| 2016                    |   |   | 112.25 |   |                                  |   | 29.75 |   |
| Total                   |   |   | 449    |   |                                  |   | 119 |   |

|   | - | 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 5 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.  As of December 31, 2009 no funds had been drawn from this facility. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | 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 was 1.15% per year. The Company is charged a commitment fee of 0.4% per year for undrawn amounts. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | - | 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, was 2.5% per year. The Israeli Prime interest rate is determined by the Bank of Israel and updated on a monthly basis. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | cash on hand; |
|--------|---------|---------------|

|   | • | operating cash flows; and |
|--------|---------|---------------------------|

|   | • | our  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                                                                        |   |                                     | 1,687  | * |   |   | 750 |   |   |   | 937 |   |   |   | - |   |   |   | – |   |
| Notes Series B                                                                        |   |                                     | 449    | * |   |   | - |   |   |   | - |   |   |   | 225 |   |   |   | 224 |   |
| Long term bank borrowing                                                              |   |                                     | 300    | * |   |   | - |   |   |   | - |   |   |   | 300 |   |   |   | – |   |
| Capital Lease Obligations                                                             |   |                                     | 4      |   |   |   | 2 |   |   |   | 2 |   |   |   | – |   |   |   | – |   |
| Operating Leases                                                                      |   |                                     | 1,328  |   |   |   | 220 |   |   |   | 361 |   |   |   | 285 |   |   |   | 462 |   |
|                                                                                  |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Contribution to funds in respect of Employee rights in respect of severance pay funds |   |                                     | 30     |   |   |   | 30 |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Handsets                                                                              |   |                                     | 848    |   |   |   | 454 |   |   |   | 394 |   |   |   | – |   |   |   | – |   |
| Fixed Assets                                                                          |   |                                     | 86     |   |   |   | 86 |   |   |   | - |   |   |   | – |   |   |   | – |   |
|                                                                                  |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Contractual Cash Obligations                                                    |   |                                     | 4,732  |   |   |   | 1,542 |   |   |   | 1,694 |   |   |   | 810 |   |   |   | 686 |   |

----

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

| Name of Director-Post Sale         |   | Age    |   | Position |
|------------------------------------|--------|--------|--------|----------|
|                               |   |   |   |     |
| Ilan Ben Dov (1)(3)                |   |   | 52     |     | Chairman of the Board of Directors |
| Dr. Michael J. Anghel (1)(2)(4)(5) |   |   | 71     |     | Director |
| Barry Ben -Zeev(2)(3)(4)(5)        |   |   | 57     |     | Director |
| Yaron Bloch(1)(6)                  |   |   | 45     |     | Director |
| Yacov Gelbard(1)                   |   |   | 62     |     | Director |
| Erez Gissin (2)(5)                 |   |   | 51     |     | Director |
| Dr. Shlomo Nass(1)(2)(5)           |   |   | 49     |     | Director |
| Osnat Ronen                        |   |   | 47     |     | Director |
| Yahel Shachar(1)(3)                |   |   | 47     |     | Director |

----

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

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

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

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

| (5) | Independent Director under NASDAQ rules |
|-----|-----------------------------------------|

| (6) | Appointed on behalf of Leumi Partners Ltd.  See “Item 7A. Major Shareholders - Agreement between Scailex and Bank Leumi Ltd”. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| Name of Director             |   | Age    |   | Position |
|------------------------------|--------|--------|--------|----------|
|                         |   |   |   |     |
| Fok Kin-ning, Canning        |   |   | 58     |     | Chairman of the Board of Directors |
| Dr. Michael J. Anghel (2)(4) |   |   | 71     |     | Director |
| Chan Ting Yu (1)(3)          |   |   | 59     |     | Director |
| Chow Woo Mo Fong, Susan      |   |   | 56     |     | Director |
| Uzia Galil                   |   |   | 84     |     | Director |
| Erez Gissin (1)(2)           |   |   | 51     |     | Director |
| Dennis Pok Man, Lui (1)(3)   |   |   | 59     |     | Director |
| Pesach Shachar (1)           |   |   | 76     |     | Director |
| Amikam Shorer (5)            |   |   | 42     |     | Director |
| Frank John Sixt              |   |   | 58     |     | Director |
| Moshe Vidman (1)(2)(3)(4)    |   |   | 66     |     | Director |

----

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

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

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

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

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

----

----

| Name of Officer |   | Age    |   | Position |
|-----------------|--------|--------|--------|----------|
|            |   |   |   |     |
| David Avner*    |   |   | 58     |     | Chief Executive Officer |
| Emanuel Avner   |   |   | 49     |     | Chief Financial Officer |
| Eli Glickman    |   |   | 48     |     | Deputy Chief Executive Officer |
| Chaim Beker     |   |   | 65     |     | Vice President, Operations |
| Avi Berger      |   |   | 47     |     | Vice President, Technologies |
| Alon Berman     |   |   | 49     |     | Vice President, Internet and Broadband |
| Michal Dana     |   |   | 54     |     | Vice President, Human Resources and Operations |
| Oded Degany     |   |   | 45     |     | Vice President, Corporate Development, Regulation & Investor Relations |
| Ronit Rabin**   |   |   | 45     |     | Vice President, Information Technology |
| Yacov Kedmi     |   |   | 58     |     | Head of  Marketing, Growth & Growth Engines Division |
| Roly Klinger    |   |   | 49     |     | Vice President, Legal, Chief Legal Counsel and Joint Company Secretary |
| Erez Paz        |   |   | 47     |     | Vice President, Private Customers Division, |
| Gil Rosenfeld   |   |   | 44     |     | Vice President, Business Customers Division |

----

----

----

|   | - | based on information provided to us by Advent, a wholly-owned subsidiary of Hutchison Telecom, Advent granted a one-time cash payment to selected employees of Partner, 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 18,432,550, and |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | - | 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.  The amounts of the first and second potential retention payments are the same, and the maximum aggregate amount of all retention payments together is $6.5 million. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | – | 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, which requires that at least two members of the Board of Directors satisfy the conditions of  “external directors”, four of our nine Directors are external directors.  Such external directors also satisfy the NASDAQ criteria for “independent directors”.  However, the requirement of NASDAQ Rule 5605(b), that a majority of the Board of Directors be comprised of independent directors, is not satisfied. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | – | In compliance with Israeli Companies Law and our Articles of Association, the compensation committee is responsible, among other things, for evaluating and recommending to the Board of Directors (and to the audit committee, if so required under any applicable law) the total compensation package for the Company’s Chief Executive Officer and all other officers.  Our compensation committee consists of three Board of Directors members, one of whom is an external, independent director, 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. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

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

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | December 31 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 2007        |   |   | 2008 |   |   | 2009 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |   |   |   |   |   |   |
| Customer service                                                                                 | 2,635       |   |   | 2,902 |   |   | 3,750 |
| Engineering                                                                                      | 312         |   |   | 306 |   |   | 322 |
| Sales and sales support                                                                          | 479         |   |   | 569 |   |   | 517 |
| Information technology                                                                           | 136         |   |   | 165 |   |   | 249 |
| Marketing and Content                                                                            | 109         |   |   | 127 |   |   | 135 |
| Finance                                                                                          | 81          |   |   | 114 |   |   | 119 |
| Human resources                                                                                  | 97          |   |   | 124 |   |   | 125 |
| Remaining operations                                                                             | 282         |   |   | 364 |   |   | 456 |
| TOTAL                                                                                            | 4,130       |   |   | 4,671 |   |   | 5,670 |

----

| Option exercise price(NIS) |   | Number of optionsheld |   | Option expiration Date |
|----------------------------|--------|-----------------------|--------|------------------------|
|                       |   |                  |   |                   |
| 33.58                      |   | 31,250                |   | May 2016               |
| 32.73                      |   | 56,250                |   | July 2016              |
| 34.63                      |   | 21,250                |   | September 2016         |
| 42.1                       |   | 250,000               |   | January 2017           |
| 57.96                      |   | 152,500               |   | June 2017              |
| 64.90                      |   | 65,000                |   | December 2017          |
| 66.05                      |   | 42,770                |   | February 2018          |
| 57.97                      |   | 2,110,000             |   | March 2019             |

----

----

----

----

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) |   |                     | 71,411,806  |   |              |   | 44.93  |                             |   |   | 46.23 |   |
|                                                            |   |                     |        |   |              |   |   |                             |   |   |   |   |
| Treasury shares (3)                                             |   |                     | 4,467,990   |   |              |   | 2.81   |                             |   |   | – |   |
|                                                            |   |                     |        |   |              |   |   |                             |   |   |   |   |
| Public (4)                                                      |   |                     | 83,072,005  |   |              |   | 52.26  |                             |   |   | 53.77 |   |
|                                                            |   |                     |        |   |              |   |   |                             |   |   |   |   |
| Total                                                           |   |                     | 158,951,801 |   |              |   | 100.00 |                             |   |   | 100.00 |   |

----

| (1) | As shown above and used throughout this annual report, the term “Issued and Outstanding Shares” does not include any treasury shares held by the Company. Treasury shares, which are included in “Issued Shares”, have no 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, 2010, 44.82% 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 1.41% 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 46.23% of our Issued and Outstanding shares and total voting rights as of January 31, 2010.  See “Item 3D. Risk Factors – 46.23% 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 5,884,586 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, which are included in the table together with the Scailex holdings, constitute 5.07% of our issued shares (approximately 5.22% of the 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. The shares under "Public" also include 7,677,037 shares held by Leumi Partners Ltd. which constitutes 4.83% of the Issued Shares (approximately 4.97% the Issued and Outstanding Shares). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

ITEM 8. FINANCIAL INFORMATION

----

----

ITEM 9. THE OFFER AND LISTING

|                                                                                                                                                                                                             |   | NASDAQ      |   |   | Tel Aviv Stock Exchange  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|--------|--------------------------|--------|
|                                                                                                                                                                                                             |   | ($ per ADS) |   |   | (NIS per ordinary share) |   |
|                                                                                                                                                                                                             |   | High        |   |   | Low                      |   |   | High |   |   | Low |   |
|                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |
| 2005                                   |   |        | 9.60   |   |                     |   | 7.13 |   |   |   | 41.82 |   |   |   | 32.70 |   |
|                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| 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 |   |

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| 2009                                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| First Quarter                                    |   |   | 16.69  |   |   |   | 13.46  |   |   |   | 66.01  |   |   |   | 57.30 |   |
| Second Quarter                                   |   |   | 18.00  |   |   |   | 14.80  |   |   |   | 71.52  |   |   |   | 62.01 |   |
| Third Quarter                                    |   |   | 19.83  |   |   |   | 16.90  |   |   |   | 74.00  |   |   |   | 67.00 |   |
| Fourth Quarter                                   |   |   | 20.59  |   |   |   | 17.91  |   |   |   | 72.20  |   |   |   | 69.16 |   |

| September  2009           |   |   | 19.83 |   |   |   | 18.80 |   |   |   | 74.00       |   |   |   | 70.12 |   |
|-------------------------------------|--------|--------|-------|--------|--------|--------|-------|--------|--------|--------|-------------|--------|--------|--------|-------|--------|
| October  2009             |   |   | 20.18 |   |   |   | 18.51 |   |   |   | 74.40       |   |   |   | 70.90 |   |
| November  2009            |   |   | 19.20 |   |   |   | 18.23 |   |   |   | 72.35       |   |   |   | 69.16 |   |
| December  2009            |   |   | 20.59 |   |   |   | 18.77 |   |   |   | 77.20       |   |   |   | 71.80 |   |
| January 2010                        |   |   | 21.86 |   |   |   | 19.95 |   |   |   | 79.10       |   |   |   | 74.00 |   |
| February 2010                       |   |   | 23.79 |   |   |   | 20.61 |   |   |   | 87.50       |   |   |   | 76.70 |   |
| March 2010 (through March 15)  |   |   | 24.25 |   |   |   | 21.54 |   |   |   |  94.29 |   |   |   | 81.02 |   |

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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 2009, the Real Gain accrued at the sale of an asset that is purchased on or after January 1, 2003 is taxed at a 25% rate for corporations, and 20% rate for individuals. Additionally, if such shareholder is considered a “Significant Shareholder” at any time during the 12-month period preceding such sale (i.e. if such shareholder holds directly or indirectly, including along with others, at least 10% of any means of control in the company), the tax rate will be 25%. However, the foregoing tax rates will not apply to (i) dealers in securities; and (ii) shareholders who have acquired their shares prior to an initial public offering (that may be subject to a different tax arrangement). Inflationary surplus that accrued after December 31, 1993, is exempt from tax. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | Taxation of Israeli Residents. In July 2001 our ordinary shares were listed for trading on the Tel Aviv Stock Exchange. As a result of our dual listing and due to the 2003 Tax Reform (inclusion of new provisions concerning the taxation of capital markets) and that since our ordinary shares are no longer considered “foreign traded securities”, (as defined in the Israeli Income Tax Ordinance prior to cancellation of the definition in the 2006 Tax Reform), the tax treatment of our shareholders under Israeli law has changed. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| • | 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: |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | 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 have a duty to withhold tax upon the sale of traded securities. The applicable withholding tax rate is generally 20% from the real gain derived from such sale by Israeli resident individuals and 25% from the real gain derived by Israeli resident corporations. Non-Israeli residents are generally not subject to a withholding tax on the capital gain derived from the sale of traded securities provided all the following conditions are met: |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1 - | the income derived from such sale is not classified as business income; |
|--------|-----|-------------------------------------------------------------------------|

|   | 2 - | the income is not attributed to a permanent establishment maintained by the seller in Israel; and |
|--------|-----|---------------------------------------------------------------------------------------------------|

|   | 3 - | the securities sold were purchased upon or after the initial public offering (this condition was cancelled in respect of securities purchased on or after January 2009) |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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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

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|                                                   |   |                                                        |   |   |                                                        |   |
|--------------------------------------------------------|--------|-------------------------------------------------------------|--------|--------|-------------------------------------------------------------|--------|
|                                                   |   | Fair Value (NIS equivalent in millions, except percentages) |   |   | Book Value (NIS equivalent in millions, except percentages) |   |
|                                                   |   |                                                        |   |   |                                                        |   |
| NIS-denominated debt linked to the CPI                 |   |                                                        |   |   |                                                        |   |
|                                                   |   |                                                        |   |   |                                                        |   |
| Long-term fixed Notes payable series A due 2012(2)     |   |                                                        | 1,765  |   |                                                        |   | 1,681 |   |
| Weighted average interest rate payable                 |   |                                                        | 4.25   | %      |                                                        |   | 4.25 | % |
| Long-term fixed Notes payable series B due 2016(2)     |   |                                                        | 434    |   |                                                        |   | 448 |   |
| Weighted average interest rate payable(3)              |   |                                                        | 3.4    | %      |                                                        |   | 3.4 | % |
|                                                   |   |                                                        |   |   |                                                        |   |   |   |
| NIS-denominated debt not linked to the CPI             |   |                                                        |   |   |                                                        |   |   |   |
|                                                   |   |                                                        |   |   |                                                        |   |   |   |
| Capital lease                                          |   |                                                        |   |   |                                                        |   | 4 |   |
| Weighted average interest rate payable                 |   |                                                        |   |   |                                                        |   | 4.6 | % |
|                                                   |   |                                                        |   |   |                                                        |   |   |   |
| Debt denominated in foreign currencies(mainly USD) (1) |   |                                                        |   |   |                                                        |   |   |   |
|                                                   |   |                                                        |   |   |                                                        |   |   |   |
| Payables-trade                                         |   |                                                        |   |   |                                                        |   | 224 |   |
| Weighted average interest rate payable                 |   |                                                        |   |   |                                                        |   | - |   |
|                                                   |   |                                                        |   |   |                                                        |   |   |   |
| Total                                                  |   |                                                        |   |   |                                                        |   | 2,364 |   |

|  (1) | Book value approximates fair value at December 31, 2009. |   |
|-----------|----------------------------------------------------------|--------|

| (2) | Amounts due for payment of principal and interest (4.25%) on the Notes due 2012 are adjusted according to the CPI. See “Item 5B. Liquidity and Capital Resources – Notes due 2012”. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | The interest rate on the Notes has been increased by 0.6% to 4% per annum until a prospectus or a shelf offering report is published for the listing of the Notes for trade on the TASE. The Company has also undertaken to make best efforts to list the Notes for trade on the TASE until June 30, 2010. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                         |   | As ofDecember 31,2008              |   |   | As of December 31, 2009 |   |   | Fair ValueatDecember 31,2009 |   |
|--------------------------------------------------------------|--------|------------------------------------|--------|--------|-------------------------|--------|--------|------------------------------|--------|
|                                                         |   |  (NIS equivalent in millions) |
|                                                         |   |                               |   |   |                    |   |   |                         |   |
| Forward transactions - for the exchange of: Dollars into NIS |   |                               | 380    |   |                    |   | 113    |                         |   |   | (2 | ) |
| Forward transactions-for the exchange of Euros into NIS      |   |                               | 32     |   |                    |   |   |                         |   |   |   |   |
| Embedded derivatives - Dollars into NIS                      |   |                               | 310    |   |                    |   | 163    |                         |   |   | 2 |   |
| Forward transactions - for changes in the Israeli CPI        |   |                               | 800    |   |                    |   | 430    |                         |   |   | 14 |   |

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

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

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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

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

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

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

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

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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

ITEM 16B. CODE OF ETHICS

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

|                   |   | 2008(NIS thousands) |   |   | 2009(NIS thousands) |   |
|------------------------|--------|---------------------|--------|--------|---------------------|--------|
|                   |   |                |   |   |                |   |
| Audit Fees (1)         |   |                | 3,077  |   |                |   | 2,904 |   |
| Audit-related Fees (2) |   |                | 230    |   |                |   | 766 |   |
| Tax Fees (3)           |   |                | 279    |   |                |   | 330 |   |
| TOTAL                  |   |                | 3,586  |   |                |   | 4,000 |   |

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

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

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

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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

|                                                                                   | Page                |
|----------------------------------------------------------------------------------------|---------------------|
|                                                                                   |                |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                | F - 2 - F - 3       |
|  CONSOLIDATED FINANCIAL STATEMENTS:                                               |                |
| Statements of Financial Position as of December 31, 2008 and 2009                      | F - 4 - F - 5       |
| Statements of Income for the years ended December 31, 2008 and 2009               | F - 6               |
| Statements of Comprehensive Income for the years ended December 31, 2008 and 2009 | F - 7               |
| Statements of Changes in Equity for the years ended December 31, 2008 and 2009    | F - 8               |
| Statements of Cash Flows for the years ended December 31, 2008 and 2009           | F - 9 - F - 10 |
| Notes to financial statements                                                          | F - 11 - F -94      |

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.      |

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| 2.(b).22.(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                                                                                                                                                                                                                                                                                                                                                                                                        |
| **4.(a).4                                            | License Agreement for use of the Orange Brand in Israel dated September 14, 1998                                                                                                                                                                                                                                                                                                                                                                                                |
| **4.(a).5                                            | Brand Support/Technology Transfer Agreement dated July 18, 1999                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **4.(a).6                                            | Agreement with Ericsson Radio Systems AB dated May 28, 1998                                                                                                                                                                                                                                                                                                                                                                                                                     |
| #++4.(a).7                                           | Agreement with LM Ericsson Israel Ltd. dated November 25, 2002                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ^#4.(a).8                                            | Dealer Agreement with Super-Pharm dated February 12, 2004                                                                                                                                                                                                                                                                                                                                                                                                                       |
| >>#4.(a).8.1                                   | Amendment to the Dealer Agreement with Super-Pharm, dated July 8, 2007                                                                                                                                                                                                                                                                                                                                                                                                          |
| **4.(a).9                                            | Lease Agreement with Mivnei Taasia dated July 2, 1998                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ^^^4.(a).13                                          | Asset Purchase Agreement with Med-1 dated as of January 22, 2006                                                                                                                                                                                                                                                                                                                                                                                                                |
| #***4.(a).14                                         | Amendments Nos. 1 to 6 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                               |
| +4.(a).15                                            | Amendments Nos. 7 to 11 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                              |
| ++4.(a).16                                           | Amendments Nos. 12 to 17 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                             |
| +++4.(a).17                                          | Amendments Nos. 18 to 23 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                             |
| ^4.(a).18                                            | Amendments Nos. 24 to 31 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                             |
| ^^^4.(a).19                                          | Amendments Nos. 32 to 34 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                             |
| >4.(a).20                                         | Amendments Nos. 35 to 44 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                             |
| >>4.(a).21                                     | Amendment No. 44 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                                     |
| >>4.(a).22                                     | Amendment No. 45 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                                     |
| >>>4.(a).23                                 | Amendment No. 46 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                                     |
| >>>4.(a).24                                 | Amendment No. 47 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                                     |
| >>>4.(a).25                                 | Amendment No. 48 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                                                                                     |
| >>>4.(a).264.(a).274.(a).284.(a).294.(a).30 | Amendment No. 49 to our License from the Israeli Ministry of CommunicationsAmendment No. 50 to our License from the Israeli Ministry of Communications issued May 7, 2009Amendment No. 51 to our License from the Israeli Ministry of Communications issued July 28, 2009Amendment No. 52 to our License from the Israeli Ministry of Communications issued October 28, 2009Amendment No. 53 to our License from the Israeli Ministry of Communications issued January 31, 2010 |
| >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.                                                                                                                                                                                                                                                                                                              |
| >4.(a).60.1                                       | Amendment No. 1 to Fixed-Line License from the Israeli Ministry of Communications issued January 14, 2007                                                                                                                                                                                                                                                                                                                                                                       |
| >4.(a).60.2                                       | Amendment No. 2 to Fixed-Line License from the Israeli Ministry of Communications issued January 31, 2007                                                                                                                                                                                                                                                                                                                                                                       |
| >4.(a).60.3                                       | Amendment No. 3 to Fixed-Line License from the Israeli Ministry of Communications issued February 19, 2007                                                                                                                                                                                                                                                                                                                                                                      |
| >>4.(a).60.4                                   | Amendment No. 4 to Fixed-Line License from the Israeli Ministry of Communications issued July 11, 2007                                                                                                                                                                                                                                                                                                                                                                          |
| >>4.(a).60.5                                   | Amendment No. 5 to Fixed-Line License from the Israeli Ministry of Communications issued October 10, 2007                                                                                                                                                                                                                                                                                                                                                                       |
| >>>4.(a).60.6                               | Amendment No. 6 to Fixed-Line License from the Israeli Ministry of Communications issued August 11, 2008                                                                                                                                                                                                                                                                                                                                                                        |
| >>>4.(a).60.74.(a).60.8                     | Amendment No. 7 to Fixed-Line License from the Israeli Ministry of Communications issued December 25, 2008Amendment No. 8 to Fixed-Line License from the Israeli Ministry of Communications issued May 7, 2009                                                                                                                                                                                                                                                                  |

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|  4.(a).60.9                     | Amendment No. 9 to Fixed-Line License from the Israeli Ministry of Communications issued May 27, 2009                                                                           |
|--------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ^4.(a).64                            | Facility Agreement dated April 14, 2005                                                                                                                                         |
| #+++4.(a).65                         | Purchase Agreement with Nortel Networks Israel (Sales and Marketing) Ltd. dated November 12, 2003.                                                                              |
| ^4.(a).66                            | Share Buy Back Agreement dated February 7, 2005                                                                                                                                 |
| #>>4.(a).67                    | Swap Agreement with LM Ericsson Israel Ltd. dated December 20, 2007                                                                                                             |
| #4.(a).68#4.(a).69#4.(a).70#4.(a).71 | Facility Agreement dated October 1, 2009Facility Agreement dated November 24, 2009Facility Agreement dated December 2, 2009Loan Agreement dated December 27, 2009               |
| #4.(b).14.(b).2                      | Addendum to Lease Agreements from November 1, 2002 and Lease Agreements in Beit OfekRegistration Rights Agreement                                                               |
| 6.                                   | See Note 2w 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                                           |

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| **                   | 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.  |
| #                    | Confidential treatment requested.                                                                                                                                                                                      |

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GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS

| 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 (“VoBoC”) | A service enabling cellular subscribers to make voice calls using voice over IP technology. The subscriber must have a WiFi or a cellular broadband connection in order to use this service.  |
|---------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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/ David Avner                 |   |
|   | David Avner                         |   |
|   | Chief Executive Officer             |   |
|   | March 22, 2010                      |   |
|   |                           |   |
|   | By: /s/ Emanuel Avner               |   |
|   | Emanuel Avner                       |   |
|   | Chief Financial Officer             |   |
|   | March 22, 2010                      |   |

----

----

|                                                                                   | Page           |
|----------------------------------------------------------------------------------------|----------------|
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                | F-2 - F-3 |
| CONSOLIDATED FINANCIAL STATEMENTS:                                                     |           |
| Statements of Financial Position as of January 1, 2008, December 31, 2008 and 2009     | F-4 - F-5      |
| Statements of Income for the years ended December 31, 2008 and 2009               | F-6            |
| Statements of Comprehensive Income for the years ended December 31, 2008 and 2009 | F-7            |
| Statements of Changes in Equity for the years ended December 31, 2008 and 2009    | F-8            |
| Statements of Cash Flows for the years ended December 31, 2008 and 2009           | F-9 - F-10     |
| Notes to financial statements                                                          | F-11 - F-94    |

----

Report of Independent Registered Public Accounting Firm

----

| Tel-Aviv, Israel                       |   |   |   | Kesselman & Kesselman                               |
|----------------------------------------|--------|--------|--------|---------------------------------------------------------|
|     March 16, 2010 |   |   |   | Certified Public Accountants (Isr.)                     |
|                                   |   |   |   | A member of PricewaterhouseCoopersInternational Limited |

----

PARTNER COMMUNICATIONS COMPANY LTD.

|                                      |   |   |    |   |    New Israeli shekels |   |        | Convenience translation into U.S. dollars(note 2a) |   |
|-------------------------------------------|--------|--------|---------|--------|---------------------------------------|--------|-------------|----------------------------------------------------|--------|
|                                      |   |   |    |   | January 1,                            |   |        | December 31,                                       |   |
|                                      |   |   |    |   | 2008                                  |   |        | 2008                                               |   |   | 2009 |   |   | 2009 |   |
|                                      |   | Note   |    |   | In millions                           |   |
| CURRENT ASSETS                            |   |   |    |   |                                  |   |        |                                               |   |   |   |   |   |   |   |
| Cash and cash equivalents                 |   |   |    |   |                                  | 148    |        |                                               |   | 184 |   |   |   | 329 |   |   |   | 87 |   |
| Trade receivables                         |   |   | 7       |   |                                  |   |  1,121 |                                               |   |   | 1,103 |   |   |   | 1,275 |   |   |   | 338 |   |
| Other receivables                         |   |   |    |   |                                  |   | 50          |                                               |   |   | 33 |   |   |   | 31 |   |   |   | 8 |   |
| Inventories                               |   |   | 8       |   |                                  |   |  133   |                                               |   |   | 125 |   |   |   | 158 |   |   |   | 42 |   |
| Derivative financial instruments          |   |   | 6       |   |                                  |   |  27    |                                               |   |   | 27 |   |   |   | 14 |   |   |   | 4 |   |
|                                      |   |   |    |   |                                  |   |  1,479 |                                               |   |   | 1,472 |   |   |   | 1,807 |   |   |   | 479 |   |
|                                      |   |   |    |   |                                  |   |        |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| NON CURRENT ASSETS                        |   |   |    |   |                                  |   |        |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade Receivables                         |   |   | 7       |   |                                  |   | 446         |                                               |   |   | 417 |   |   |   | 474 |   |   |   | 126 |   |
| Property and equipment, net               |   |   | 9       |   |                                  |   | 1,690       |                                               |   |   | 1,935 |   |   |   | 2,064 |   |   |   | 546 |   |
| Licenses and other intangible assets, net |   |   | 10      |   |                                  |   | 1,381       |                                               |   |   | 1,260 |   |   |   | 1,260 |   |   |   | 334 |   |
| Deferred income taxes                     |   |   | 22      |   |                                  |   | 85          |                                               |   |   | 81 |   |   |   | 14 |   |   |   | 4 |   |
| Derivative financial instruments          |   |   | 6  |   |                                  |   |        |                                               |   |   |   |   |   |   | 4 |   |   |   | 1 |   |
|                                      |   |   |    |   |                                  |   |  3,602 |                                               |   |   | 3,693 |   |   |   | 3,816 |   |   |   | 1,011 |   |
|                                      |   |   |    |   |                                  |   |        |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL ASSETS                              |   |   |    |   |                                  |   | 5,081       |                                               |   |   | 5,165 |   |   |   | 5,623 |   |   |   | 1,490 |   |

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

----

|                                                                                                                                                                                                                                                                                                                              |   |   |       |   |  New Israeli shekels |   |   | Convenience translation into U.S. dollars(note 2a) |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|---------------------------|--------|--------|----------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                              |   |   |       |   | January 1,                |   |   | December 31,                                       |   |
|                                                                                                                                                                                                                                                                                                                              |   |   |       |   | 2008                      |   |   | 2008                                               |   |   | 2009 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                              |   | Note   |       |   | In millions               |   |
| CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                               |   |   |       |   |                      |   |   |                                               |   |   |   |   |   |   |   |
| Current maturities of notes payable and other liabilities and current borrowings                                                                                                                                                                                                                                                  |   |   | 13, 14, 15 |   |                      |   | 28     |                                               |   |   | 568 |   |   |   | 752 |   |   |   | 199 |   |
| Trade payables                                                                                                                                                                                                                                                                                                                    |   |   |       |   |                      |   | 750    |                                               |   |   | 819 |   |   |   | 777 |   |   |   | 206 |   |
| Parent group - trade                                                                                                                                                                                                                                                                                                              |   |   | 23         |   |                      |   | 3      |                                               |   |   | 4 |   |   |   | 34 |   |   |   | 9 |   |
| Other payables                                                                                                                                                                                                                                                                                                                    |   |   | 11         |   |                      |   | 256    |                                               |   |   | 246 |   |   |   | 238 |   |   |   | 63 |   |
| Deferred revenue                                                                                                                                                                                                                                                                                                                  |   |   |       |   |                      |   | 53     |                                               |   |   | 48 |   |   |   | 56 |   |   |   | 15 |   |
| Provisions                                                                                                                                                                                                                                                                                                                        |   |   | 12         |   |                      |   |   |                                               |   |   |   |   |   |   | 34 |   |   |   | 9 |   |
| Derivative financial instruments                                                                                                                                                                                                                                                                                                  |   |   | 6          |   |                      |   | 19     |                                               |   |   | 7 |   |   |   | 4 |   |   |   | 1 |   |
| Current income tax liability                                                                                                                                                                                                                                                                                                      |   |   |       |   |                      |   | 48     |                                               |   |   | 42 |   |   |   | 20 |   |   |   | 5 |   |
|                                                                                                                                                                                                                                                                                                                              |   |   |       |   |                      |   | 1,157  |                                               |   |   | 1,734 |   |   |   | 1,915 |   |   |   | 507 |   |
|                                                                                                                                                                                                                                                                                                                              |   |   |       |   |                      |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| NON CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                           |   |   |       |   |                      |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Notes payable                                                                                                                                                                                                                                                                                                                     |   |   | 14         |   |                      |   | 2,056  |                                               |   |   | 1,613 |   |   |   | 1,379 |   |   |   | 365 |   |
| Non-current bank borrowings                                                                                                                                                                                                                                                                                                       |   |   | 13         |   |                      |   |   |                                               |   |   |   |   |   |   | 300 |   |   |   | 80 |   |
| Liability for employee rights upon retirement, net                                                                                                                                                                                                                                                                                |   |   | 16         |   |                      |   | 31     |                                               |   |   | 53 |   |   |   | 38 |   |   |   | 10 |   |
| Dismantling and restoring sites obligation                                                                                                                                                                                                                                                                                        |   |   | 12         |   |                      |   | 19     |                                               |   |   | 23 |   |   |   | 23 |   |   |   | 6 |   |
| Other non current liabilities                                                                                                                                                                                                                                                                                                     |   |   | 15         |   |                      |   | 3      |                                               |   |   | 10 |   |   |   | 6 |   |   |   | 2 |   |
|                                                                                                                                                                                                                                                                                                                              |   |   |       |   |                      |   | 2,109  |                                               |   |   | 1,699 |   |   |   | 1,746 |   |   |   | 463 |   |
|                                                                                                                                                                                                                                                                                                                              |   |   |       |   |                      |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL LIABILITIES                                                                                                                                                                                                                                                                                                                 |   |   |       |   |                      |   | 3,266  |                                               |   |   | 3,433 |   |   |   | 3,661 |   |   |   | 970 |   |
| EQUITY                                                                                                                                                                                                                                                                                                                            |   |   | 18         |   |                      |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Share capital - ordinary shares of NIS 0.01           par value: authorized - December 31, 2008,           and 2009 - 235,000,000 shares;          issued and outstanding - |   |   |       |   |                      |   |   |                                               |   |   |   |   |   |   |   |   |   |
|            January 1, 2008 – 157,320,770 shares                                                                                                                                                                                                                 |   |   |       |   |                      |   |   |                                               |   |   |   |   |   |   |   |   |   |
|            December 31, 2008 – 153,419,394 shares                                                                                                                                                                                                                         |   |   |       |   |                      |   |   |                                               |   |   |   |   |   |   |   |   |   |
|            December 31, 2009 – 154,440,136 shares                                                                                                                                                                                                                         |   |   |       | 2      |                      |   |   | 2                                                  |   |   |   | 2 |   |   |   | 1 |   |
| Capital surplus                                                                                                                                                                                                                                                                                                                   |   |   |       |   |                      |   | 2,429  |                                               |   |   | 2,446 |   |   |   | 2,483 |   |   |   | 658 |   |
| Accumulated deficit                                                                                                                                                                                                                                                                                                               |   |   |       |   |                      |   | (616   | )                                                  |   |   | (365 | ) |   |   | (172 | ) |   |   | (46 | ) |
| Treasury shares, at cost - December 31, 2008           and 2009 - 4,467,990 shares                                                                                                                                                                                              |   |   |       |   |                      |   |   | (351                                               | )      |   |   | (351 | ) |   |   | (93 | ) |
| TOTAL EQUITY                                                                                                                                                                                                                                                                                                                      |   |   |       |   |                      |   | 1,815  |                                               |   |   | 1,732 |   |   |   | 1,962 |   |   |   | 520 |   |
| TOTAL LIABILITIES AND EQUITY                                                                                                                                                                                                                                                                                                      |   |   |       |   |                      |   | 5,081  |                                               |   |   | 5,165 |   |   |   | 5,623 |   |   |   | 1,490 |   |

----

PARTNER COMMUNICATIONS COMPANY LTD.

|                                |   |   |   |   |                                    |   |   |      |   |   | Convenience       |   |
|-------------------------------------|--------|--------|--------|--------|-----------------------------------------|--------|--------|-----------|--------|--------|-------------------|--------|
|                                |   |   |   |   |                                    |   |   |      |   |   | translation       |   |
|                                |   |   |   |   |                                    |   |   |      |   |   | Into U.S. Dollars |   |
|                                |   |   |   |   | New Israeli shekels                     |   |   | (note 2a) |   |
|                                |   |   |   |   | Year ended December 31                  |   |
|                                |   |   |   |   | 2008                                    |   |   | 2009      |   |   | 2009              |   |
|                                |   | Note   |   |   | In millions (except earnings per share) |   |
| Revenues                            |   |   | 5      |   |                                    |   | 6,302  |      |   |   | 6,079             |   |   |   | 1,610 |   |
| Cost of revenues                    |   |   | 5, 19  |   |                                    |   | 3,868  |      |   |   | 3,770             |   |   |   | 998 |   |
| Gross profit                        |   |   |   |   |                                    |   | 2,434  |      |   |   | 2,309             |   |   |   | 612 |   |
|                                |   |   |   |   |                                    |   |   |      |   |   |              |   |   |   |   |   |
| Selling and marketing expenses      |   |   | 19     |   |                                    |   | 388    |      |   |   | 387               |   |   |   | 103 |   |
| General and administrative expenses |   |   | 19     |   |                                    |   | 284    |      |   |   | 290               |   |   |   | 77 |   |
| Other income - net                  |   |   | 20     |   |                                    |   | 64     |      |   |   | 69                |   |   |   | 19 |   |
| Operating profit                    |   |   |   |   |                                    |   | 1,826  |      |   |   | 1,701             |   |   |   | 451 |   |
| Finance income                      |   |   | 21     |   |                                    |   | 30     |      |   |   | 28                |   |   |   | 7 |   |
| Finance expenses                    |   |   | 21     |   |                                    |   | 214    |      |   |   | 204               |   |   |   | 54 |   |
| Finance costs, net                  |   |   | 21     |   |                                    |   | 184    |      |   |   | 176               |   |   |   | 47 |   |
| Profit before income tax            |   |   |   |   |                                    |   | 1,642  |      |   |   | 1,525             |   |   |   | 404 |   |
| Income tax expenses                 |   |   | 22     |   |                                    |   | 444    |      |   |   | 384               |   |   |   | 102 |   |
| Profit for the year                 |   |   |   |   |                                    |   | 1,198  |      |   |   | 1,141             |   |   |   | 302 |   |
|                                |   |   |   |   |                                    |   |   |      |   |   |              |   |   |   |   |   |
| Earnings per share                  |   |   |   |   |                                    |   |   |      |   |   |              |   |   |   |   |   |
| Basic                               |   |   |   |   |                                    |   | 7.71   |      |   |   | 7.42              |   |   |   | 1.96 |   |
| Diluted                             |   |   | 24     |   |                                    |   | 7.65   |      |   |   | 7.37              |   |   |   | 1.95 |   |

----

PARTNER COMMUNICATIONS COMPANY LTD.

|                                                                                               |   |   |   |   | New Israeli shekels    |   |   | Convenience translation into U.S. dollars(note 2a) |   |
|----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|------------------------|--------|--------|----------------------------------------------------|--------|
|                                                                                               |   |   |   |   | Year ended December 31 |   |
|                                                                                               |   |   |   |   | 2008                   |   |   | 2009                                               |   |   | 2009 |   |
|                                                                                               |   | Note   |   |   | In millions            |   |
| Profit for the year                                                                                |   |   |   |   |                   | 1,198  |   |                                               |   | 1,141 |   |   |   | 302 |   |
| Other comprehensive income  (losses)                                                     |   |   |   |   |                   |   |   |                                               |   |   |   |   |   |   |   |
| Actuarial gains (losses) on defined benefit plan                                                   |   |   | 16     |   |                   |   | (18    | )                                                  |   |   | 16 |   |   |   | 4 |   |
| Income taxes relating to actuarial gains (losses) on defined benefit plan                          |   |   | 22     |   |                   |   | 5      |                                               |   |   | (4 | ) |   |   | (1 | ) |
| Other comprehensive income (losses)     for the year, net of income taxes |   |   |   |   |                   |   | (13    | )                                                  |   |   | 12 |   |   |   | 3 |   |
|                                                                                               |   |   |   |   |                   |   |   |                                               |   |   |   |   |   |   |   |   |
| TOTAL COMPREHENSIVE INCOME FOR THE YEAR                                                            |   |   |   |   |                   |   | 1,185  |                                               |   |   | 1,153 |   |   |   | 305 |   |

----

PARTNER COMMUNICATIONS COMPANY LTD.

|                                                                                                                          |   |   |   |   | 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 ENDED        DECEMBER 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                                                                                                                      |   |   | 18     |   |          |        |        |                     |   |   |    |   |   |        |   |   |     |   | (942 | ) |   |   |   |   |   |   | (942 | ) |
| Treasury Shares, at cost ( 4,467,990 shares)                                                                                  |   |   |   |   |          |        |        |                     |   |   |    |   |   |        |   |   |     |   |   |   |   |   | (351 | ) |   |   | (351 | ) |
| BALANCE AT DECEMBER 31, 2008                                                                                                  |   |   |   |   |          |        | 157,887,384 |                     |   |   | 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                                                                                                                      |   |   | 18     |   |          |        |        |                     |   |   |    |   |   |        |   |   |     |   | (982 | ) |   |   |   |   |   |   | (982 | ) |
|                                                                                                                          |   |   |   |   |          |        |        |                     |   |   |    |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE AT DECEMBER 31, 2009                                                                                                  |   |   |   |   |          |        | 158,908,126 |                     |   |   | 2       |   |   |        | 2,483  |   |     |   | (172 | ) |   |   | (351 | ) |   |   | 1,962 |   |
|                                                                                                                          |   |   |   |   |          |        |        |                     |   |   |    |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Convenience translation into u..s. dollars      (note 2a):                                      |   |   |   |   |          |        |        |                     |   |   |    |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE AT JANUARY 1, 2009                                                                                                    |   |   |   |   |          |        | 157,887,384 |                     |   |   | 1       |   |   |        | 648    |   |     |   | (97 | ) |   |   | (93 | ) |   |   | 459 |   |
|        CHANGES DURING THE YEAR ENDED       DECEMBER 31, 2009 |   |   |   |   |          |        |        |                     |   |   |    |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year                                                                                       |   |   |   |   |          |        |        |                     |   |   |    |   |   |        |   |   |     |   | 305 |   |   |   |   |   |   |   | 305 |   |
| Exercise of options granted to employees                                                                                      |   |   | 18     |   |          |        | 1,020,742   |                     |   |   | *       |   |   |        | 10     |   |     |   |   |   |   |   |   |   |   |   | 10 |   |
| Employee share-based compensation expenses                                                                                    |   |   |   |   |          |        |        |                     |   |   |    |   |   |        |   |   |     |   | 6 |   |   |   |   |   |   |   | 6 |   |
| Dividend                                                                                                                      |   |   |   |   |          |        |        |                     |   |   |    |   |   |        |   |   |     |   | (260 | ) |   |   |   |   |   |   | (260 | ) |
|                                                                                                                          |   |   |   |   |          |        |        |                     |   |   |    |   |   |        |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE AT DECEMBER 31, 2009                                                                                                  |   |   |   |   |          |        | 158,908,126 |                     |   |   | 1       |   |   |        | 658    |   |     |   | (46 | ) |   |   | (93 | ) |   |   | 520 |   |

----

PARTNER COMMUNICATIONS COMPANY LTD.

|                                                           |   |   |   |   | New Israeli shekels    |   |   | Convenience translation into U.S. dollars(note 2a) |   |
|----------------------------------------------------------------|--------|--------|--------|--------|------------------------|--------|--------|----------------------------------------------------|--------|
|                                                           |   |   |   |   | Year ended December 31 |   |
|                                                           |   |   |   |   | 2008                   |   |   | 2009                                               |   |   | 2009 |   |
|                                                           |   | Note   |   |   | In millions            |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                          |   |   |   |   |                   |   |   |                                               |   |   |   |   |
| Cash generated from operations (Appendix)                      |   |   |   |   |                   | 2,335  |   |                                               |   | 2,092 |   |   |   | 553 |   |
| Income tax paid                                                |   |   | 22     |   |                   |   | (420   | )                                                  |   |   | (339 | ) |   |   | (90 | ) |
| Net cash provided by operating activities                      |   |   |   |   |                   |   | 1,915  |                                               |   |   | 1,753 |   |   |   | 463 |   |
|  CASH FLOWS FROM INVESTING ACTIVITIES:                    |   |   |   |   |                   |   |   |                                               |   |   |   |   |   |   |   |   |
| Acquisition of property and equipment                          |   |   | 9      |   |                   |   | (488   | )                                                  |   |   | (526 | ) |   |   | (139 | ) |
| Increase in intangible assets                                  |   |   | 10     |   |                   |   | (31    | )                                                  |   |   | (231 | ) |   |   | (60 | ) |
| Interest received                                              |   |   | 21     |   |                   |   | 4      |                                               |   |   | 1 |   |   |   |   |   |
| Proceeds from derivative financial instruments, net            |   |   | 6      |   |                   |   | 1      |                                               |   |   | 24 |   |   |   | 6 |   |
| Net cash used in investing activities                          |   |   |   |   |                   |   | (514   | )                                                  |   |   | (732 | ) |   |   | (193 | ) |
|  CASH FLOWS FROM FINANCING ACTIVITIES:                    |   |   |   |   |                   |   |   |                                               |   |   |   |   |   |   |   |   |
| Proceeds from exercise of stock options granted to employees   |   |   |   |   |                   |   | 17     |                                               |   |   | 37 |   |   |   | 10 |   |
| Non-current bank borrowings received                           |   |   | 13     |   |                   |   |   |                                               |   |   | 300 |   |   |   | 80 |   |
| Proceeds from issuance of notes payable, net of issuance costs |   |   | 14     |   |                   |   |   |                                               |   |   | 446 |   |   |   | 118 |   |
| Dividend paid                                                  |   |   | 18     |   |                   |   | (930   | )                                                  |   |   | (986 | ) |   |   | (261 | ) |
| Repayment of capital lease                                     |   |   | 15     |   |                   |   | (7     | )                                                  |   |   | (7 | ) |   |   | (2 | ) |
| Purchase of Company's shares by the Company                    |   |   | 18     |   |                   |   | (351   | )                                                  |   |   |   |   |   |   |   |   |
| Interest paid                                                  |   |   | 21     |   |                   |   | (92    | )                                                  |   |   | (89 | ) |   |   | (24 | ) |
| Current borrowings received (repaid)                           |   |   | 13     |   |                   |   | 20     |                                               |   |   | (20 | ) |   |   | (5 | ) |
| Repayment of non-current bank borrowings                       |   |   | 13     |   |                   |   | (22    | )                                                  |   |   |   |   |   |   |   |   |
| Repayment of notes payable                                     |   |   | 14     |   |                   |   |   |                                               |   |   | (557 | ) |   |   | (148 | ) |
| Net cash used in financing activities                          |   |   |   |   |                   |   | (1,365 | )                                                  |   |   | (876 | ) |   |   | (232 | ) |
|  INCREASE IN CASH AND CASH EQUIVALENTS                    |   |   |   |   |                   |   | 36     |                                               |   |   | 145 |   |   |   | 38 |   |
|  CASH AND CASH EQUIVALENTS ATBEGINNING OF YEAR            |   |   |   |   |                   |   | 148    |                                               |   |   | 184 |   |   |   | 49 |   |
|  CASH AND CASH EQUIVALENTS AT END OF YEAR                 |   |   |   |   |                   |   | 184    |                                               |   |   | 329 |   |   |   | 87 |   |

----

|                                                              |   |   |   |   |   New Israeli shekels |   |   | Convenience translation intoU.S. dollars(note 2a) |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|---------------------------------|--------|--------|---------------------------------------------------|--------|
|                                                              |   |   |   |   | Year ended December 31,    |   |
|                                                              |   |   |   |   | 2008                            |   |   | 2009                                              |   |   | 2009 |   |
|                                                              |   | Note   |   |   | In millions                     |   |
|                                                              |   |   |   |   |                            |   |   |                                              |   |   |   |   |
| Cash generated from operations:                                   |   |   |   |   |                            |   |   |                                              |   |   |   |   |
|      Profit for the year                 |   |   |   |   |                            | 1,198  |   |                                              |   | 1,141 |   |   |   | 302 |   |
|                                                              |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |
|     Adjustments for:                          |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |
| Depreciation and amortization                                     |   |   | 9, 10  |   |                            |   | 463    |                                              |   |   | 577 |   |   |   | 154 |   |
| Employee share based compensation expenses                        |   |   | 18     |   |                            |   | 9      |                                              |   |   | 22 |   |   |   | 6 |   |
| Liability for employee rights upon retirement, net                |   |   | 16     |   |                            |   | 5      |                                              |   |   | 1 |   |   |   |   |   |
| Finance costs, net                                                |   |   | 21     |   |                            |   | 101    |                                              |   |   | 84 |   |   |   | 22 |   |
| Gain from change in fair value of derivativefinancial instruments |   |   | 6      |   |                            |   | (13    | )                                                 |   |   | (18 | ) |   |   | (5 | ) |
| Interest paid                                                     |   |   | 21     |   |                            |   | 92     |                                              |   |   | 89 |   |   |   | 24 |   |
| Interest received                                                 |   |   | 21     |   |                            |   | (4     | )                                                 |   |   | (1 | ) |   |   |   |   |
| Deferred income taxes                                             |   |   | 22     |   |                            |   | 8      |                                              |   |   | 63 |   |   |   | 17 |   |
| Income tax paid                                                   |   |   | 22     |   |                            |   | 420    |                                              |   |   | 339 |   |   |   | 90 |   |
| Capital loss on sale of property and equipment                    |   |   | 9      |   |                            |   | 1      |                                              |   |   | 3 |   |   |   |   |   |
| Changes in operating assets and liabilities:                      |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |   |
| Decrease (increase) in accounts receivable:                       |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |   |
| Trade                                                             |   |   | 7      |   |                            |   | 47     |                                              |   |   | (229 | ) |   |   | (61 | ) |
| Other                                                             |   |   |   |   |                            |   | 17     |                                              |   |   | 2 |   |   |   |   |   |
| Increase (decrease) in accounts payable and accruals:             |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |   |
| Parent group- trade                                               |   |   | 23     |   |                            |   | 1      |                                              |   |   | (17 | ) |   |   | (5 | ) |
| Trade                                                             |   |   |   |   |                            |   | 10     |                                              |   |   | 43 |   |   |   | 11 |   |
| Other payables                                                    |   |   | 11     |   |                            |   | (17    | )                                                 |   |   | 6 |   |   |   | 2 |   |
| Provisions                                                        |   |   | 12     |   |                            |   |   |                                              |   |   | 34 |   |   |   | 9 |   |
| Deferred revenue                                                  |   |   |   |   |                            |   | (5     | )                                                 |   |   | 8 |   |   |   | 2 |   |
| Current income tax liability                                      |   |   | 22     |   |                            |   | (6     | )                                                 |   |   | (22 | ) |   |   | (6 | ) |
| Decrease (increase) in inventories                                |   |   | 8      |   |                            |   | 8      |                                              |   |   | (33 | ) |   |   | (9 | ) |
| Cash generated from operations:                                   |   |   |   |   |                            |   | 2,335  |                                              |   |   | 2,092 |   |   |   | 553 |   |

----

PARTNER COMMUNICATIONS COMPANY LTD.

|   | a. | Partner Communications Company Ltd. ("the Company", "Partner") operates a mobile telecommunications network in Israel. The Company is controlled by Scailex Corporation Ltd ("Scailex"). The address of the Company's Principal Executive Offices is 8 Amal Street, Afeq Industrial Park, Rosh-Ha'ayin 48103, Israel. The Company's capital consists of ordinary shares, which are traded on the Tel Aviv Stock Exchange under the symbol "PTNR". American Depositary Shares ("ADSs"), each representing one of the Company’s ordinary shares, are quoted on the NASDAQ Global Market under the symbol "PTNR". |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On October 28, 2009, Advent Investments Pte Ltd. ("Advent"), a wholly-owned subsidiary of Hutchison Telecommunications International Limited ("Hutchison Telecom"), sold its entire controlling interest in the Company to Scailex. Scailex, an Israeli corporation listed on the Tel Aviv Stock Exchange, is a majority owned subsidiary of Suny Electronic inc. ltd ("Suny"), which is also an Israeli corporation listed on the Tel Aviv Stock Exchange and indirectly controlled by Mr. Ilan Ben-Dov.  In separate transactions, Suny acquired 1.41% of the Company's issued and outstanding shares and total voting rights. As a result of his indirect control of Scailex (which holds 44.82% of the Company's issued and outstanding shares and voting rights) and Suny, Mr. Ilan Ben-Dov indirectly controlled 46.23% of the Company's issued and outstanding shares and total voting rights as of January 31, 2010. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The ultimate holding company is Suny, since it is the parent company of Scailex. Hutchison Telecom was the Company's parent company through October 28, 2009, and Scailex is the Company's parent company since October 28, 2009. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | The Company through its subsidiaries and partnership provides telecommunications services consisting mainly of cellular services: airtime and content. In addition, the Company provides under the fixed-line segment: (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) fixed line telephony services: voice over broadband ("VOB") and Primary Rate Interface ("PRI") fixed-line telephone services; as well as (3) an on-line media shop, under the brand "orange time", providing premium on-demand video (mainly full –track feature films and series' episodes), music tracks and games; . The Company sells equipment for the cellular segment and for the fixed-line segment: mainly handsets, phones, domestic routers, and related equipment. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Content services include voice mail, text and multimedia messaging, as well as downloadable wireless data applications, including ring tones, music, games, and other informational content. Generally, these enhanced features and data application generate additional service revenues through monthly subscription fees of increased usage utilization of the features and applications. In addition the Company provides an on-line media shop, under the brand "orange time", providing premium on-demand video (mainly full –track feature films and series' episodes), music tracks and games. Other optional services, such as equipment extended warranty plans are also provided for a monthly fee and are either sold separately or included in packages rate plans |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | 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 beginning in January 2009. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 and their enhancement. 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 February 2007 to grant the Company the right to offer Voice Over Broadband (“VoB”) services using the infrastructure of Bezeq and HOT to access customers and to provide them with land-line telephony service. The License was further amended in July 2007 to incorporate the provision of transmission and data communications services that were previously provided for under a transmission license that was granted in July 2006. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In March 2009, 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 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | The consolidated financial statements of the Company as of December 31, 2009 ("the financial statements") have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | IFRSs are standards and interpretations that have been adopted by the International Accounting Standards Board. These standards include: |
|--------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | International Financial Reporting Standards (IFRSs); |
|--------|-----|------------------------------------------------------|

|   | (b) | International Accounting Standards (IASs), and; |
|--------|-----|-------------------------------------------------|

|   | (c) | Interpretations by the International Financial Reporting Interpretation Committee (IFRICs) or its predecessor, the Standing Interpretations Committee (SICs). |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The financial statements are in the scope of IFRS1 First Time Adoption of International Financial Reporting Standards ("IFRS1") as they present annual financial statements of the Company for the years ending December 31, 2009, and 2008 subsequent to the transition date to IFRS ,under IFRS1, which is January 1, 2008 (the "transition date"). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Comparative data of the Company in these financial statements was restated to retrospectively reflect the adoption of IFRS. As to the effect of the transition from reporting under generally accepted accounting principles in the United States of America ("US GAAP") to reporting under IFRS on comparative data in the financial statements, and exemptions elected by the Company under IFRS1 – See note 25. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The principle accounting policies setout below have been consistently applied to all periods presented unless otherwise stated, in accordance with the exemptions granted by IFRS1, See note 25. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates, and requires management to exercise its judgment in the process of applying the Company's accounting policies. Areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Basis of measurement: |
|--------|-----------------------|

|   | The financial statements have been prepared on the basis of historical cost convention except for the following assets and liabilities: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | (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, see note 25 and 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 16. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Until December 31, 2003 the Israeli economy was considered hyperinflational according to IFRS. Therefore upon the transition to IFRS the value of non-monetary assets, licenses and equity items that were measured on the basis of historical cost under US GAAP 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, see note 25. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company recognizes revenues and expenses net of value added taxes. |
|--------|------------------------------------------------------------------------|

|   | Convenience translation into U.S. Dollars (USD): |
|--------|--------------------------------------------------|

|   | The NIS figures at December 31, 2009 and for the period then ended have been translated into dollars using the representative exchange rate of the dollar at December 31, 2009    (USD 1 = NIS 3.775). The translation was made solely for convenience, is supplementary information, and is distinguished from the financial statements. The translated dollar figures should not be construed as a representation that the Israeli currency amounts actually represent, or could be converted into, dollars. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | (1) Functional and presentation currency |
|--------|------------------------------------------|

|   | Items included in the financial statements are measured using the currency of the primary economic environment in which the Company and its subsidiaries and partnership operate (the "functional currency"). The financial statements are measured and presented in New Israeli Shekels ("NIS"), which is the Company's and its subsidiaries' functional and presentation currency. The amounts presented at NIS millions are rounded to the nearest NIS million. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) Transactions and balances |
|--------|-------------------------------|

|   | Balances in, or linked to, foreign currency are stated on the basis of the exchange rates prevailing at the end of the reporting period. Foreign currency transactions included in the statements of income are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Transaction gains or losses arising from changes in the exchange rates used in the translation of such balances are carried to financial income or expenses. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | Subsidiaries are all entities over which the Company has the power to control the financial and operating policies generally accompanying a shareholding of more than half of the voting rights. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | 3) | Accounting policies of subsidiaries and partnership have been changed when necessary to ensure consistency with the accounting policies adopted by the Company. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Executive Officer (regarded as Chief Operation Decision-Maker, CODM) who is responsible for allocating resources and assessing performance of the operating segments. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company has early adopted the amendment to paragraph 23 to IFRS 8 included in Improvements to IFRSs issued in April 2009, and therefore the segment information does not include information in respect of segments assets, in conformity to the information that is regularly provided to the CODM. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Inventories of cellular telephones (handsets), related accessories, spare parts, ISP modems and related equipment are stated at the lower of cost or net realizable value. Cost is determined on the "first-in, first-out" basis. The Company determines its allowance for inventory obsolescence and slow moving inventory, based upon expected inventory turnover, inventory aging and current and future expectations with respect to product offerings. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Property and equipment are stated at cost, less accumulated depreciation, and accumulated impairment losses. |
|--------|--------------------------------------------------------------------------------------------------------------|

|   | Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of income during the financial period in which they are incurred. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Changes in the obligation to dismantle and remove assets on sites and to restore the site on which they are located, other than changes deriving from the passing of time, are added or deducted from the cost of the assets in the period in which they occur. The amount deducted from the cost of the asset shall not exceed the balance of the carrying amount on the date of change, and any balance is recognized immediately in profit or loss, See (q) below. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company adopted an exemption provided in IFRS1, allowing to measure the Company's property and equipment as of the transition date to IFRS at fair value, and to use this value as its deemed cost as of that date. The deemed cost was based upon an appraisal, performed by management with the assistance of independent appraisers. The appraisal was based on considering the different elements and components of the property and equipment, and assigning them the appropriate estimation of useful live and fair value. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, as follows: |
|--------|----------------------------------------------------------------------------------------------------------------------|

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

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

|   | The assets' useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. |
|--------|----------------------------------------------------------------------------------------------------------|

----

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

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

|   | The licenses to operate a cellular communication services are recognized at cost, adjusted for changes in the CPI until December 31, 2003 (See note 2 a(d)), and are amortized using the straight line method over their contractual period –the period ending in 2022. Borrowing costs which served to finance the license fee - incurred until the commencement of utilization of the license - were capitalized to cost of the license. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The license for providing fixed-line telephone services is stated at cost and is amortized by the straight-line method over the contractual period of 20 years, starting in 2007. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The customer relationships were acquired in a business combination, and stated at cost. Customer relationships with carriers are amortized over the estimated useful life which is 7 years using the straight-line method. Customer relationships with business customers are amortized over the estimated useful life which is 5 years using the straight-line method. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and to bring to use the specified software. These costs are amortized over their estimated useful lives (3 to 7 years) using the straight-line method. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Costs associated with maintaining computer software are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Company are recognized as intangible assets when the following criteria are met: (a) it is technically feasible to complete the software product so that it will be available for use; (b) management intends to complete the software product and use it; (c) there is an ability to use the software product; (d) it can be demonstrated how the software product will generate probable future economic benefits; (e) adequate technical, financial and other resources to complete the development and to use the software product are available; and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (f) the expenditure attributable to the software product during its development can be reliably measured. Costs that are directly associated with the developing softwares controlled by the Company are recognized as intangible assets, and amortized over their estimated useful lives (3 to 7 years). Direct costs include costs of software development employees. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

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

|   | Assets that are subject to depreciation and amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped to cash-generating units. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

|   | 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 maturities greater 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 (r) (3) below regarding revenue recognition from non-current credit arrangements. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ordinary purchases and sales of financial instruments are carried at the date of settlement, which is the date that an instrument is delivered to or by the Company. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Financial instruments are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The asset's carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

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

|   | Financial liabilities at amortized cost are non-derivative financial instruments with fixed or determinable payment. They are included in current liabilities, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current liabilities. Financial liabilities at amortized cost are recognized initially at fair value, net of transaction costs, and subsequently measured at amortized costs using the effective interest method. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's financial liabilities at amortized cost category include notes payable, bank borrowings, and accounts payables, in the statement of financial position. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

|   | Trade receivables are recognized initially at fair value. Non-current receivables are subsequently measured at amortized cost using the effective interest method, less allowance for impairment (allowance for doubtful accounts). The allowance is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, or delinquency or default in debtor payments are considered indicators that trade receivable is impaired. The amount of the allowance is determined as a percentage of specific debts doubtful of collection, based upon historical experience and future expectations. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company factors most of its non-current trade receivables resulting from sales of handsets by credit cards. The factoring is executed through a clearing company, on a non-recourse basis. The factoring of accounts receivable is recorded by the Company as a sales transaction, and derecognized under the provisions of IAS 39 financial instruments: recognition, and measurement. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The results of the factoring transaction are charged to financial income and expenses on the transaction date. |
|--------|----------------------------------------------------------------------------------------------------------------|

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

|   | Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Company's share capital (treasury shares) acquired by the Company are presented as a reduction of equity, at the consideration paid. Including any attributable incremental costs, net of taxes. Treasury shares do not have a right to receive dividends or to vote. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. Trade payables are recognised initially at fair value. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | n. | Borrowings |
|--------|----|------------|

|   | Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the statement of income over the period of the borrowings using the effective interest method. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Borrowings include notes payable, current and non-current borrowings from banks, credit facilities, and liability in respect of capital lease. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o. | Employee benefits |
|--------|----|-------------------|

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

|   | According to section 14 of the Israeli Severance Pay Law some of the Company's liability for employee rights upon retirement is covered by regular contributions in defined contribution plans. The Company has no legal or constructive obligations to pay further contribution if the fund does not hold sufficient assets to pay all employees the benefit relating to employee service in the current or prior periods. The amounts funded as above are not reflected in the statement of financial position. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Obligations for contributions to defined contribution pension plans are recognized as an expense in statement of income when they are due. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's liability for post employment benefits is covered by a defined contribution plan financed by deposits with insurance companies or with funds managed by a trustee. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

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

|   | Labor laws and agreements, and the practice of the Company, require paying retirement benefits to employees dismissed or retiring in certain other circumstances, measured by multiplying the years of employment by the last monthly salary of the employee (i.e. one monthly salary for each year of tenure), the obligation of the Company to pay retirement benefits is treated as a defined benefit plan. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The defined benefit obligation is recognized in the statement of financial position at the present value of the defined benefit obligation at end of the reporting period less the fair values of plan assets. The defined benefit obligation is calculated annually using the projected unit credit method. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The measuring of liability and plan assets are based on calculation made by an external actuarial expert. |
|--------|-----------------------------------------------------------------------------------------------------------|

|   | The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows (after taking into account the expected rate of salary increases and other actuarial assumptions) using interest rates of Israeli Government bonds that are denominated in the currency in which the benefits will be paid (NIS) and that have terms to maturity approximating the terms of the related liability. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under IAS19 Employee Benefits ("IAS19"), the discount rate used for computing actuarial liability will be determined using market yields of high-quality corporate bonds at the end of the reporting period. However, IAS19 points out that in countries where there is no deep market in such bonds, the yield of government bonds should be used instead. Therefore, the interest rate used by the Company to discount expected future cash flows for the purpose of computing the actuarial commitment is determined based on the interest rate of Israeli Government bonds since the Company's management is in the opinion that Israel does not have a deep market for high-quality corporate bonds. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Actuarial gains and losses resulting from changes in actuarial valuation and differences between past assumptions and actual results are charged or credited to equity in other comprehensive income in the period in which they arise. The Company classifies interest costs in respect of the defined benefit plan obligation and the expected returns on the plan assets as part of finance costs - net. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | 3. | Vacation and recreation benefits |
|--------|----|----------------------------------|

|   | The employees are legally entitled to vacation and recreation benefits, both computed on an annual basis. This entitlement is based on the term of employment. This obligation is treated as a short term benefit under IAS 19. The Company charges a liability and expense due to vacation and recreation pay, based on the benefits that have been accumulated for each employee, on undiscounted basis. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Profit-sharing and bonus plans |
|--------|----|--------------------------------|

|   | The Company recognizes a liability and an expense for bonuses based on a formula that takes into consideration individual performance and the Company's overall performance. The Company recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | Termination benefits |
|--------|----|----------------------|

|   | Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | p. | Share based payment |
|--------|----|---------------------|

|   | The Company operates a number of equity-settled, share-based compensation plans, under which the Company receives services from employees as consideration for equity instruments of the Company. The fair value of the employee services received in exchange for the grant of the equity instruments is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the equity instruments granted. The total amount expensed is recognized over the vesting period, which is the period over which all the specified vesting conditions are to be satisfied. At the end of each reporting period, the entity revises its estimates of the number of equity instruments that are expected to vest based on the vesting conditions, and recognizes the impact of the revision of original estimates, if any, in the statement of income, with corresponding adjustment to accumulated deficit. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The proceeds received net of any directly attributable transactions costs are credited to share capital and capital surplus when the equity instruments are exercised. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | q. | Provisions |
|--------|----|------------|

|   | Provisions include dismantling and restoring sites obligation, legal claims, and handset warranty. |
|--------|----------------------------------------------------------------------------------------------------|

|   | Provisions are recognized when the Company has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will require settling the obligation, and the amount has been reliable estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in a settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and risks specific to the obligation. The increase in the provision due to the passage of time is recognized as finance costs. See also note 12. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 may require a reassessment of this risk. 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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

|   | r. | Revenues |
|--------|----|----------|

|   | The Company's revenues are measured at fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of business. Revenue is shown net of Value-Added-Tax, returns, rebates and discounts. The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Company and when specific criteria have been met for each of the Company's activities as described herein. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenues from services primarily consist of charges of airtime derived from usage of the Company's networks, including interconnect, roaming, transmission, fixed-line, ISP, certain warranty arrangements, value added services and content services. Revenues are recognized when the services are rendered, and all other revenue recognition criteria are met, net of credits and service discounts. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenues from Pre-paid calling cards sold to customers are recognized upon customer's usage of the cards, or expiration. |
|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | In accordance with Improvements to IFRSs issued in April 2009: amendment to appendix to IAS 18 Revenue, determining whether an entity is acting as a principal or as an agent, the Company is acting as a principal if it has exposure to the significant risks and rewards associated with the rendering of services. Features that indicate that the Company is acting as a principal include: (a) the Company has the primary responsibility for providing the services to the customer or for fulfilling the order; (b) the Company has latitude in establishing prices, either directly or indirectly; and (c) the Company bears the customer's credit risk for the amount receivable from the customer. On the other hand, the Company is acting as an agent if it does not have exposure to the significant risks and rewards associated with the rendering of services. One feature indicating that the Company is acting as an agent is that the amount the Company earns is predetermined, being either a fixed fee per transaction or a stated percentage of the amount billed to the customer. Based on the above considerations the Company determined that it is acting as an agent in respect of certain content services provided by third parties to customers, and therefore the revenues recognized from these services are presented on a net basis in the statement of income. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | r. | Revenues (continued) |
|--------|----|----------------------|

|   | Revenue from sale of equipment includes revenue from sale of handsets, routers, phones and related accessories. Revenue is recognized when the significant risks and reward of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement in regards to the goods, and the amount of revenue can be measured reliably. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Some sales of handsets with accompanying services constitute a revenue arrangement with multiple deliverables. Accordingly, consideration received is allocated to each deliverable based on the relative fair value of the individual element. The revenue from sales of handsets is recognized at its fair value as equipment revenues upon the delivery of the equipment to the subscriber, when all revenue recognition criteria are met. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company determines the fair value of the individual elements based on prices at which the deliverable is regularly sold on a stand alone basis. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company subsidizes, in some cases, the sale of the handset to end subscribers by selling it at a price below its cost to secure a fixed-term service contract for the purpose of acquiring new subscribers or retaining existing subscribers. The handset sale is then treated as a non-revenue-generating transaction and accordingly, no revenue is recognized from these types of handset sales. The subsidy, and direct selling expenses are capitalized as elements of subscriber acquisition and retention costs in accordance with accounting policy set out in note 2(g)(4). The subsidy represents the difference between the cost of the handset and the payment received from the subscriber for the handset. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenues from non-current credit arrangements to customers in respect of sales of equipment are recognized on the basis of the present value of future cash flows, discounted at the prevailing rate for a similar instrument of an issuer with a similar credit rating. The difference between the original credit and its present value is recorded as other income over the credit period. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | s. | Leases |
|--------|----|--------|

|   | Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from lessor) are charged to income statements on a straight-line basis over the lease term, including extending options which are reasonably certain. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Leases where the Company, as a lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. The property and equipment acquired under financial leases is depreciated over the shorter of the useful live of the asset and the lease term. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | t. | Advertising expenses |
|--------|----|----------------------|

|   | Advertising expenses are charged to the statement of income as incurred. Advertising expenses for the years ended December 31, 2008 and 2009 totaled NIS 103 million and NIS 118 million, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | u. | Income taxes |
|--------|----|--------------|

|   | The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive income or directly in equity. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted as of the end of the reporting period.  The Company recognized deferred tax in full, using the liability method, on temporary differences arising between the carrying amounts in the financial statements of assets and liabilities and their tax bases. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Deferred income tax is determined using the tax rates that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax assets are presented as non-current, see also note 22. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Deferred income tax is not provided on temporary differences arising on investments in subsidiaries, because the timing of the reversal of the temporary difference is controlled by the Company and it is not probable that the temporary difference will reverse in the foreseeable future. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | v. | Dividend distribution |
|--------|----|-----------------------|

|   | Dividend distribution to the Company's shareholders is recognised as a liability in the Company's financial statements in the period in which the dividends are approved by the Company's board of directors, excluding distributions that are pending regulatory approval. See also note 18. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year excluding ordinary shares purchased by the company and held as treasury shares. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume exercise of all dilutive potential ordinary shares. The instruments that are potential dilutive ordinary shares are equity instruments granted to employees. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following new standards, amendments to standards or interpretations have been issued, and are mandatory for accounting periods beginning on or after January1, 2010, and not yet adopted by the Company: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | * IFRS 3 (revised), Business combinations and consequential amendments to IAS 27, Consolidated and separate financial statements, IAS 28, Investments in associates and IAS 31, Interests in joint ventures, effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after July 1, 2009. The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the statement of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the minority interest in the acquiree either at fair value or at the minority interest's proportionate share of the acquiree's net assets. All acquisition-related costs should be expensed. The Company will apply IFRS 3 (revised) prospectively to business combinations from January 1, 2010. This is not currently applicable to the Company. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | * IAS 27 (revised), Consolidated and separate financial statements, (effective from 1 July 2009). The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. The Company will apply IAS 27 (revised) prospectively to transactions with non-controlling interests from January 1, 2010. The Company currently does not have non-controlling interests. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | * IAS 38 (amendment), Intangible Assets. The amendment is part of the IASB's annual improvements project published in April 2009 and the Company will apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. This is not currently applicable to the Company. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | * IFRS 2 (amendments), Group cash-settled and share-based payment transactions. In addition to incorporating IFRIC 8, ‘Scope of IFRS 2', and IFRIC 11, ‘IFRS 2 – Group and treasury share transactions', the amendments expand on the guidance in IFRIC 11 to address the classification of group arrangements that were not covered by that interpretation. The new guidance is not expected to have a material impact on the Company's financial statements. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | * IFRS 9, Financial instruments: Classification and measurement. IFRS 9 was issued in November 2009 and replaces those parts of IAS 39 relating to the classification and measurement of financial assets. Key features are as follows: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortized cost. The decision is to be made at initial recognition. The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • An instrument is subsequently measured at amortized cost only if it is a debt instrument and both the objective of the entity's business model is to hold the asset to collect the contractual cash flows, and the asset's contractual cash flows represent only payments of principal and interest (that is, it has only ‘basic loan features'). All other debt instruments are to be measured at fair value through profit or loss. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognize unrealized and realized fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by-instrument basis. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • While adoption of IFRS 9 is mandatory from January1, 2013, earlier adoption is permitted. |
|--------|---------------------------------------------------------------------------------------------------|

|   | The Company is considering the implications of the standard, the impact, if any, on the Company and the timing of its adoption. |
|--------|---------------------------------------------------------------------------------------------------------------------------------|

----

|   | Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | a. | Estimates and assumptions |
|--------|----|---------------------------|

|   | Revenue Recognition: |
|--------|----------------------|

|   | The Company recognizes service revenues based upon minutes and seconds used, net of credits and adjustments for service discounts. Because the Company's billing cycles use cut-off dates, which for the most part do not coincide with the Company's reporting periods, the Company is required to make estimates for service revenues earned but not yet billed at the end of each reporting period. These estimates are based primarily upon historical data and trends. Actual billing cycle results and related revenue may vary, depending on subscriber usage and rate plan mix, from the results estimated at the end of each period. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In certain cases, cellular handsets are sold to subscribers within the context of airtime packages, in order to allocate the revenues into separate units of accounting; the Company is required to estimate the fair value of each deliverable. These estimates are based upon the price of each deliverable when it is sold on a stand alone basis. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Property and equipment: |
|--------|-------------------------|

|   | The Company has substantial investments in tangible long-lived assets, primarily the Company's communications network. The assets are depreciated on a straight line basis over their useful economic lives. Changes in technology or changes in the Company's intended use of these assets can cause the estimated period of use or the value of these assets to change. The Company reviews the communications network, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If necessary, the Company writes down the assets to their recoverable amounts. The assets useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. See note 2(f). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | At the January 1, 2008 transition date to IFRS, the Company chose to state the property and equipment at their fair value and to determine that value as deemed cost, in accordance with the exemption of IFRS 1. As part of the deemed cost, the Company made an estimation of the remaining useful life of each significant component of property and equipment. See note 25 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | Licenses: |
|--------|-----------|

|   | The licenses to operate a cellular communication services are recognized at cost, adjusted for changes in the CPI until December 31, 2003 (See note 2 a(d)), and are amortized using the straight line method over their contractual period –the period ending in 2022. The license for providing fixed-line telephone services is stated at cost and is amortized by the straight-line method over the contractual period of 20 years, starting in 2007. The estimated amortization period is based management estimations and on the current valid licenses period, excluding any possible future extensions. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company reviews the intangibles for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If necessary, the Company writes down the assets to their recoverable amounts. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Costs to acquire or retain postpaid mobile telecommunication subscribers, pursuant to a contract with early termination penalties are capitalized in accordance with the policy described in note 2 (g) (4). The costs (the subsidy and fees) associated with these sales, where the Company subsidizes the sale of the handset by selling it below its cost to secure a fixed-term profitable service contract, are considered element of cost and the sale of the handset is treated as non-revenue-generating transaction. Accordingly no revenue is recognized from these types of handset sales. The Company made an estimate of the expected useful life of the SARC, which is not longer than their minimum enforceable period, which is generally a period of 18 months. This estimate is reviewed, and adjusted if appropriate, at the end of each reporting period. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Allowance for Doubtful Accounts: |
|--------|----------------------------------|

|   | The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of the Company's subscribers to make required payments. The Company bases the allowance on the likelihood of recoverability of accounts receivable based on the age of the balances, the Company's historical write-off experience net of recoveries, changes in the credit worthiness of the Company's customers, and collection trends. The allowance is periodically reviewed. The allowance charged to expenses is determined in respect of specific debts doubtful of collection, calculated as a specified percentage of the outstanding balance in each debt age group, with the percentage of the allowance increasing as the age of the debt increases. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Judgments |
|--------|----|-----------|

|   | Provisions for legal claims: |
|--------|------------------------------|

|   | The Company exercises judgment in measuring and recognizing provisions and the exposure pending litigation or other outstanding claims including claims for class actions. Judgment is necessary in the assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of final settlement. Provisions are recorded for liabilities when a loss is considered probable and can be reasonably estimated. Because of the inherent uncertainties in this evaluation process, actual losses may be different from the originally estimated provision. These estimations are subject to change as new information becomes available, primarily with the support of internal specialists, or with the support of outside consultants such as legal counsel. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revisions to the estimates of these losses may affect future operating results. |
|--------|---------------------------------------------------------------------------------|

----

|   | b. | Judgments (continued): |
|--------|----|------------------------|

|   | Regarding determination whether the Company is acting as a principal or as an agent See note 2(r). |
|--------|----------------------------------------------------------------------------------------------------|

|   | Sales of equipment with accompanying services: |
|--------|------------------------------------------------|

|   | The revenue recognition criteria are usually applied separately to each transaction. However, in certain circumstances, it is necessary to apply the recognition criteria to the separately identifiable components of a single transaction in order to reflect the substance of the transaction. When the selling price of an arrangement includes an identifiable amount for subsequent servicing, that amount is deferred and recognised as revenue over the period during which the service is performed. Conversely, the recognition criteria are applied to two or more transactions together when they are linked in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole. The Company made judgments to determine that certain sales of equipment with accompanying services constitute an arrangement with multiple deliverables, and accordingly, consideration received is allocated to each deliverable based on the relative fair value of the individual element. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | The operating segments were determined based on the reports reviewed by Chief Executive Officer (CEO) that makes strategic decisions, who is the Chief Operating Decision Maker ("CODM"). The CEO considers the business from two operating segments, as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Each segment is divided to services and equipment relating to revenues and cost of revenues. The reportable operating segments include the following measures: revenues, cost of revenues, operating profit (loss), and Earning Before Interest expenses, Tax, Depreciation and Amortization ("EBITDA").  The CODM does not examine assets or liabilities for those segments, therefore they are not presented. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                          |   | New Israeli Shekels               |   |
|---------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                          |   | Year ended December 31, 2009 |   |
|                                                          |   | In millions                       |   |
|                                                          |   | Cellular segment                  |   |   | Fixed line segment |   |   | Reconciliation for consolidation |   |   | 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                          |   |                              | 26     |   |   |   |   |   |   |   |   |   |   |   | 26 |   |
| EBITDA                                                        |   |                              | 2,387  |   |   |   | (83 | ) |   |   |   |   |   |   | 2,304 |   |
| Reconciliation of EBITDA to profit before tax                 |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     -  Depreciation and amortization |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (577 | ) |
|     -  Finance costs, net       |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (176 | ) |
|     -  Other                    |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (26 | ) |
| Profit before tax                                             |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | 1,525 |   |
| Allowance for decline in value of  inventories      |   |                              | 7      |   |   |   | 2 |   |   |   |   |   |   |   | 9 |   |

----

|                                                          |   | 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 |   |   |   |   |   |   |   | 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 |   |

----

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

|   | The Company is exposed to a variety of financial risks: credit, liquidity and market risks as part of its normal course of business. The Company's risk management objective is to monitor risks and minimize the possible influence that results from this exposure, according to its evaluations and expectations of the parameters that affect the risks. The Company uses freestanding derivative instruments in order to partially cover its exposure to foreign currency exchange rate and CPI fluctuations. The freestanding derivative instruments are used for economic risk management that does not qualify for hedge accounting. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. Risk Management |
|--------|--------------------|

|   | Risk management is carried out by the treasury department under policies approved by the board of directors. The board resolves principles for overall risk management, such as foreign exchange risk, CPI linkage risk and usage of derivative financial instruments. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. Market risk |
|--------|----------------|

|   | The Company enters into foreign currency freestanding derivative transactions in order to protect itself against the risk that the eventual dollar cash flows resulting from the anticipated payments in respect of purchases of handsets and capital expenditures in foreign currency will be affected by changes in exchange rates. In addition the Company enters into derivative transactions in order to protect itself against the change in the CPI in respect of the principal of the CPI-linked Notes payable. However, these contracts do not qualify for hedge accounting under IAS 39. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company does not hold or issue derivative financial instruments for trading purposes. |
|--------|-------------------------------------------------------------------------------------------|

|   | Fair value interest rate risk |
|--------|-------------------------------|

|   | The Company's notes payable are with fixed interest rate and are measured and presented in the statement of financial position at amortized cost, therefore changes in the current market interest rate do not affect the financial statements nor cash flows in respect of the notes payable. However their fair values depend on the current market interest rate. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Cash flow risk |
|--------|----------------|

|   | The Company is exposed to fluctuations in the Israeli Consumer Price index (CPI), as the majority of its borrowings are linked to the CPI. As part of its risk management policy the Company has entered into forward contracts that partially mitigate the exposure to changes in the CPI. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Foreign exchange risk |
|--------|-----------------------|

|   | The Company's operating income and cash flows are exposed to currency risk, mainly due to handset and network related acquisitions and its roaming activity. As part of its risk management policy the Company uses forward to partially mitigate the exposure to fluctuations in foreign exchange rates (mainly USD). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Price risk |
|--------|------------|

|   | The Company is not exposed to price risk since it does not hold investments in securities. |
|--------|--------------------------------------------------------------------------------------------|

----

|   | Linkage of monetary balances: |
|--------|-------------------------------|

|   | The Company's exposure to foreign currency risk and CPI was based on the following financial instruments: |
|--------|-----------------------------------------------------------------------------------------------------------|

|                                                                                |   | December 31, 2008                               |   |   | December 31, 2009 |   |
|-------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|--------|-------------------|--------|
|                                                                                |   | 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                                         |   |                                            |   |   |              |   |   |   | 184 |   |   |   |   |   |   |   |   |   | 329 |   |
|    Trade receivables                                                 |   |                                            |   |   |              |   |   |   | 1,103 |   |   |   |   |   |   |   |   |   | 1,275 |   |
|    Other receivables                                                 |   |                                            |   |   |              |   |   |   | 19 |   |   |   |   |   |   |   |   |   | 8 |   |
|    Derivative financial instruments (*)                              |   |                                            | 23     |   |              |   | 4 |   |   |   |   |   |   |   | 3 |   |   |   | 11 |   |   |   |   |   |
| Non- current assets                                                                 |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Trade receivables                                                 |   |                                            |   |   |              |   |   |   |   |   | 417 |   |   |   |   |   |   |   |   |   |   |   | 474 |   |
|    Derivative financial instruments (*)                              |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   | 4 |   |   |   |   |   |
| Total assets                                                                        |   |                                            | 23     |   |              |   | 4 |   |   |   | 1,723 |   |   |   | 3 |   |   |   | 15 |   |   |   | 2,086 |   |
|                                                                                |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities                                                                 |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current maturities of notes payable and of other liabilities and current borrowings |   |                                            | 2      |   |              |   | 546 |   |   |   | 20 |   |   |   |   |   |   |   | 752 |   |   |   |   |   |
| Trade payables                                                                      |   |                                            | 282    |   |              |   |   |   |   |   | 537 |   |   |   | 224 |   |   |   |   |   |   |   | 553 |   |
| Other payables                                                                      |   |                                            |   |   |              |   |   |   |   |   | 246 |   |   |   |   |   |   |   |   |   |   |   | 238 |   |
| Parent group - trade                                                                |   |                                            | 4      |   |              |   |   |   |   |   |   |   |   |   | 19 |   |   |   |   |   |   |   | 15 |   |
| Derivative financial instruments (*)                                                |   |                                            | 1      |   |              |   | 6 |   |   |   |   |   |   |   | 4 |   |   |   |   |   |   |   |   |   |
| Non- current liabilities                                                            |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-current borrowings                                                              |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 300 |   |
| Notes payable                                                                       |   |                                            |   |   |              |   | 1,613 |   |   |   |   |   |   |   |   |   |   |   | 1,379 |   |   |   |   |   |
| Other                                                                               |   |                                            |   |   |              |   | 5 |   |   |   |   |   |   |   |   |   |   |   | 2 |   |   |   |   |   |
| Total liabilities                                                                   |   |                                            | 289    |   |              |   | 2,170 |   |   |   | 803 |   |   |   | 247 |   |   |   | 2,133 |   |   |   | 1,106 |   |

----

|   | Sensitivity analysis |
|--------|----------------------|

|   | A change of the CPI as at December 31, 2009 and 2008 would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | A change of the USD exchange rate as at December 31, 2009 and 2008 would have increased (decreased) equity and profit by the amounts shown below. This analysis assumes that all other variables remain constant. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Data regarding the dollar exchange rate and the Israeli CPI: |
|--------|--------------------------------------------------------------|

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

----

|   | Details regarding the derivative financial instruments - foreign exchange and CPI risk management: |
|--------|----------------------------------------------------------------------------------------------------|

|   | The notional amounts of derivatives as of December 31, 2008 and 2009 are as follows: |
|--------|--------------------------------------------------------------------------------------|

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

----

|   | 3. Credit risk |
|--------|----------------|

|   | Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's trade receivables from subscribers, and also from cash and cash equivalents, freestanding forward contrast, and other receivables. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Company conducts credit evaluations on receivables in certain types over a certain amount, and requires collaterals against them. Management monitors outstanding receivable balances and the financial statements include appropriate allowances for estimated irrecoverable amounts. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the end of the reporting period was: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                             |   |  New Israeli shekels |   |
|--------------------------------------------------|--------|---------------------------|--------|
|                                             |   | December 31               |   |
|                                             |   | 2008                      |   |   | 2009 |   |
|                                             |   | In millions               |   |
| Cash and cash equivalents                        |   |                      | 184    |   |   |   | 329 |   |
| Trade receivables including non-current amounts  |   |                      | 1,520  |   |   |   | 1,749 |   |
| Forward exchange contracts on foreign currencies |   |                      | 19     |   |   |   | - |   |
| Forward exchange contracts on CPI                |   |                      | 4      |   |   |   | 15 |   |
| Other receivables                                |   |                      | 19     |   |   |   | 8 |   |
|                                             |   |                      | 1,746  |   |   |   | 2,101 |   |

|   | The cash and cash equivalents are held in leading Israeli commercial banks, rated by Standard & Poor's Maalot at between ilAA- negative to ilAA+ negative. The Forward contracts are signed with leading Israeli commercial banks, rated by Standard & Poor's Maalot at ilAA+ negative. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The trade receivables are significantly widespread, and include individuals and businesses, and therefore have no representing credit rating. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   | See also note 7 as to the assessment by aging of the trade receivables and related allowance for doubtful accounts. |
|--------|---------------------------------------------------------------------------------------------------------------------|

----

|   | 4. Liquidity risk |
|--------|-------------------|

|   | Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Company's reputation. The Company's policy is to ensure that it has sufficient cash and cash equivalents, and credit facilities to meet expected operational expenses, dividends, and financial obligations. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following are the contractual maturities of financial liabilities, including estimated interest payments: |
|--------|---------------------------------------------------------------------------------------------------------------|

|   | The amounts disclosed in the table are the contractual undiscounted cash flows. |
|--------|---------------------------------------------------------------------------------|

| 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                            |   |                            | 777    |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 777 |   |
| Parent group  - trade                     |   |                            | 34     |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 34 |   |
| Other liabilities                                   |   |                            | 2      |   |     |   | 2      |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 4 |   |
| Foreign currency forward   contracts |   |                            | 3      |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 3 |   |
| Embedded derivatives                                |   |                            | 1      |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 1 |   |
|                                                |   |                            | 1,649  |   |     |   | 801    |     |   |   | 210          |   |   |             | 559    |   |   |   | 236 |   |   |   | 3,455 |   |

| December 31, 2008                                   |   | 1st year                        |   |   | 2nd year |   |   | 3rd year |   |   | 4 to 5 years |   |   | More than5 years |   |   | Total  |   |
|-----------------------------------------------------|--------|---------------------------------|--------|--------|----------|--------|--------|----------|--------|--------|--------------|--------|--------|------------------|--------|--------|--------|--------|
|                                                |   | New Israeli Shekels In millions |   |
| Notes payable series A                              |   |                            | 628    |   |     |   | 780    |     |   |   | 749          |   |   |             | 182    |   |   |   |   |   |   | 2,339 |   |
| Trade and other payables                            |   |                            | 819    |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   | 819 |   |
| Parent group  - trade                     |   |                            | 4      |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   | 4 |   |
| Other liabilities                                   |   |                            | 6      |   |     |   | 2      |     |   |   | 3            |   |   |             |   |   |   |   |   |   |   | 11 |   |
| Foreign currency forward   contracts |   |                            | 1      |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   | 1 |   |
| CPI forward contracts                               |   |                            | 6      |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   | 6 |   |
|                                                |   |                            | 1,464  |   |     |   | 782    |     |   |   | 752          |   |   |             | 182    |   |   |   |   |   |   | 3,180 |   |

----

|   | 4. Liquidity risk (continued) |
|--------|-------------------------------|

|   | The following table shows expected cash flows of the freestanding forward contracts that were recognized as financial liabilities. |
|--------|------------------------------------------------------------------------------------------------------------------------------------|

| 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 | ) |
|                                                                              |   |                            | (3     | )               |   |   |   | (3 | ) |

| As at December 31, 2008                                    |   | 1st year                        |   |   2nd year | Total  |   |
|------------------------------------------------------------|--------|---------------------------------|--------|-----------------|--------|--------|
|                                                       |   | New Israeli Shekels In millions |   |
| Foreign currency forward contracts: amounts to be received |   |                            | 95     |            |   |   |   | 95 |   |
| Foreign currency forward contracts: amounts to be paid     |   |                            | (96    | )               |   |   |   | (96 | ) |
|                                                       |   |                            | (1     | )               |   |   |   | (1 | ) |
| CPI forward contracts to be settled net                    |   |                            | (6     | )               |   |   |   | (6 | ) |

----

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

|   | See note 13(f) regarding financial covenants in respect of credit facilities. |
|--------|-------------------------------------------------------------------------------|

|   | See note 18(h) regarding dividends policy |
|--------|-------------------------------------------|

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

|   | Effective 1 January 2009, the Company adopted the amendment to IFRS 7 for financial instruments that are measured in the statement of financial position at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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) |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | The financial instruments that are measured at fair value through profit or loss are derivative financial instruments. |
|--------|------------------------------------------------------------------------------------------------------------------------|

|   | The fair value of forward contracts are calculated by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date (Level 2). |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The fair value of embedded derivatives financial instruments is estimated by discounting the difference between the contractual price and the current price for the residual maturity of the contract using a risk free interest rate (level 2). |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | c. | Fair values of financial instruments (continued): |
|--------|----|---------------------------------------------------|

|   | As detailed in note 2(i) the financial instruments are categorized as following: |
|--------|----------------------------------------------------------------------------------|

|   | * Fair Value Through Profit or Loss (FVTPL) |
|--------|---------------------------------------------|

|   | * Loans and Receivables (L&R) |
|--------|-----------------------------------|

|   | * Amortized Cost (AC) |
|--------|-----------------------|

|   | The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                          |         |   | December 31, 2008               |   |   | December 31, 2009 |   |
|---------------------------------------------------------------|--------------|--------|---------------------------------|--------|--------|-------------------|--------|
|                                                          | 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      |   |                            | 184    |   |              |   | 184 |   |   |   |   |   |   | 329 |   |   |   | 329 |   |   |   |   |
| Trade receivables (***)                                       | L&R      |   |                            | 1,520  |   |              |   | 1,530 |   |   |   | 6 | % |   |   | 1,749 |   |   |   | 1,754 |   |   |   | 4.25 | % |
| Other receivables (*)                                         | L&R      |   |                            | 19     |   |              |   | 19 |   |   |   |   |   |   |   | 8 |   |   |   | 8 |   |   |   |   |   |
| Derivative financial instruments                         | FVTPLLevel 2 |   |                            | 27     |   |              |   | 27 |   |   |   |   |   |   |   | 18 |   |   |   | 18 |   |   |   |   |   |
| Liabilities                                                   |         |   |                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Notes payable series A                                        | AC           |   |                            | 2,155  |   |              |   | 2,169 |   |   | Market quote |   |   |   | 1,681 |   |   |   | 1,765 |   |   | Market quote |   |
| Notes payable series B (****)                                 | AC           |   |                            |   |   |              |   |   |   |   |   |   |   |   |   | 448 |   |   |   | 434 |   |   |   | 4.19 | % |
| Trade payables and other (*)                                  | AC           |   |                            | 819    |   |              |   | 819 |   |   |   |   |   |   |   | 777 |   |   |   | 777 |   |   |   |   |   |
| Non-current bank borrowing                                    | AC           |   |                            |   |   |              |   |   |   |   |   |   |   |   |   | 300 |   |   |   | 300 |   |   |   |   |   |
| Parent group – trade (*)                                | AC           |   |                            | 4      |   |              |   | 4 |   |   |   |   |   |   |   | 34 |   |   |   | 34 |   |   |   |   |   |
| Capital lease obligation                                      | AC           |   |                            | 11     |   |              |   | 11 |   |   |   |   |   |   |   | 4 |   |   |   | 4 |   |   |   |   |   |
| Derivative financial instruments                         | FVTPLLevel 2 |   |                            | 7      |   |              |   | 7 |   |   |   |   |   |   |   | 4 |   |   |   | 4 |   |   |   |   |   |
| Current bank borrowings including current maturities (*) | AC           |   |                            | 20     |   |              |   | 20 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (*) | 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. |
|------|-----------------------------------------|

| (***) | The fair value of trade receivables is based on discounted cash flows using rates based on the average borrowing rates. |
|-------|-------------------------------------------------------------------------------------------------------------------------|

| (****) | The fair value of notes payable series B trade is based on discounted cash flow calculations. |
|--------|-----------------------------------------------------------------------------------------------|

----

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

|                            |   | New Israeli Shekels |   |
|---------------------------------|--------|---------------------|--------|
|                            |   | January 1           |   |   | December 31 |   |
|                            |   | 2008                |   |   | 2008 |   |   |  2009 |   |
|                            |   | In millions         |   |
| Trade (current and non-current) |   |                | 1,813  |   |   |   | 1,837 |   |   |   | 2,056 |   |
| Deferred interest income        |   |                | (83    | ) |   |   | (67 | ) |   |   | (58 | ) |
| Allowance for doubtful accounts |   |                | (163   | ) |   |   | (250 | ) |   |   | (249 | ) |
|                            |   |                | 1,567  |   |   |   | 1,520 |   |   |   | 1,749 |   |
| Current                         |   |                | 1,121  |   |   |   | 1,103 |   |   |   | 1,275 |   |
| Non - current                   |   |                | 446    |   |   |   | 417 |   |   |   | 474 |   |

|   | Non-current trade receivables bear no interest. These balances are in respect of equipment sold in installments (18-36 monthly payments). Income in respect of deferred interest is the difference between the original and the present value of the trade receivable as of the end of the reporting period. The current amount is computed on the basis of the interest rate relevant at the date of the transaction (2008 – 4.35% - 7.52%) (2009 – 4% - 5.25%). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During 2009 and 2008 the Company factored most of its non-current trade receivables resulting from sales of handsets by credit cards. The factoring was executed through a clearing company, on a non-recourse basis. The factoring of accounts receivable was recorded by the Company as a sales transaction under the provisions of IAS 39. During the year ended December 31, 2009 and 2008, the Company factored NIS 124 million and NIS 290 million of trade receivables with credit cards. The resulting costs were charged to "finance expenses" in the statement of income, as incurred. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The changes in the allowance for the years ended December 31, 2008 and 2009 are as follows: |
|--------|---------------------------------------------------------------------------------------------|

|                         |   |                |   |
|------------------------------|--------|---------------------|--------|
|                         |   | New Israeli Shekels |   |
|                         |   | Year ended          |   |
|                         |   | 2008                |   |   | 2009 |   |
|                         |   | In millions         |   |
| Balance at beginning of year |   |                | 163    |   |   |   | 250 |   |
| Utilization during the year  |   |                | (4     | ) |   |   | (72 | ) |
| Change during the year       |   |                | 91     |   |   |   | 71 |   |
| Balance at end of year       |   |                | 250    |   |   |   | 249 |   |

|   | Doubtful accounts expenses are recorded in the statement of income under General and Administrative expenses. |
|--------|---------------------------------------------------------------------------------------------------------------|

|   | See note 5 regarding trade receivables credit risk. |
|--------|-----------------------------------------------------|

----

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

|   | The aging of gross trade receivables and their respective allowance for doubtful accounts as of, December 31, 2008 and 2009 is as follows: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

|                        |   | Gross                           |   |   | Allowance |   |   | Gross  |   |   | Allowance |   |
|-----------------------------|--------|---------------------------------|--------|--------|-----------|--------|--------|--------|--------|--------|-----------|--------|
|                        |   | New Israeli Shekels In millions |   |
|                        |   | December 31                     |   |
|                        |   | 2008                            |   |   | 2009      |   |
| Not past due                |   |                            | 1,522  |   |      |   | 56     |   |   |   | 1,734     |   |   |   | 57 |   |
| Past due less than one year |   |                            | 117    |   |      |   | 44     |   |   |   | 104       |   |   |   | 33 |   |
| Past due more than one year |   |                            | 198    |   |      |   | 150    |   |   |   | 218       |   |   |   | 159 |   |
|                        |   |                            | 1,837  |   |      |   | 250    |   |   |   | 2,056     |   |   |   | 249 |   |

|   | Trade receivables that are not past due are rated by the Company as risk class 1, and trade receivables that are past due are rated by the Company as risk class 2. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | With respect to the trade receivables that are neither impaired nor past due, there are no indications as of the end of the reporting period that the debtors will not meet their payment obligations. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                             |   | New Israeli Shekels |
|----------------------------------|--------|---------------------|
|                             |   | January 1           |   |   | December 31 |
|                             |   | 2008                |   |   | 2008 |   |   | 2009 |
|                             |   | In millions         |
| Handsets                         |   |                | 94 |   |   |   | 77 |   |   |   | 106 |   |
| Accessories and other            |   |                | 19 |   |   |   | 21 |   |   |   | 27 |   |
| Spare parts                      |   |                | 20 |   |   |   | 22 |   |   |   | 18 |   |
| ISP modems and related equipment |   |                | - |   |   |   | 5 |   |   |   | 7 |   |
|                             |   |                | 133 |   |   |   | 125 |   |   |   | 158 |   |

|   | b. | Inventories at December 31, 2009, are presented net of an allowance for decline in value in the amount of NIS 9 million (December 31, 2008 – NIS 5 million, January 1, 2008 - NIS 4 million). |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The cost of inventory recognized as expenses and included in cost of revenue for the years ended December 31, 2008 and 2009 amounted to NIS 843 million, and NIS 564 millions respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                           |   | 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 |   |
|                           |   |                            |   |   |          |   |   |                                 |   |   |                                |   |   |                         |   |   |   |   |   |   |   |   |   |   |
| 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 |   |
|                           |   |                            |   |   |          |   |   |                                 |   |   |                                |   |   |                         |   |   |   |   |   |   |   |   |   |   |
| Carrying amounts, net          |   |                            |   |   |          |   |   |                                 |   |   |                                |   |   |                         |   |   |   |   |   |   |   |   |   |   |
|                           |   |                            |   |   |          |   |   |                                 |   |   |                                |   |   |                         |   |   |   |   |   |   |   |   |   |   |
| At January 1, 2008             |   |                            | 1,287  |   |          |   | 93     |                                 |   |   | 134                                 |   |   |                         | 11     |   |   |   | 165 |   |   |   | 1,690 |   |
| At December 31, 2008           |   |                            | 1,426  |   |          |   | 112    |                                 |   |   | 231                                 |   |   |                         | 13     |   |   |   | 153 |   |   |   | 1,935 |   |
| At December 31, 2009           |   |                            | 1,472  |   |          |   | 158    |                                 |   |   | 276                                 |   |   |                         | 13     |   |   |   | 145 |   |   |   | 2,064 |   |

----

|                         |   | 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 |   |
|                         |   |                            |   |   |                   |   |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |
| 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 |   |
|                         |   |                            |   |   |                   |   |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |
| Carrying amounts, net        |   |                            |   |   |                   |   |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |
|                         |   |                            |   |   |                   |   |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |
| At January 1, 2008           |   |                            | 1,172  |   |                   |   | 14     |                                            |   |   |              |   |   |   | 195    |   |   |   | 1,381 |   |
| At December 31, 2008         |   |                            | 1,087  |   |                   |   | 11     |                                            |   |   |              |   |   |   | 162    |   |   |   | 1,260 |   |
| At December 31, 2009         |   |                            | 999    |   |                   |   | 8      |                                            |   |   | 111               |   |   |   | 142    |   |   |   | 1,260 |   |

----

|                                      |   | New Israeli Shekels |   |
|-------------------------------------------|--------|---------------------|--------|
|                                      |   | January 1           |   |   | December 31 |   |
|                                      |   | 2008                |   |   | 2008 |   |   | 2009 |   |
|                                      |   | In millions         |   |
| Employees and employee institutions       |   |                | 135    |   |   |   | 122 |   |   |   | 137 |   |
| Liability for vacation and recreation pay |   |                | 21     |   |   |   | 24 |   |   |   | 21 |   |
| Government institutions                   |   |                | 85     |   |   |   | 82 |   |   |   | 61 |   |
| Sundry                                    |   |                | 15     |   |   |   | 18 |   |   |   | 19 |   |
|                                      |   |                | 256    |   |   |   | 246 |   |   |   | 238 |   |

|                            |   | Dismantling and restoring sites obligation |   |   |  Legal claims |   |   | Handset warranty |   |   | Total  |   |
|---------------------------------|--------|--------------------------------------------|--------|--------|--------------------|--------|--------|------------------|--------|--------|--------|--------|
|                            |   | New Israeli shekels In millions            |   |
|                            |   |                                       |   |   |               |   |   |             |   |   |   |   |
| Balance as at January 1, 2009   |   |                                       | 23     |   |               |   |   |             |   | *      |   |   |   | 23 |   |
| Additions during the year       |   |                                       | *      |   |               |   | 33     |             |   |   | 1      |   |   |   | 34 |   |
| Change in dismantling costs     |   |                                       | (2.5   | )      |               |   |   |             |   |   |   |   |   |   | (2.5 | ) |
| Reductions during the year      |   |                                       |   |   |               |   |   |             |   |   | *      |   |   |   | * |   |
| Unwind of discount              |   |                                       | 2.5    |   |               |   | *      |             |   |   | *      |   |   |   | 2.5 |   |
| Balance as at December 31, 2009 |   |                                       | 23     |   |               |   | 33     |             |   |   | 1      |   |   |   | 57 |   |
| Non-current                     |   |                                       | 23     |   |               |   | -      |             |   |   | -      |   |   |   | 23 |   |
| Current                         |   |                                       | -      |   |               |   | 33     |             |   |   | 1      |   |   |   | 34 |   |
| Balance as at December 31, 2008 |   |                                       | 23     |   |               |   |   |             |   |   | *      |   |   |   | 23 |   |
| Non-current                     |   |                                       | 23     |   |               |   |   |             |   |   |   |   |   |   | 23 |   |
| Current                         |   |                                       |   |   |               |   |   |             |   |   | *      |   |   |   | * |   |

|   | Dismantling and restoring sites obligation |
|--------|--------------------------------------------|

|   | The abovementioned additions during the year and reductions during the year are non-cash transactions recorded against Property and equipment. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Legal claims |
|--------|--------------|

|   | After the end of the reporting period an agreement was reached with the MOC in respect of usage of frequency bands, see note 17 (c) (16). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | a. | The Company had a senior credit facility with leading commercial banks. The facility was divided into two tranches: a USD 150 million term loan facility ("Facility A") and a USD 100 million revolving loan facility ("Facility B"); 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 remaining to be repaid under Facility A in 2009. Facility B expired on September 1, 2009. The amounts drawn from facility A and facility B as of December 31, 2008 and 2009 were USD 6 million and nil, respectively. During 2009 the Company used facility B to draw short time credits. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | On October 1, 2009, a new facility ("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 is 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. As of December 31, 2009 no funds were drawn from this facility. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | On November 24, 2009, a new facility ("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 was 1.15% per year. The Company is charged a commitment fee of 0.4% per year for undrawn amounts. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | On December 2, 2009, a new facility ("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 is 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. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | On December 28, 2009, a new 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 was 2.5% per year. The Israeli Prime interest rate is determined by the Bank of Israel and updated on a monthly basis. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | f. | Financial covenants: |
|--------|----|----------------------|

|   | With respect to Facilities C, D, E, the loan, and note payable series B (see note 14) 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 2008 and 2009. See note 6 regarding the Company's exposure to market risks and liquidity risk. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | g. | 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. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Notes payable series A |
|--------|------------------------|

|   | a. | On March 31, 2005, the Company completed an offering of NIS 2,000 million of unsecured notes, which were issued at their NIS par value. The notes have been registered in Israel and are traded on the Tel-Aviv Stock Exchange (TASE). Of these notes approximately NIS 36.5 million were purchased by PFC. PFC also received an additional allocation of notes having an aggregate principal amount of NIS 500 million. These notes that PFC received pursuant to this additional allocation do not confer the right to receive any payment whatsoever on account of principal or interest until they are sold by PFC to a third party. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The net proceeds from the offering were approximately NIS 1,929 million after deducting the notes purchased by PFC, commissions and offering expenses. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The principal amount of the Notes is payable in 12 equal quarterly installments, beginning June 30, 2009. |
|--------|-----------------------------------------------------------------------------------------------------------|

|   | The Notes bear NIS interest at the rate of 4.25% per annum, linked to the Israeli Consumer Price Index, which is payable quarterly on the last day of each quarter, commencing June 30, 2005. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On December 31, 2009, the Notes closing price was 119.86 points par value. The fair value of the note as of December 31, 2008 and 2009 was NIS 2,169 million and NIS 1,765 million, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | The amounts outstanding are as follows: |
|--------|----|-----------------------------------------|

|                            |   |   | New Israeli Shekels     |   |
|---------------------------------|--------|--------|-------------------------|--------|
|                            |   |   | January 1               |   |   |   | December 31 |   |
|                            |   |   | 2008                    |   |   |   | 2008 |   |   |   | 2009 |   |
|                            |   |   | In millions   |   |
| Total amount                    |   |   | 2,073                   |   |   |   | 2,166 |   |   |   | 1,687 |   |
| Less - offering expenses, net   |   |   | 17                      |   |   |   | 11 |   |   |   | 6 |   |
| Less – current maturities |   |   | -                       |   |   |   | 542 |   |   |   | 750 |   |
|                            |   |   | 2,056                   |   |   |   | 1,613 |   |   |   | 931 |   |

----

|   | c. | The principal payments due, linked to the CPI in effect as at each reporting date are as follows: |
|--------|----|---------------------------------------------------------------------------------------------------|

|                     |   | New Israeli Shekels |   |
|--------------------------|--------|---------------------|--------|
|                     |   | January 1           |   |   | December 31 |   |
|                     |   | 2008                |   |   | 2008 |   |   | 2009 |   |
|                     |   | In millions         |   |
| Year ending December 31: |   |                |   |   |   |   |   |   |   |
| 2009                     |   |                | 518    |   |   |   | 542 |   |   |   | - |   |
| 2010                     |   |                | 691    |   |   |   | 722 |   |   |   | 750 |   |
| 2011                     |   |                | 691    |   |   |   | 722 |   |   |   | 750 |   |
| 2012                     |   |                | 173    |   |   |   | 180 |   |   |   | 187 |   |
|                     |   |                | 2,073  |   |   |   | 2,166 |   |   |   | 1,687 |   |

|   | d. | On December 27, 2009, the Company announced that its Board of Directors had resolved to distribute a special dividend of NIS 1.4 billion, or NIS 9.04 per share, to the Company's shareholders and reduce equity by NIS 1.4 billion. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Because the amount of the special dividend exceeds the legally available surplus for distribution, on December 31, 2010, the Company submitted an application ("Distribution Application") to the District Court having jurisdiction to request Court approval for the dividend distribution not in accordance with the conditions set forth in the law. Various applications and objections to the Distribution Application were submitted to the Court on behalf of a few holders of the Company’s Notes Series A".  On February 22, 2010, the Company announced that the District Court had approved a final settlement between the Company and the objecting holders of Notes Series A (the "Settlement") and had approved the Distribution Application.  According to the Settlement, in the event of a reduction in the current credit rating of the Notes Series A by the credit rating company S&P Maalot, there would be an increase in the annual linked interest rate of the Notes Series A of 1% in the year 2010, and of 0.5% in the year 2011, for each reduction of one rating category from the current credit rating (AA-).  The increase would take effect from the date of publication of the credit downgrading, and remain in effect as long as the credit downgrading is valid.  The increase in the interest rate would terminate upon the earlier of a credit upgrade or by the end of the relevant calendar year, whichever occurs first, provided that the increased interest rate applies for at least three months. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As a result, the Company has announced that it will distribute the special dividend on March 18, 2010, to shareholders of record as of March 7, 2010.  On the dividend distribution date, the Company’s equity will also be reduced by NIS 1.4 billion. See also note 18. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Notes payable series B |
|--------|------------------------|

|   | a. | On November 29, 2009 the Company issued to Israeli institutional investors approximately NIS 448 million of unsecured non-convertible Series B notes through a private placement in Israel. The notes are linked (principal and interest) to increases in the Israeli consumer price index (CPI). The principal amount of Series B notes is repayable in four equal annual installments between 2013 and 2016 and bears interest at an annual rate of 3.4%. The interest is payable on a semi-annual basis. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | The interest rate on the Notes has been increased by 0.6% per annum and therefore the interest which is payable now is 4% until a prospectus or a shelf offering report is published for the listing of the Notes for trade on the TASE. The Notes have been rated ilAA-/Stable, on a local scale, by Standard & Poor's Maalot. The Notes are listed for trade on the "Institutional Retzef" a trading system for institutional investors in Israel. The Company has also undertaken to make best efforts to list the Notes for trade on the TASE until June 30, 2010. Nevertheless, in the event the Notes are not listed for trade on the TASE by such date, the interest rate applicable to the Notes prior to their listing as discussed above and below shall remain in effect until future listing of the Notes for trade on the TASE (if any). See note 6 (c) regarding the fair value of the notes payable. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | So long as the Notes are not listed for trade on the TASE, the Company has undertaken the following: (i) to pay an additional interest at an annual rate of 0.6% until a prospectus or a shelf offering report is published for the listing for trade of the Notes on the TASE; (ii) to pay a one-time additional interest at an annual rate of 0.25% in the event there was a downgrade in the rating of the Notes from the date of the downgrade announcement by the rating agency, and until a prospectus or a shelf offering report is published for the listing of the Notes for trade on the TASE. Should the rating of the Notes be further downgraded, no additional interest payments will be made following such subsequent downgrades; (iii) a negative pledge (subject to certain curve-outs); and (iv) to undertake additional events of default of the Notes, as follows: (a) the rating of the Notes in Israel decreases below BBB (by Standard & Poor's Maalot or an equivalent rating by another rating agency) on a local scale; and (b) the Company fails to comply with its existing financial covenants, See note 13(f).  All such undertakings will be terminated upon the listing of the Notes for trade on the TASE, however, in the event the Notes are deregistered from the TASE (except deregistration resulting from merger or debt arrangement), such undertakings will become effective again (except the undertaking listed in subparagraph (ii) above). The Notes have not been, and will not be, registered under the US Securities Act of 1933, as amended, and may not be offered or sold in the United States or to U.S. persons, absent registration or an applicable exemption from registration requirements. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The principal payments due, at rates in effect as at the end of each reporting period are as follows: |
|--------|-------------------------------------------------------------------------------------------------------|

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

----

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

|   | The Company entered into several agreements to sell cable capacity. The agreements grant the customer an indefeasible right of use (IRU) of capacity of optics fiber for the life of the cable. Prepaid revenues from sales of cable capacity for the year ended December 31, 2008 and 2009 is NIS 5 million and NIS 4 million, respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Capital lease: |
|--------|----|----------------|

|                              |   | New Israeli Shekels |   |
|-----------------------------------|--------|---------------------|--------|
|                              |   | January 1           |   |   | December 31 |   |
|                              |   | 2008                |   |   | 2008 |   |   | 2009 |   |
|                              |   | In millions         |   |
| Total commitment                  |   |                | 10     |   |   |   | 11 |   |   |   | 4 |   |
| Less - deferred interest expenses |   |                | *      |   |   |   | * |   |   |   | * |   |
|                              |   |                | 10     |   |   |   | 11 |   |   |   | 4 |   |
| Less - current maturities         |   |                | 7      |   |   |   | 6 |   |   |   | 2 |   |
| Non-current lease commitment      |   |                | 3      |   |   |   | 5 |   |   |   | 2 |   |

|   | The commitments for capital lease are classified by currency of repayment linkage term and interest rates are as follows: |
|--------|---------------------------------------------------------------------------------------------------------------------------|

|              |           |   | New Israeli Shekels |   |
|-------------------|----------------|--------|---------------------|--------|
|              | December 31    |   | January 1           |   |   | December 31 |   |
|              | 2009           |   | 2008                |   |   | 2008 |   |   | 2009 |   |
|              | Weighted       |   |                |   |   |   |   |   |   |   |
|              | average        |   |                |   |   |   |   |   |   |   |
|              | interest rates |   | Amount              |   |
|              |           |   | In millions         |   |
| Linked to the USD |           |   |                | 6      |   |   |   | 2 |   |   |   | - |   |
|              |           |   |                |   |   |   |   |   |   |   |   |   |   |
| Linked to the CPI | 4.6%           |   |                | 4      |   |   |   | 9 |   |   |   | 4 |   |
|              |           |   |                | 10     |   |   |   | 11 |   |   |   | 4 |   |

----

|   | Israeli labor laws and agreements require payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (1) | Most of the Company's severance pay liability to its employees, are 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. In respect of which the Company has plan assets which are 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". |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The rest of the Company's obligation for severance pay is in accordance with section 14 of the 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 millions in accordance with section 14. The contributions in accordance with the aforementioned section 14 commenced in 2009. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | The liability for severance pay under a defined benefit plan: |
|--------|---------------------------------------------------------------|

|   | The amounts recognized in the statement of financial position are determined as follows: |
|--------|------------------------------------------------------------------------------------------|

|                                                                                        |   | New Israeli shekels |   |
|---------------------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                                        |   | December 31         |   |
|                                                                                        |   | 2008                |   |   | 2009 |   |
|                                                                                        |   | December 31         |   |
|                                                                                        |   | In millions         |   |
| Present value of funded obligations                                                         |   |                | 134    |   |   |   | 151 |   |
| Less: fair value of plan assets                                                             |   |                | 81     |   |   |   | 113 |   |
| Liability in the statement of financial position – presented as non-current liability |   |                | 53     |   |   |   | 38 |   |

|   | Changes during the year in the obligation recognized in the statement of financial position for post-employment defined benefit plans were as follows: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|                        |   | New Israeli shekels |   |
|-----------------------------|--------|---------------------|--------|
|                        |   | December 31         |   |
|                        |   | 2008                |   |   | 2009 |   |
|                        |   | In millions         |   |
| Balance at January 1        |   |                | 116    |   |   |   | 134 |   |
| Current service cost   |   |                | 29     |   |   |   | 32 |   |
| Interest cost          |   |                | 7      |   |   |   | 9 |   |
| Actuarial losses (gains)    |   |                | 2      |   |   |   | (7 | ) |
| Benefits paid               |   |                | (20    | ) |   |   | (17 | ) |
| Balance at December 31 |   |                | 134    |   |   |   | 151 |   |

|   | The changes during the year in the fair value of the plan assets is as follows: |
|--------|---------------------------------------------------------------------------------|

|                                |   | New Israeli shekels |   |
|-------------------------------------|--------|---------------------|--------|
|                                |   | December 31         |   |
|                                |   | 2008                |   |   | 2009 |   |
|                                |   | In millions         |   |
| Balance at January 1                |   |                | 86     |   |   |   | 81 |   |
| Expected return on plan assets      |   |                | 3      |   |   |   | 6 |   |
| Actuarial  gains (losses) |   |                | (16    | ) |   |   | 9 |   |
| Employer contributions              |   |                | 23     |   |   |   | 27 |   |
| Benefits paid                       |   |                | (15    | ) |   |   | (10 | ) |
| Balance at December 31         |   |                | 81     |   |   |   | 113 |   |

|   | The Company expects to contribute NIS 30 million in respect of liability for severance pay under a defined benefit plan in 2010. |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

----

|   | The amounts recognized in the income statement are as follows: |
|--------|----------------------------------------------------------------|

|                                                                                      |   | New Israeli shekels    |   |
|-------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                      |   | Year ended December 31 |   |
|                                                                                      |   | 2008                   |   |   | 2009 |   |
|                                                                                      |   | In millions            |   |
| Current service cost                                                                 |   |                   | 29     |   |   |   | 32 |   |
| Interest cost                                                                        |   |                   | 7      |   |   |   | 9 |   |
| Expected return on plan assets                                                            |   |                   | 3      |   |   |   | 6 |   |
| Total expenses recognized in the income statement                                         |   |                   | 33     |   |   |   | 35 |   |
| Charged to the statement of income as follows:                                            |   |                   |   |   |   |   |   |   |
|          Cost of revenues                    |   |                   | 19     |   |   |   | 21 |   |
|          Selling and marketing expenses      |   |                   | 7      |   |   |   | 7 |   |
|          General and administrative expenses |   |                   | 3      |   |   |   | 4 |   |
|          Finance costs, net                  |   |                   | 4      |   |   |   | 3 |   |
|                                                                                      |   |                   | 33     |   |   |   | 35 |   |
| Actuarial losses (gains) recognized in the statement of comprehensive income, before tax  |   |                   | 18     |   |   |   | (16 | ) |
| Actual loss (return) on plan assets                                                       |   |                   | 13     |   |   |   | (15 | ) |

|   | The principal actuarial assumptions used were as follows: |
|--------|-----------------------------------------------------------|

|                           |   | December 31 |    |
|--------------------------------|--------|-------------|---------|
|                           |   | 2008        |    |   | 2009 |   |
|                           |   | %           |    |   | % |   |
|                           |   |        |    |   |   |   |
| Discount rate                  |   |        | 5.49    | % |   |   | 5.70 | % |
| Inflation rate                 |   |        | 2.16    | % |   |   | 2.73 | % |
| Expected return on plan assets |   |        | 5.49    | % |   |   | 5.70 | % |
| Expected turnover rate         |   |        | 6% - 27 | % |   |   | 8% - 32 | % |
| Future salary increases        |   |        | 5.02    | % |   |   | 4.92 | % |

|   | The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

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

|   | The Company is committed to pay royalties to the Government of Israel on its "income from cellular services" and also income from fixed-line phone services as defined in the "Telecommunications (Royalties) Regulations, 2001" (hereafter - the Regulations), which includes all kinds of income of the Company from the granting of communication services under the licenses - including airtime, roaming services and non-recurring connection fees, but excluding income transferred to another holder of a communications license and deducting bad debts, payments to another communication licensee in respect of interconnection, payments for roaming services to foreign operators and expenses related to the sale of equipment. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During 2004, a reduction in the percentage of royalties was approved; accordingly, the rate of royalty payments (3.5%) paid by cellular operators is reduced annually by 0.5%, starting January 1st 2006, to a level of 1% at 2010. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The royalty expenses for the years ended December 31, 2008 and 2009 were approximately NIS 68 million and NIS 65 million, respectively, and are included under "cost of revenues". |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | Under the Telegraph Regulations the Company is committed to pay an annual fixed fee for each frequency used. The Company paid a total amount of approximately NIS 55 million, for each of the  years 2008 and 2009. Under the above Regulations should the Company choose to return a frequency, such payment is no longer due. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | At December 31, 2009, the Company is committed to acquire property and equipment for approximately NIS 86 million. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------|

|   | 4) | At December 31, 2009, the Company is committed to acquire handsets for approximately NIS 848 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 13(f) regarding financial covenants and note 13 (g) regarding negative pledge. |
|--------|----|-----------------------------------------------------------------------------------------|

----

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

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

|   | 1) | After the end of the reporting period 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 an option to extend the lease 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 three years. The Company has an option to extend the lease periods up to ten years (including the original lease periods). The rental payments fees are 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, 2009 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 are payable including option periods which are reasonably certain are as follows: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------|

|                       |   | New Israeli shekels |   |
|----------------------------|--------|---------------------|--------|
|                       |   | December 31, 2009   |   |
|                       |   | In millions         |   |
| Less than one year         |   |                | 220    |   |
| Between one and five years |   |                | 646    |   |
| More than five years       |   |                | 462    |   |
|                       |   |                | 1,328  |   |

|   | 6) | The rental expenses for the years ended December 31, 2009 and 2008 were approximately NIS 247 million, and NIS 233 million, respectively. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | 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. The Company's assessment of risk is based both on the advice of legal counsel and on the Company's estimate of the probable settlement amount that is expected to be incurred, if such a settlement will be agreed by both parties. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The most material litigation and claims that are described below: |
|--------|-------------------------------------------------------------------|

|   | 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 is recognized as a class action, is estimated at approximately NIS 120 million (if the court rules that no fee should have been collected) or alternatively NIS 90 million (if the court rules that the fees are excessive). The claim is still in the preliminary stage of the motion to certify it as a class action. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 is recognized as a class action, is estimated at approximately NIS 100 million for the seven year period leading up to the filing of the claim. The claim is still in the preliminary stage of the motion to certify it as a class action. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | On February 27, 2007, a claim was filed against the Company and two other cellular telecommunication companies together with a request to recognize this claim as a class action. The claim is for sums that were allegedly overcharged in breach of the Company's licenses, based on intervals larger than the intervals the defendants were allegedly authorized to charge under their licenses, for calls initiated or received by the subscribers while abroad. If the claim is recognized as a class action, the total amount claimed from the defendants is estimated by the plaintiffs to be approximately NIS 449 million, of which, approximately NIS 88 million is attributed to the Company. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On August 20, 2009, the claim was dismissed. |
|--------|----------------------------------------------|

----

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

|   | 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 161.7 million. The claim is still in the preliminary stage of the motion to certify it as a class action. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The plaintiffs allege that cell sites were illegally erected near their properties, causing environmental damage. They seek various remedies, including removal of all alleged illegal devices, and if the claim is recognized as a class action a sum of NIS 1 billion (1,000 NIS per person times 1 million people allegedly effected) that would be given to a fund managed by environment and cellular specialists. The claim is still in the preliminary stage of the motion to certify it as a class action. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6) | On November 29, 2007 a petition was filed in the Supreme Court against the Minister of Communications, the Legal Counsel of the Israeli Ministry of Communications and the Chief Executive Officer in the Ministry of Communications, and also against the Company (as well as two other cellular communications companies) as formal respondents. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The petition deals with the decision of the Minister of Communications according to which cellular companies are not allowed to market programs that include limitation to 1 minute minimum (programs that charge the subscriber for the whole first minute even if he used only a part of it). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The petitioner's motion is to implement the above mentioned decision retroactively and alternatively to instruct the cellular companies to forfeit the fines they collect from customers who wish to leave these programs. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On January 25, 2010 the petition was dismissed. |
|--------|-------------------------------------------------|

----

|   | 7) | On March 23, 2008, a claim and a motion to certify the claim as a class action were filed against the Company. The claim is that the Company overcharges subscribers for calls and that the subscribers' bill includes incorrect and unclear information. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The total amount to be claimed under the class action is not estimated by the plaintiff. |
|--------|------------------------------------------------------------------------------------------|

|   | On January 11, 2010, the claim was dismissed. |
|--------|-----------------------------------------------|

|   | 8) | 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. On September 6, 2009, the court set up dates for the filing of summations by the parties. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On January 7, 2010, the claim was dismissed. On February 10, 2010, the plaintiff submitted an appeal to the Supreme Court in Jerusalem. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | 9) | 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 of that model's functions and not offering replacement models free of additional obligation. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 70 million. The claim is still in the preliminary stage of the motion to certify it as a class action. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10) | On March 18, 2009, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company should not have charged its subscribers for various different services under certain circumstances. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 1,250 million. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On August 17, 2009 the claim was dismissed. |
|--------|---------------------------------------------|

----

|   | 11) | 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. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 12) | 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 is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiff to be approximately NIS 228 million. The claim is still in the preliminary stage of the motion to certify it as a class action. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 13) | On August 24, 2009, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company misled its subscribers by wrongfully not disclosing material terms of sale in a certain marketing campaign that it carried out. 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 982 million. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On January 17, 2009 the claim was dismissed. |
|--------|----------------------------------------------|

|   | 14) | On November 17, 2009, a claim and a motion to certify the claim as a class action were filed against the Company, two other cellular communications companies and the Minister of Communications. The claim alleges that the cellular operators discriminate against the non-religious subscribers by not offering them certain tariffs and terms that are offered to the religious sector. 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 900 million (for all defendants together). The claim is still in the preliminary stage of the motion to certify it as a class action. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On February 11, 2010, the claim was dismissed. |
|--------|------------------------------------------------|

|   | 15) | Additional 10 claims were filed against the Company, together with a request to recognize these claims as class actions. The total amount of the claims against the Company, if the claims are recognized as a class action, is estimated at approximately NIS 315 million. One of the claims in the amount of NIS 28 million was recognized as a class action. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 16) | 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 17) | 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, 2009 the Company provided the local authorities with 348 indemnification letters as a pre-condition for obtaining building permits. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | If the Company shall be required to make substantial payments under the indemnity letters, it could have an adverse effect on the Company's financial results. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company assumes that the requirement to provide indemnification letters might require it to change locations of sites to different, less suitable locations and to dismantle some of their sites. These changes in the deployment of the sites might have an adverse effect on the extent, quality and capacity of the network coverage. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 18) | In addition to all the above mentioned claims the Company is a party to various claims arising in the ordinary course of its operations. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | The Company's shares are traded in the form of American Depository Receipts ("ADRs"), each representing one ordinary share, on the NASDAQ Global Market, and on the Tel-Aviv stock exchange (TASE) according to the dual listing regulations. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under the provisions of the license granted to the Company (note 1a(2)), restrictions are placed on transfer of Company shares and placing liens thereon. The restrictions include the requirement that the advance written consent of the Minister of Communications be received prior to transfer of 10% or more of the Company's shares to a third party. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On February 6, 2008, the Company's Board of Directors approved a share buyback of up to NIS 600 million in 2008. Through December 31, 2008 the Company purchased 4,467,990 shares at the cost of NIS 351 million. In view of the significant market turbulence, the Board of Directors subsequently suspended the share buy-back plan. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In accordance with Israeli Companies Law, Company shares that have been acquired and are held by the Company are dormant shares as long as they are held by the Company, and as such they do not bear any rights until they are transferred to a third party. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The holders of ordinary shares are entitled to receive dividends as declared. |
|--------|-------------------------------------------------------------------------------|

|   | See also note 18 c. in respect of dividends. |
|--------|----------------------------------------------|

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

|   | 1) a. | In October 2000, the Company's Board of Directors approved an employee stock option plan (hereafter - the "2000 Plan"), pursuant to which 4,472,222 ordinary shares were reserved for issuance upon the exercise of 4,472,222 options to be granted to employees without consideration. The options vest in four equal annual batches over a period of four years from the date of grant of the option, provided the employee is still in the Company's employ. The option holder may exercise all or part of his options at any time after the date of vesting but no later than the expiration of the exercise period, which will fixed by the Employee Stock Option Committee and will not exceed ten years from the date of option grant. |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The NIS denominated exercise price per share of the options, is equal to the market price of the Company's shares on the date on which the options are granted. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Through December 31, 2009 - 5,317,555 options were granted pursuant to the 2000 Plan, of which 3,774,722 options have been exercised, 1,395,333 options were forfeited and 111,000 expired (options forfeited and expired were available for subsequent grants). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 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 holding options to purchase 962,104 ordinary shares accepted this offer. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On December 30, 2003, the Company's Board of Directors approved the grant of 195,000 options (out of the 419,930 options that were transferred from the 2000 Plan) under the 2003 amended Plan with an exercise price of NIS 20.45 - which was less than the market price on the date of grant. Through December 31, 2007 all 195,000 options that were granted have been exercised. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The options vest in four equal annual batches over a period of four years from the date of grant of the option, provided the employee is still in the Company's employ. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On 26 March 2008, the Board of Directors of the Company approved the termination of the 1998 Plan, the 2000 Plan and 2003 Amended Plan.  Since then, no further share options were granted under these three plans, and all outstanding share options thereunder will remain valid and bear all terms and conditions of the relevant option plans. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | In July 2004, the Company's Board of Directors approved a stock option plan (hereafter - the "2004 Plan"), pursuant to which 5,775,000 ordinary shares were reserved for issuance upon the exercise of 5,775,000 options to be granted without consideration. The options vest in four equal annual batches, provided the employee is still in the Company's employ. The option holder may exercise all or part of his options at any time after the date of vesting but no later than the expiration of the exercise period, which will fixed by the Employee Stock Option Committee and will not exceed ten years from the date of option grant. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

|   | 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 in an amount in excess of 40% (forty percent) or of another percent resolved by the Board of Directors, of the Company's net income for the relevant period ("the Excess Dividend") by an amount equal to the gross amount of the Excess Dividend per Ordinary Share. (ii) with respect to all options granted under the 2004 Share Option Plan, a dividend adjustment mechanism reducing the exercise price of such options following each dividend distribution other than in the ordinary course, by an amount which the Board of Directors considers as reflecting the impact such distribution will have or will likely to have on the trading price of the Ordinary Shares, and provisions authorizing the Board of Directors to allow option holders to exercise their vested options during a fixed period, 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. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Through December 31, 2009 – 11,312,500 options have been granted to Company's employees pursuant to the 2004 Plan, of which 4,459,041 options have been exercised, 1,569,389 options were forfeited and 4,625 options expired (options forfeited and expired are available for subsequent grants). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of December 31, 2009 - 4,178,514 of the 2004 Plan remain ungranted. The ordinary shares derived from the exercise of the options confer the same rights as the other ordinary shares of the Company. On February 9, 2010 the Company's Board of Directors approved the cashless exercise procedure according to which, option holders who were granted options on or after February 23, 2009 would be allowed to exercise their options only through a cashless exercise procedure and those granted options before February 23, 2009 would be able to choose between the cashless exercise procedure and the regular option exercise procedure. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On December 27, 2009, following a resolution to distribute a special dividend in the amount of NIS 1.4 billion (as a result of a capital reduction), the Board of Directors approved a reduction to the exercise price in an amount equivalent to 50% of the special dividend per share. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | The plans are subject to the terms stipulated by Section 102 of the Israeli Income Tax Ordinance. Inter alia, these terms provide that the Company will be allowed to claim, as an expense for tax purposes, the amounts credited to the employees as a benefit in respect of shares or options granted under the plans, as follows: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Through December 31, 2003, the amount that the Company will be allowed to claim as an expense for tax purposes will be the amount of the benefit taxable in the hands of the employee.  From January 1, 2004, the amount that the Company will be allowed to claim as an expense for tax purposes, will be the amount of the benefit taxable as work income in the hands of the employee, while that part of the benefit that is taxable as capital gains in the hands of the employee shall not be allowable. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The aforementioned expense for tax purposes will be recognized in the tax year that the employee is taxed, except as described below. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|

----

|   | In December 2002, the Company signed an agreement with the tax authorities concerning the tax liabilities of its employees regarding the benefit arising from the options granted to them and were exercised by December 31, 2002; and/or (2) options that vest by December 31, 2003 and were exercised by March 31, 2004. According to the agreement, the individual tax rate on the taxable income received by the employees in connection with the benefit arising from the options will be reduced; in return, the Company will defer the deduction of such an expense, for a period of 4 years from the date it commences paying income taxes. The Company claimed these expenses during 2009 for tax purposes. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                               |   | Year ended December 31 |      |
|------------------------------------|--------|------------------------|-----------|
|                               |   | 2008                   |      |   | 2009 |   |
|                               |   | Number                 |      |   | Weighted averageexercise price |   |   | Number |   |   | Weighted averageexercise price |   |
|                               |   |                   |      |   | NIS |   |   |   |   |   | NIS |   |
| Balance outstanding at beginning   |   |                   |      |   |   |   |   |   |   |   |   |   |
| of year                            |   |                   | 2,863,818 |   |   |   | 36.06 |   |   |   | 2,231,187 |   |   |   | 39.21 |   |
| Changes during the year:           |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Granted                            |   |                   | 76,000    |   |   |   | 66.05 |   |   |   | 4,185,500 |   |   |   | *60.42 |   |
| Exercised                          |   |                   | (566,614  | ) |   |   | 29.38 |   |   |   | (1,020,742 | ) |   |   | 37.28 |   |
| Forfeited                          |   |                   | (142,014  | ) |   |   | 29.62 |   |   |   | (71,250 | ) |   |   | 29.1 |   |
| Expired                            |   |                   | (3        | ) |   |   | 1.27 |   |   |   | (8,750 | ) |   |   | 27.35 |   |
| Balance outstanding at end of year |   |                   | 2,231,187 |   |   |   | 39.21 |   |   |   | 5,315,945 |   |   |   | 56.47 |   |
| Balance exercisable at end of year |   |                   | 1,031,312 |   |   |   | 33.64 |   |   |   | 928,945 |   |   |   | 45.25 |   |

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

|   | The weighted average fair value of options granted using the Black & Scholes option-pricing model during 2008 and 2009 is NIS 14.46 and NIS 8.94 per option, respectively. The fair value of each option granted is estimated on the date of grant based on the following weighted average assumptions: weighted average dividend yield of 2008 6.21% and 2009 4.42%; expected volatility of 24% and 27%, respectively; risk-free interest rate: 2008 - 4.3%, 2009 – 2.9%; weighted average expected life: 2008-3 years, 2009 - 4 years. The expected volatility is based on a historical volatility, by statistical analysis of the daily share price for periods corresponding the option's expected life. The expected life is expected length of time until expected date of exercising the options, based on historical data on employees' exercise behavior and anticipated future condition. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Share options outstanding as of December 31, 2009 have the following expiry date and exercise prices: |
|--------|-------------------------------------------------------------------------------------------------------|

|   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 |   |

|   | Share options outstanding as of December 31, 2008 have the following expiry date and exercise prices: |
|--------|-------------------------------------------------------------------------------------------------------|

|   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 |   |

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

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

----

|   | Dividends declared for the reported periods are as follows: |
|--------|-------------------------------------------------------------|

|           |   | Dividends Declared for the periods of the year |   |
|----------------|--------|-----------------------------------------------------|--------|
|           |   | 2008                                                |   |   | 2009 |   |
|           |   | Per sharein NIS                                     |   |   | NIS in millions |   |   | Per sharein NIS |   |   | NIS inmillions |   |
| First quarter  |   |                                                | 1.24   |   |   |   | 194 |   |   |   | 1.54 |   |   |   | 237 |   |
| Second quarter |   |                                                | 1.26   |   |   |   | 194 |   |   |   | 1.49 |   |   |   | 230 |   |
| Third quarter  |   |                                                | 1.54   |   |   |   | 236 |   |   |   | 1.94 |   |   |   | 299 |   |
| Forth quarter  |   |                                                | 1.41   |   |   |   | 216 |   |   |   | 1.89 |   |   |   | 293 |   |
|           |   |                                                | 5.45   |   |   |   | 840 |   |   |   | 6.86 |   |   |   | 1,059 |   |

|   | On December 27, 2009 the Company announced that its Board of Directors' resolved to distribute a dividend of NIS 1.4 billion to the Company's shareholders. The Company submitted an application to the District Court to approve the dividend distribution  ("Distribution Application"). On February 22, 2010 the Company announced that the District Court approved the Distribution Application in the total amount of NIS 1.4 billion (exceeding the surpluses for distribution) to the Company's shareholders. Following the District Court's approval, the dividend in the total amount of NIS 1.4 billion which is NIS 9.04 per share is expected to be paid on March 18, 2010 to shareholders and ADS holders of record on March 7, 2010. The distribution will result in a reduction of equity by an equal amount and be financed by debt See also note 14 in respect settlement reached with notes payable series A holders. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | On March 16, 2010, the Company's Board of Directors resolved and recommended the distribution of a cash dividend (with respect to the fourth quarter of 2009) in the amount of NIS 1.89 per share (approximately NIS 293 million) to shareholders of record on April 7, 2010, to be paid on April 22, 2010. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The Company's dividend policy for 2009 provided for a dividend payout ratio of 80% of the annual net income, the same as with respect to the year 2008. For the year 2009, the Company distributed dividends and declared a final dividend on March 16, 2010 (with respect to the fourth quarter of 2009), which in the aggregate represent a payout ratio of approximately 93% of the Company's annual net income for the year. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | See note 13(f) regarding financial covenants. |
|--------|-----------------------------------------------|

----

|   | a. | Cost of revenues |
|--------|----|------------------|

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

|   | b. | Selling and marketing expenses |
|--------|----|--------------------------------|

|                                                      |   | New Israeli shekels     |   |
|-----------------------------------------------------------|--------|-------------------------|--------|
|                                                      |   | Year ended December 31, |   |
|                                                      |   | 2008                    |   |   | 2009 |   |
|                                                      |   | In millions             |   |
| Wages and employee benefits expenses plus car maintenance |   |                    | 170    |   |   |   | 184 |   |
| Advertising and marketing                                 |   |                    | 103    |   |   |   | 118 |   |
| Selling commissions, net                                  |   |                    | 32     |   |   |   | 8 |   |
| Depreciation                                              |   |                    | 12     |   |   |   | 7 |   |
| Other                                                     |   |                    | 71     |   |   |   | 70 |   |
| Total selling and marketing expenses                      |   |                    | 388    |   |   |   | 387 |   |

|   | c. | General and administrative expenses |
|--------|----|-------------------------------------|

|                                                      |   | New Israeli shekels     |   |
|-----------------------------------------------------------|--------|-------------------------|--------|
|                                                      |   | Year ended December 31, |   |
|                                                      |   | 2008                    |   |   | 2009 |   |
|                                                      |   | In millions             |   |
| Allowance for doubtful accounts                           |   |                    | 96     |   |   |   | 78 |   |
| Wages and employee benefits expenses plus car maintenance |   |                    | 66     |   |   |   | 87 |   |
| Professional fees                                         |   |                    | 33     |   |   |   | 40 |   |
| Credit card commissions                                   |   |                    | 29     |   |   |   | 32 |   |
| Depreciation                                              |   |                    | 19     |   |   |   | 12 |   |
| Other                                                     |   |                    | 41     |   |   |   | 41 |   |
| Total general and administrative expenses                 |   |                    | 284    |   |   |   | 290 |   |

----

|   | d. | Employee benefit expense |
|--------|----|--------------------------|

|                                                                                                                                        |   | New Israeli shekels     |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                                        |   | Year ended December 31, |   |
|                                                                                                                                        |   | 2008                    |   |   | 2009 |   |
|                                                                                                                                        |   | In millions             |   |
| Wages and salaries, including social benefits; social security costs and pension cost: defined contribution plans and defined benefit plans |   |                    | 642    |   |   |   | 745 |   |
| Expenses in respect of share options that were granted to employees                                                                         |   |                    | 9      |   |   |   | 22 |   |
|                                                                                                                                        |   |                    | 651    |   |   |   | 767 |   |

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

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

----

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

|   | Under this law, results for tax purposes through tax-year 2007, are measured in real terms, having regard to the changes in the Israeli CPI. The Company and its subsidiary are taxed under this law. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On March 6, 2008, Amendment number 20 to this law was published, according to which the provisions of the Inflationary Adjustments Law will no longer apply to the Company in 2008 and thereafter, and therefore the Company and its subsidiary are measured for tax purposes from tax-year 2008 in nominal values. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The income of the Company and its Israeli subsidiary is taxed at the regular rate.  Through December 31, 2003, the corporate tax was 36%.  In July 2004, Amendment No. 140 to the Income Tax Ordinance was enacted.  One of the provisions of this amendment is that the corporate tax rate is to be gradually reduced from 36% to 30%.  In August 2005, a further amendment (No. 147) was published, which makes a further revision to the corporate tax rates prescribed by Amendment No. 140.  As a result of the aforementioned amendments, the corporate tax rates for are as follows: 2008 - 27%, 2009 - 26% and for 2010 and thereafter - 25%. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On July 23, 2009, The Law of Economic Efficiency (legislation amendments for implementation of the economic plan for the years 2009 and 2010) was enacted. One of the provisions of this law is that the corporate tax rate is to be gradually further reduced from 26% in 2009 and 25% in 2010 to 18% as follows: 24% in 2011, 23% in 2012, 22% in 2013, 21% in 2014, 20% in 2015, and for 2016 and thereafter – 18%. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As a result of the aforementioned change in the future corporate tax rate, the deferred tax assets as of September 30, 2009 have increased in the amount of approximately NIS 18 million, with corresponding decrease in deferred tax expenses. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | At December 31, 2009, a subsidiary of the Company had carryforward tax losses of approximately NIS 15 million. The carryforward tax losses can be utilized indefinitely. The Company did not recognize deferred tax assets in respect thereof. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | Balances of deferred tax asset (liability) are attributable to the following items: |
|--------|-------------------------------------------------------------------------------------|

| 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 |   |
|---------------------------------------------------------|--------|--------|---------------------------------|---------|--------|--------|---------------------------------|---------|--------|--------------------------------------------------|--------|--------|--------|-------------------------|--------|---------|---------|---------------------------------|---------|---------|--------|----------------------------------------|---------|---------|--------------------------------------------------------|--------|--------|---------|-------------------------|--------|
|                                                    |   |   | New Israeli shekels In millions |    |
| Allowance for doubtful accounts                         |   |   | 43                              |    |   |   | 23                              |    |   |                                             |   |   |   | 66                      |   |    |    | (3                              | )  |    |   | (2                                     | )  |    |                                                   |   |   |    | 61                      |   |
| Provisions for employee rights                          |   |   | 14                              |    |   |   | 1                               |    |   |                                             | 5      |   |   |                    | 20     |    |    |                            | (1      | )  |   |                                   | (1      | )  |                                                   |   | (4     | )       |                    |   | 14 |   |
| Subscriber acquisition costs                            |   |   | 42                              |    |   |   | (1                              | )  |   |                                             |   |   |   |                    | 41     |    |    |                            | (30     | )  |   |                                   | (1      | )  |                                                   |   |   |    |                    |   | 10 |   |
| Depreciable fixed assets                                |   |   | (46                             | )  |   |   | (44                             | )  |   |                                             |   |   |   |                    | (90    | )  |    |                            | (35     | )  |   |                                   | 26      |    |                                                   |   |   |    |                    |   | (99 | ) |
| Amortized license and other intangibles                 |   |   | 11                              |    |   |   |                            |    |   |                                             |   |   |   |                    | 11     |    |    |                            | 8       |    |   |                                   | (4      | )  |                                                   |   |   |    |                    |   | 15 |   |
| Options granted to employees                            |   |   | 22                              |    |   |   |                            |    |   |                                             |   |   |   |                    | 22     |    |    |                            | (18     | )  |   |                                   |    |    |                                                   |   |   |    |                    |   | 4 |   |
| Financial instruments                                   |   |   |                            | 9       |   |   |                            |    |   |                                             |   | 9      |   |                    |   | (5      | )  |                            |    |    |   |                                   |    |    |                                                   |   |   | 4       |                    |
| Other                                                   |   |   | (1                              | )  |   |   | 3                               |    |   |                                             |   |   |   |                    | 2      |    |    |                            | 3       |    |   |                                   |    |    |                                                   |   |   |    |                    |   | 5 |   |
| Total                                                   |   |   | 85                              |    |   |   | (9                              | )  |   |                                             | 5      |   |   |                    | 81     |    |    |                            | (81     | )  |   |                                   | 18      |    |                                                   |   | (4     | )  |                    |   | 14 |   |

|                                                               |   | New Israeli shekels |   |
|--------------------------------------------------------------------|--------|---------------------|--------|
|                                                               |   | December 31,        |   |
|                                                               |   | 2008                |   |   | 2009 |   |
|                                                               |   | In millions         |   |
| Deferred tax assets                                                |   |                |   |   |   |   |
| Deferred tax assets to be recovered after more than 12 months      |   |                | 76     |   |   |   | 57 |   |
| Deferred tax assets to be recovered within 12 months               |   |                | 95     |   |   |   | 56 |   |
|                                                               |   |                | 171    |   |   |   | 113 |   |
| Deferred tax liabilities                                           |   |                |   |   |   |   |   |   |
| Deferred tax liabilities to be recovered after more than 12 months |   |                | 90     |   |   |   | 99 |   |
| Deferred tax liabilities to be recovered within 12 months          |   |                | -      |   |   |   | - |   |
|                                                               |   |                | 90     |   |   |   | 99 |   |
|  Deferred tax assets (net)                                    |   |                | 81     |   |   |   | 14 |   |

----

|   | 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 |   |
|                                          |   | In millions            |   |
| Profit before taxes on income,                |   |                   |   |   |   |   |
| as reported in the income statements          |   |                   | 1,642  |   |   |   | 1,525 |   |
| Theoretical tax expense                       |   |                   | 443    |   |   |   | 396 |   |
| Increase (decrease) in tax resulting from     |   |                   |   |   |   |   |   |   |
| disallowable deductions:                      |   |                   |   |   |   |   |   |   |
| In respect of previous years                  |   |                   | 2      |   |   |   |   |   |
| For the current year                          |   |                   | 5      |   |   |   | 3 |   |
| Change in corporate tax rate, see b above     |   |                   |   |   |   |   | (18 | ) |
| Change in the estimated utilization period of |   |                   |   |   |   |   |   |   |
| the tax assets                                |   |                   | (4     | ) |   |   |   |   |
| Other                                         |   |                   | (2     | ) |   |   | 3 |   |
| Income tax expenses                           |   |                   | 444    |   |   |   | 384 |   |

----

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

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

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

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

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

|   | 2) | Tax returns filed by the subsidiary through the year ended December 31, 2004 are considered to be final. |
|--------|----|----------------------------------------------------------------------------------------------------------|

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

----

|   | a. | Transactions with Hutchison group |
|--------|----|-----------------------------------|

|   | During 2009 the Company entered into various agreements with Hutchison Telecom in the ordinary course of business for the purchase of certain products or services or obtaining licenses.  Each such related party agreement was subject to review by the Audit Committee pursuant to normal Company procedure.  In each case the Audit Committee concluded that the agreements were on market terms and would not have a substantial effect on the Company's results of operations or obligations. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| Transactions with Hutchison group                   |   | New Israeli shekels          |   |
|-----------------------------------------------------|--------|------------------------------|--------|
|                                                |   | Year ended December 31, 2008 |   |   | Period from January 1, 2009 to October 28, 2009 (*) |   |
|                                                |   | In millions                  |   |
| Acquisition of handsets from related parties        |   |                         | 9      |   |   |   | 11 |   |
|                                                |   |                         |   |   |   |   |   |   |
| Selling commissions, maintenance and other expenses |   |                         | 4      |   |   |   | 5 |   |

|   | (*) During the period from January 1, 2009 to October 28, 2009, expenses of NIS 0.4 million, NIS 15.6 million were made to Hutchison Telecommunications Cayman and Hutchison Telephone Company, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The transactions are carried out in the ordinary course of business.  Management believes that such transactions were carried out under normal market conditions. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of October 28, 2009, upon Scailex becoming our principal shareholder, Hutchison Telecom and its affiliates were no longer related parties with Partner. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | b. | Transactions with Scailex group |
|--------|----|---------------------------------|

|   | As of October 28, 2009, upon Scailex becoming the Company's principal shareholder, Hutchison Telecom and its affiliates were no longer related parties with the Company. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On December 28, 2009, the Company's Audit Committee and Board of Directors approved the existing perennial agreement with Scailex, the Company's principal shareholder as of October 28, 2009. Under the agreement, the Company will purchase, from time to time, cellular handsets, accessories and spare parts which are manufactured by Samsung electronics Ltd. and imported into Israel by Scailex ("the Samsung Products").  The Company's Audit Committee and Board of Directors also approved additional commercial arrangements between Scailex and the Company related to the annual volumes of the Company's purchases of the Samsung Products and to Scailex’s annual gross profit margin from these transactions with the Company compared to their gross profit margin from similar transactions with all their customers in Israel (together with the annual agreement, the “Samsung Products Agreement"). The total volume of the transactions between Scailex and the Company under the Samsung Products Agreement shall not exceed NIS 250 million, on an annual basis. However, in accordance with the Samsung Products Agreement, Scailex and the Company may increase the scope of annual purchases of Samsung Products 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. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Pursuant to the terms of the Samsung Products Agreement, the prices of the Samsung Products shall be determined by negotiations between Scailex and us; 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 their 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 us. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Samsung Products Agreement shall become effective subject to the approval of the General Meeting of Shareholders of the Company.  The term of the Samsung Products Agreement shall be for a period of three years commencing on October 28, 2009, the date Scailex became the Company's principal shareholder. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Transactions with Scailex group                     |   | New Israeli shekels                                    |   |
|-----------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                |   | Period from October 28, 2009 to December 31, 2009 |   |
|                                                |   | In millions                                            |   |
| Service revenues                                    |   |                                                   | 0.9    |   |
|                                                |   |                                                   |   |   |
| Acquisition of handsets from related parties        |   |                                                   | 14     |   |
|                                                |   |                                                   |   |   |
| Selling commissions, maintenance and other expenses |   |                                                   | 2      |   |

|   | The transactions are carried out in the ordinary course of business.  Management believes that such transactions were carried out under normal market conditions. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | c. | Statement of financial position items with related parties: |
|--------|----|-------------------------------------------------------------|

|                                 |   | New Israeli shekels |   |
|--------------------------------------|--------|---------------------|--------|
|                                 |   | December 31, 2008   |   |
|                                 |   | In millions         |   |
| Current liabilities: Hutchison group |   |                | 4      |   |
|                                 |   |                |   |   |
|                                 |   | New Israeli shekels |   |
|                                 |   | December 31, 2009   |   |
|                                 |   | In millions         |   |
| Current liabilities: Scailex group   |   |                | 34     |   |

|   | d. | Key management compensation |
|--------|----|-----------------------------|

|   | Key management personnel are the senior management of the Company and the members of the Company's Board of Directors. |
|--------|------------------------------------------------------------------------------------------------------------------------|

|   | Key management personnel compensation (including directors) comprised: |
|--------|------------------------------------------------------------------------|

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

|   | 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.  The amounts of the first and second potential retention payments are the same, and the maximum aggregate amount of all retention payments together is USD 6.5 million. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company undertook to pay Mr. Amikam Cohen, who retired from his functions as chief executive officer on January 1, 2007, and from the Company on April 1, 2007, as part of his special retirement compensation, a non-compete payment of USD 0.6 million, in five equal installments, each payment to be made at the end of a six-month period over two and a half years starting in November 2007. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | e. | On December 27, 2009, the Company’s Audit Committee and Board of Directors approved an extension of the Company’s headquarters lease agreement with Mivnei Ta'asiya Ltd ("Mivnei Ta'asiya").  Mr. Ilan Ben Dov, who is the controlling shareholder of Scailex, the Company's principal shareholder, is also the controlling shareholder of Tau Tshuot Ltd ("Tau"), which holds 4.9% of the issued share capital of Mivnei Ta'asiya. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under the extension, the lease period for all rented office space shall be consolidated and extended for seven years (until 31 December 2016).  In consideration of the extension of the lease agreement, a discount of 5% has been granted on the rental fees. As a result, the lease fees for 2010 shall be NIS 24 million. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company shall have the right to extend the lease period by an additional three or five years. Should the Company choose to extend the lease by an additional five years, the lease fee shall be reduced by 2.5%.  The Company also has the right to shorten the lease period regarding all or part of the leased properties and terminate the lease on December 31, 2014.  See also note 17 b (1). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f. | During 2009 we purchased a substantial portion of our Nokia handsets from Eurocom Communications Ltd. On November 19, 2009, Eurocom sold their shares in the Company 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 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. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

----

|   | (1) | Fair value as deemed cost exemption The Company has elected to measure property and equipment at fair value as at January 1, 2008. See A Below. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Business combinations exemption The Company has applied the business combinations exemption in IFRS 1. It has not restated business combinations that took place prior to the January 1, 2008 transition date. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1) | Adjustments to the consolidated statements of financial position as of December 31, 2008 and January 1, 2008. |
|--------|----|---------------------------------------------------------------------------------------------------------------|

|   | 2) | Adjustments to the consolidated statements of income for the year ended December 31, 2008. |
|--------|----|--------------------------------------------------------------------------------------------|

|   | 3) | Adjustments to certain equity items as of December 31, 2008, and January 1, 2008. |
|--------|----|-----------------------------------------------------------------------------------|

|   | 4) | Explanations with respect to the above adjustments, together with a description of the exemptions adopted by the Company under IFRS 1 during the course of the transition to the IFRS. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                |   |   |         |   | As of January 1, 2008           |   |
|-----------------------------------------------------|--------|--------|--------------|--------|---------------------------------|--------|
|                                                |   |   |         |   | Reported underUS GAAP           |   |   | Effect of transition to IFRS |   |   |   IFRS |   |
|                                                |   | Note   |         |   | New Israeli shekels In millions |   |
| CURRENT ASSETS                                      |   |   |         |   |                            |   |   |   |   |   |   |   |
| Cash and cash equivalents                           |   |   |         |   |                            | 148    |   |   |   |   |   |   | 148 |   |
| Trade receivables                                   |   |   |         |   |                            | 1,121  |   |   |   |   |   |   |  1,121 |   |
| Other receivables                                   |   |   | E            |   |                            |   | 73 |   |   |   | (23 | ) |   |   | 50 |   |
| Inventories                                         |   |   |         |   |                            |   | 133 |   |   |   |   |   |   |   |  133 |   |
| Derivative financial instruments                    |   |   | E            |   |                            |   |   |   |   |   | 27 |   |   |   | 27 |   |
| Deferred income taxes                               |   |   | F            |   |                            |   | 46 |   |   |   | (46 | ) |   |   |   |   |
|                                                |   |   |         |   |                            |   | 1,521 |   |   |   | (42 | ) |   |   | 1,479 |   |
|                                                |   |   |         |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| NON CURRENT ASSETS                                  |   |   |         |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Trade Receivables                                   |   |   |         |   |                            |   | 446 |   |   |   |   |   |   |   | 446 |   |
| Funds in respect of employee rights upon retirement |   |   | C            |   |                            |   | 89 |   |   |   | (89 | ) |   |   |   |   |
| Property and equipment                              |   |   | A, H         |   |                            |   | 1,728 |   |   |   | (38 | ) |   |   | 1,690 |   |
| Licenses and other intangible assets                |   |   | B, H, I |   |                            |   | 1,154 |   |   |   | 227 |   |   |   | 1,381 |   |
| Deferred income taxes                               |   |   | F            |   |                            |   | 94 |   |   |   | (9 | ) |   |   | 85 |   |
|                                                |   |   |         |   |                            |   | 3,511 |   |   |   | 91 |   |   |   | 3,602 |   |
|                                                |   |   |         |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL ASSETS                                        |   |   |         |   |                            |   | 5,032 |   |   |   | 49 |   |   |   | 5,081 |   |

----

|                                                                                |   |   |      |   | As of January 1, 2008           |   |
|-------------------------------------------------------------------------------------|--------|--------|-----------|--------|---------------------------------|--------|
|                                                                                |   |   |      |   | Reported underUS GAAP           |   |   | Effect of transition to IFRS |   |   |   IFRS |   |
|                                                                                |   | Note   |      |   | New Israeli shekels In millions |   |
| CURRENT LIABILITIES                                                                 |   |   |      |   |                            |   |   |   |   |   |   |   |
| Current maturities of notes payable and of other liabilities and current borrowings |   |   |      |   |                            | 28     |   |   |   |   |   |   | 28 |   |
| Trade payables                                                                      |   |   |      |   |                            | 750    |   |   |   |   |   |   | 750 |   |
| Parent group - trade                                                                |   |   |      |   |                            | 3      |   |   |   |   |   |   | 3 |   |
| Other payables                                                                      |   |   | E, G |   |                            |   | 323 |   |   |   | (67 | ) |   |   | 256 |   |
| Deferred revenue                                                                    |   |   |      |   |                            |   | 53 |   |   |   |   |   |   |   | 53 |   |
| Derivative financial instruments                                                    |   |   | E         |   |                            |   |   |   |   |   | 19 |   |   |   | 19 |   |
| Current income tax liability                                                        |   |   | G         |   |                            |   |   |   |   |   | 48 |   |   |   | 48 |   |
|                                                                                |   |   |      |   |                            |   | 1,157 |   |   |   |   |   |   |   | 1,157 |   |
|                                                                                |   |   |      |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| NON CURRENT LIABILITIES                                                             |   |   |      |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Notes payable                                                                       |   |   | I         |   |                            |   | 2,073 |   |   |   | (17 | ) |   |   | 2,056 |   |
| Liability for employee rights upon retirement                                       |   |   | C         |   |                            |   | 132 |   |   |   | (101 | ) |   |   | 31 |   |
| Dismantling and restoring sites obligation                                          |   |   | D         |   |                            |   |   |   |   |   | 19 |   |   |   | 19 |   |
| Other liabilities                                                                   |   |   | D         |   |                            |   | 14 |   |   |   | (11 | ) |   |   | 3 |   |
|                                                                                |   |   |      |   |                            |   | 2,219 |   |   |   | (110 | ) |   |   | 2,109 |   |
| TOTAL LIABILITIES                                                                   |   |   |      |   |                            |   | 3,376 |   |   |   | (110 | ) |   |   | 3,266 |   |
|                                                                                |   |   |      |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| EQUITY                                                                              |   |   |      |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Share capital                                                                       |   |   |      |   |                            |   | 2 |   |   |   |   |   |   |   | 2 |   |
| Capital surplus                                                                     |   |   | B, J      |   |                            |   | 2,545 |   |   |   | (116 | ) |   |   | 2,429 |   |
| Accumulated deficit                                                                 |   |   |      |   |                            |   | (891 | ) |   |   | 275 |   |   |   | (616 | ) |
| Total Equity                                                                        |   |   |      |   |                            |   | 1,656 |   |   |   | 159 |   |   |   | 1,815 |   |
| TOTAL EQUITY AND LIABILITIES                                                        |   |   |      |   |                            |   | 5,032 |   |   |   | 49 |   |   |   | 5,081 |   |

----

|                                                |   |   |         |   | As of December 31, 2008         |   |
|-----------------------------------------------------|--------|--------|--------------|--------|---------------------------------|--------|
|                                                |   |   |         |   | Reported underUS GAAP           |   |   | Effect of transition to IFRS |   |   |   IFRS |   |
|                                                |   | Note   |         |   | New Israeli shekels In millions |   |
| CURRENT ASSETS                                      |   |   |         |   |                            |   |   |   |   |   |   |   |
| Cash and cash equivalents                           |   |   |         |   |                            | 184    |   |   |   |   |   |   | 184 |   |
| Trade receivables                                   |   |   |         |   |                            | 1,103  |   |   |   |   |   |   | 1,103 |   |
| Other receivables                                   |   |   | E            |   |                            |   | 60 |   |   |   | (27 | ) |   |   | 33 |   |
| Inventories                                         |   |   |         |   |                            |   | 125 |   |   |   |   |   |   |   | 125 |   |
| Derivative financial instruments                    |   |   | E            |   |                            |   |   |   |   |   | 27 |   |   |   | 27 |   |
| Deferred income taxes                               |   |   | F            |   |                            |   | 70 |   |   |   | (70 | ) |   |   |   |   |
|                                                |   |   |         |   |                            |   | 1,542 |   |   |   | (70 | ) |   |   | 1,472 |   |
|                                                |   |   |         |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| NON CURRENT ASSETS                                  |   |   |         |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Trade Receivables                                   |   |   |         |   |                            |   | 417 |   |   |   |   |   |   |   | 417 |   |
| Funds in respect of employee rights upon retirement |   |   | C            |   |                            |   | 82 |   |   |   | (82 | ) |   |   |   |   |
| Property and equipment                              |   |   | A, D, H      |   |                            |   | 1,756 |   |   |   | 179 |   |   |   | 1,935 |   |
| Licenses and other intangible assets                |   |   | B, H, I |   |                            |   | 1,061 |   |   |   | 199 |   |   |   | 1,260 |   |
| Deferred income taxes                               |   |   | F            |   |                            |   | 110 |   |   |   | (29 | ) |   |   | 81 |   |
|                                                |   |   |         |   |                            |   | 3,426 |   |   |   | 267 |   |   |   | 3,693 |   |
| TOTAL ASSETS                                        |   |   |         |   |                            |   | 4,968 |   |   |   | 197 |   |   |   | 5,165 |   |

----

|                                                                                |   |   |      |   | As of December 31, 2008         |   |
|-------------------------------------------------------------------------------------|--------|--------|-----------|--------|---------------------------------|--------|
|                                                                                |   |   |      |   | Reported underUS GAAP           |   |   | Effect of transition to IFRS |   |   |   IFRS |   |
|                                                                                |   | Note   |      |   | New Israeli shekels in millions |   |
| CURRENT LIABILITIES                                                                 |   |   |      |   |                            |   |   |   |   |   |   |   |
| Current maturities of notes payable and of other liabilities and current borrowings |   |   |      |   |                            | 568    |   |   |   |   |   |   | 568 |   |
| Trade payables                                                                      |   |   |      |   |                            | 819    |   |   |   |   |   |   | 819 |   |
| Parent group - trade                                                                |   |   |      |   |                            | 4      |   |   |   |   |   |   | 4 |   |
| Other payables                                                                      |   |   | E, G |   |                            |   | 295 |   |   |   | (49 | ) |   |   | 246 |   |
| Deferred revenue                                                                    |   |   |      |   |                            |   | 48 |   |   |   |   |   |   |   | 48 |   |
| Derivative financial instruments                                                    |   |   | E         |   |                            |   |   |   |   |   | 7 |   |   |   | 7 |   |
| Current income tax liability                                                        |   |   | G         |   |                            |   |   |   |   |   | 42 |   |   |   | 42 |   |
|                                                                                |   |   |      |   |                            |   | 1,734 |   |   |   |   |   |   |   | 1,734 |   |
|                                                                                |   |   |      |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| NON CURRENT LIABILITIES                                                             |   |   |      |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Notes payable                                                                       |   |   | I         |   |                            |   | 1,625 |   |   |   | (12 | ) |   |   | 1,613 |   |
| Liability for employee rights upon retirement                                       |   |   | C         |   |                            |   | 148 |   |   |   | (95 | ) |   |   | 53 |   |
| Dismantling and restoring sites obligation                                          |   |   | D         |   |                            |   |   |   |   |   | 23 |   |   |   | 23 |   |
| Other liabilities                                                                   |   |   | D         |   |                            |   | 22 |   |   |   | (12 | ) |   |   | 10 |   |
|                                                                                |   |   |      |   |                            |   | 1,795 |   |   |   | (96 | ) |   |   | 1,699 |   |
| TOTAL LIABILITIES                                                                   |   |   |      |   |                            |   | 3,529 |   |   |   | (96 | ) |   |   | 3,433 |   |
|                                                                                |   |   |      |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| EQUITY                                                                              |   |   |      |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Share capital                                                                       |   |   |      |   |                            |   | 2 |   |   |   |   |   |   |   | 2 |   |
| Capital surplus                                                                     |   |   | B, J      |   |                            |   | 2,570 |   |   |   | (124 | ) |   |   | 2,446 |   |
| Accumulated deficit                                                                 |   |   |      |   |                            |   | (782 | ) |   |   | 417 |   |   |   | (365 | ) |
| Treasury shares                                                                     |   |   |      |   |                            |   | (351 | ) |   |   |   |   |   |   | (351 | ) |
| Total Equity                                                                        |   |   |      |   |                            |   | 1,439 |   |   |   | 293 |   |   |   | 1,732 |   |
| TOTAL EQUITY AND LIABILITIES                                                        |   |   |      |   |                            |   | 4,968 |   |   |   | 197 |   |   |   | 5,165 |   |

----

|                                |   |               |       |   | Year ended December 31, 2008       |   |
|-------------------------------------|--------|--------------------|------------|--------|------------------------------------|--------|
|                                |   |               |       |   | Reported underUS GAAP              |   |   | Effect of transition to IFRS |   |   |   IFRS |   |
|                                |   |               |       |   | New Israeli shekels                |   |
|                                |   | Note               |       |   | In millions, except per share data |   |
| Revenues                            |   |               |       |   |                               | 6,302  |   |   |   |   |   |   | 6,302 |   |
| Cost of revenues                    |   |               | A, B, C    |   |                               |   | 4,052 |   |   |   | (184 | ) |   |   | 3,868 |   |
| Gross Profit                        |   |               |       |   |                               |   | 2,250 |   |   |   | 184 |   |   |   | 2,434 |   |
| Selling and marketing expenses      |   |               | C          |   |                               |   | 389 |   |   |   | (1 | ) |   |   | 388 |   |
| General and administrative expenses |   |               | K, C       |   |                               |   | 256 |   |   |   | 28 |   |   |   | 284 |   |
| Other income                        |   |               | K          |   |                               |   |   |   |   |   | 64 |   |   |   | 64 |   |
| Operating profit                    |   |               |       |   |                               |   | 1,605 |   |   |   | 221 |   |   |   | 1,826 |   |
| Finance income                      |   |               |       |   |                               |   |   |   |   |   | 30 |   |   |   | 30 |   |
| Finance expenses                    |   |               |       |   |                               |   |   |   |   |   | 214 |   |   |   | 214 |   |
| Financing costs, net                |   |               | C, D, E, K |   |                               |   |  158 |   |   |   | (158 | ) |   |   |   |   |
| Profit before income tax            |   |               |       |   |                               |   | 1,447 |   |   |   | 195 |   |   |   | 1,642 |   |
| Income tax expense                  |   | A, B, C, D, E |       |   |                               | 396    |   |   |   | 48 |   |   |   |  444 |   |
| Profit for the year                 |   |               |       |   |                               |   | 1,051 |   |   |   | 147 |   |   |   | 1,198 |   |
| Earnings per share                  |   |               |       |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Basic                               |   |               |       |   |                               |   | 6.77 |   |   |   | 0.94 |   |   |   | 7.71 |   |
| Diluted                             |   |               |       |   |                               |   | 6.73 |   |   |   | 0.92 |   |   |   | 7.65 |   |

----

|                                              |   | New Israeli shekels In millions |   |
|---------------------------------------------------|--------|---------------------------------|--------|
|                                              |   |  Note                      |   |   | Share capital |   |   | Capital surplus |   |   | Accumulated deficit |   |   | Treasury shares |   |   |  Total |   |
| As of January 1, 2008Reported under US GAAP       |   |                            |   | 2 |   |   |   |  2,545 |   |   |   | (891 | ) |   |   |   |   |   |  1,656 |   |
| Effect of  adjustments, net of tax for: |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options to employees                              |   |                            | J      |   |   |   |   |   |   |   | (251 | ) |   |   | 251 |   |   |   |   |   |   |   |   |
| CPI adjustment - equity                           |   |                            | B      |   |   |   |   |   |   |   | 135 |   |   |   | (135 | ) |   |   |   |   |   |   |   |
| Property and equipment                            |   |                            | A      |   |   |   |   |   |   |   |   |   |   |   | 84 |   |   |   |   |   |   | 84 |   |
| CPI adjustment- licenses                          |   |                            | B      |   |   |   |   |   |   |   |   |   |   |   | 41 |   |   |   |   |   |   | 41 |   |
| Software adjustment                               |   |                            | B      |   |   |   |   |   |   |   |   |   |   |   | 32 |   |   |   |   |   |   | 32 |   |
| Liability for employee rights upon retirement     |   |                            | C      |   |   |   |   |   |   |   |   |   |   |   | 9 |   |   |   |   |   |   | 9 |   |
| Derivative financial instruments                  |   |                            | E      |   |   |   |   |   |   |   |   |   |   |   | (1 | ) |   |   |   |   |   | (1 | ) |
| Dismantling and restoring sites obligation        |   |                            | D      |   |   |   |   |   |   |   |   |   |   |   | (6 | ) |   |   |   |   |   | (6 | ) |
| As of January 1, 2008 under IFRS                  |   |                            |   |  2 |   |   |   |  2,429 |   |   |   | (616 | ) |   |   |   |   |   |  1,815 |   |
|                                              |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As of December 31, 2008Reported under US GAAP     |   |                            |   | 2 |   |   |   |  2,570 |   |   |   | (782 | ) |   |   | (351 | ) |   |   |  1,439 |   |
| Effect of  adjustments, net of tax for: |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options to employees                              |   |                            | J      |   |   |   |   |   |   |   | (259 | ) |   |   | 259 |   |   |   |   |   |   |   |   |   |
| CPI adjustment - equity                           |   |                            | B      |   |   |   |   |   |   |   | 135 |   |   |   | (135 | ) |   |   |   |   |   |   |   |   |
| Property and equipment                            |   |                            | A      |   |   |   |   |   |   |   |   |   |   |   | 223 |   |   |   |   |   |   |   | 223 |   |
| CPI adjustment- licenses                          |   |                            | B      |   |   |   |   |   |   |   |   |   |   |   | 38 |   |   |   |   |   |   |   | 38 |   |
| Software adjustment                               |   |                            | B      |   |   |   |   |   |   |   |   |   |   |   | 30 |   |   |   |   |   |   |   | 30 |   |
| Liability for employee rights upon retirement     |   |                            | C      |   |   |   |   |   |   |   |   |   |   |   | 9 |   |   |   |   |   |   |   | 9 |   |
| Derivatives                                       |   |                            | E      |   |   |   |   |   |   |   |   |   |   |   | (1 | ) |   |   |   |   |   |   | (1 | ) |
| Dismantling and restoring sites obligation        |   |                            | D      |   |   |   |   |   |   |   |   |   |   |   | (6 | ) |   |   |   |   |   |   | (6 | ) |
| As of December 31, 2008 under IFRS                |   |                            |   | 2 |   |   |   | 2,446 |   |   |   | (365 | ) |   |   | (351 | ) |   |   | 1,732 |   |

----

|                                                     | Before evaluation |   | Afterevaluation |
|----------------------------------------------------------|-------------------|--------|-----------------|
|                                                     | years             |
| Communications network:                                  |              |   |            |
| Physical layer and infrastructure                        | 5 – 10      |   | 10 – 25   |
| Other communication network                              | 5 – 10      |   | 3 – 15    |
| Computers, hardware and software for information systems | 3 – 7       |   | 3 – 10    |
| Office furniture and equipment                           | 7 – 15      |   | 7 – 10    |
| Optic fibers and related assets                          | 10 – 15     |   | 7 – 25    |

|   | 1. | Capital Surplus increased by NIS 135 million at January 1, 2008 and December 31, 2008. |
|--------|----|----------------------------------------------------------------------------------------|

|   | 2. | License intangible asset increased by NIS 55 million and NIS 51 million at January 1, 2008 and December 31, 2008 respectively, while the deferred tax balance deriving from the differences in the measurement of the intangible asset for tax purposes decreased, by approximately NIS 14 million and NIS 13 million at January 1, 2008 and December 31, 2008, respectively. As a result, the cost of revenues increased for the year ended December 31, 2008 by NIS 4 million, and the income tax expense for the year ended December 31, 2008 decreased by NIS 1 million. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Software intangible asset increased by NIS 43 million and NIS 38 million at January 1, 2008 and December 31, 2008 respectively, while the deferred tax balance deriving from the differences in the measurement of the intangible asset for tax purposes decreased by approximately NIS 11 million and NIS 10 million at January 1, 2008 and December 31, 2008 respectively. As a result, the cost of revenues increased for the year ended December 31, 2008 by NIS 4 million, and the income tax expense for the year ended December 31, 2008 decreased by NIS 1 million. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                                 |   |   |   |   | New Israeli shekels In millions |   |
|----------------------------------------------------------------------|--------|--------|--------|--------|---------------------------------|--------|
|                                                                 |   |   |   |   | January 1,                      |   |   | December 31, |   |
|                                                                 |   | Note   |   |   | 2008                            |   |   | 2008 |   |
| Deferred Taxes according to US GAAP                                  |   |   |   |   |                            | 140    |   |   |   | 180 |   |
| Adjusted from transition to IFRS                                     |   |   |   |   |                            |   |   |   |   |   |   |
| Property and equipment                                               |   |   | A      |   |                            |   | (30 | ) |   |   | (76 | ) |
| CPI adjustment – licenses                                      |   |   | B      |   |                            |   | (14 | ) |   |   | (13 | ) |
| Software adjustment                                                  |   |   | B      |   |                            |   | (11 | ) |   |   | (10 | ) |
| Liability for employee rights upon    retirement |   |   | C      |   |                            |   | (3 | ) |   |   | (3 | ) |
| Dismantling and restoring sites obligation                           |   |   | D      |   |                            |   | 2 |   |   |   | 2 |   |
| Derivative financial instruments                                     |   |   | E      |   |                            |   | 1 |   |   |   | 1 |   |
| Deferred taxes according to IFRS                                     |   |   |   |   |                            |   | 85 |   |   |   | 81 |   |

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|   | 1. | Interest paid in the amount of NIS 92 million during the year 2008 that was included in operating cash flows under US GAAP, was classified as financing cash flows under IFRS. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Under US GAAP, deposits in funds in respect of employee rights upon retirement were recognized as investing cash flows. Under IFRS, these deposits are recognized as operating cash flows. As a result, an amount of NIS 9 million for the year 2008 was reclassified from investing activity to operating activity in the statements of cash flows. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Under US GAAP, funds paid or received from settlement of derivative financial instruments are classified as operating activity. Under IFRS, these amounts are classified under investing activities. As a result, amount of NIS 1 million, net, received from derivative financial instruments in the year 2008 were classified to investing activity. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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