---

---

As filed with the Securities and Exchange Commission   May 18, 2006

SECURITIES AND
EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

# FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
COMMISSION FILE NUMBER 1-14968

PARTNER COMMUNICATIONS COMPANY LTD.(Exact name of Registrant as specified in its charter)

ISRAEL
(Jurisdiction of incorporation or organization)

8 AMAL STREET
AFEQ INDUSTRIAL PARK
ROSH-HA'AYIN 48103
ISRAEL
(Address of principal executive offices)

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

NONE

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

Title of class

American Depositary Shares
Ordinary Shares*

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

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

NONE

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

|                                 |             | 
|-------------------------------- | ----------- | 
|
|
|
|
|ORDINARY SHARES OF NIS 0.01 EACH | 152,538,362 | 

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

YES oNO  x

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

YES oNO  x

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

YES  xNO  o

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

ITEM 17  o   ITEM 18 x

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

YES o NO x

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

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



---

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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                                                    | 18
|ITEM 4A. UNRESOLVED STAFF COMMENTS                                                    | 42
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  | 42
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    | 50
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             | 63
|ITEM 8. FINANCIAL INFORMATION                                                         | 67
|ITEM 9. THE OFFER AND LISTING                                                         | 69
|ITEM 10. ADDITIONAL INFORMATION                                                       | 70
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 78
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 80
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 80
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 80
|ITEM 15. CONTROLS AND PROCEDURES                                                      | 80
|ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            | 80
|ITEM 16B. CODE OF ETHICS                                                              | 80
|ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      | 80
|ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES       | 81
|ITEM 17. FINANCIAL STATEMENTS                                                         | 81
|ITEM 18. FINANCIAL STATEMENTS                                                         | 81
|ITEM 19. EXHIBITS                                                                     | 82
|GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS                                         | 84

- 1 -

---

---



# INTRODUCTION

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

In
this document, references to $, US$, US dollars and
dollars are to United States dollars and references to NIS and
shekels are to New Israeli Shekels. This annual report contains translations
of NIS amounts into US dollars at specified rates solely for the convenience of the
reader. No representation is made that the amounts referred to in this annual report as
convenience translations could have been or could be converted from NIS into US dollars at
these rates, at any particular rate or at all. The translations of NIS amounts into US
dollars appearing throughout this annual report have been made at the representative
exchange rate on December 31, 2005 of NIS 4.603= US$1.00 as published by the Bank of
Israel, unless otherwise specified. See Item 3A. Key Information
 Selected Financial Data  Exchange Rate Data.

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

- 2 -

---

---



# FORWARD-LOOKING
STATEMENTS

This
annual report includes forward-looking statements within the meaning of Section 27A of the
US Securities Act of 1933, as amended, Section 21E of the US Securities Exchange Act of
1934, as amended, and the safe harbor provisions of the US Private Securities Litigation
Reform Act of 1995. We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking statements are
subject to risks, uncertainties and assumptions about Partner.

Words
such as believe, anticipate, expect,
intend, seek, will, plan,
could, may, project, goal,
target and similar expressions often identify forward-looking statements but
are not the only way we identify these statements. All statements other than statements of
historical fact included in this annual report, including the statements in the sections
of this annual report entitled Item 3D. Key Information  Risk Factors,
Item 4. Information on the Company and Item 5". Operating and
Financial Review and Prospects and located elsewhere in this annual report regarding
our future performance, plans to increase revenues or margins or preserve or expand market
share in existing or new markets, reduce expenses and any statements regarding other
future events or our future prospects, are forward-looking statements.

Because
such statements involve risks and uncertainties, actual results may differ materially from
the results currently expected. Factors that could cause such differences include, but are
not limited to:

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

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

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

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

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

| | the
effects of vigorous competition in the market in which we operate and for more valuable
customers, which may decrease prices charged, increase churn and change our customer mix,
profitability and average revenue per user, and the response of competitors to industry
and regulatory developments;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | uncertainties
about the degree of growth in the number of consumers in Israel using wireless personal
communications services and the growth in the Israeli population;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the
risks associated with the implementation of a third generation (3G) network and business
strategy, including risks relating to the operations of new systems and technologies,
potential unanticipated costs, uncertainties regarding the adequacy of suppliers on whom
we must rely to provide both network and consumer equipment and consumer acceptance of
the products and services to be offered, and the risk that the use of internet search
engines by our 3G customers will be restricted;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | the
impact of existing and new competitors in the market in which we compete, including
competitors that may offer less expensive products and services, desirable or innovative
products, technological substitutes, or have extensive resources or better financing;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

- 3 -

---

---



| | the
possibility of the market in which we compete being impacted by changes in political,
economic or other factors, such as monetary policy, legal and regulatory changes or other
external factors over which we have no control;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

as well as the risks discussed in
Item 3D. Key Information  Risk Factors, Item 4. Information on the
Company and Item 5. Operating and Financial Review and Prospects. In
light of these risks, uncertainties and assumptions, the forward-looking events discussed
in this annual report might not occur.

We
undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.

- 4 -

---

---



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

Not applicable.

# ITEM 2. OFFER STATISTICS
AND EXPECTED TIMETABLE

Not applicable.

# ITEM 3. KEY INFORMATION

# 3A. Selected Financial
Data

The
following table sets forth our selected financial data as at and for each of the years in
the five-year period ended December 31, 2005 prepared in accordance with US GAAP. The
selected financial data for each of the years in the three-year period ended December 31,
2005 and at December 31, 2005 and 2004 are derived from our consolidated financial
statements set forth elsewhere in this annual report. The selected financial data for each
of the years ended December 31, 2002 and December 31, 2001 and at December 31, 2003, 2002
and 2001 are derived from our audited financial statements not appearing in this annual
report. The selected financial data set forth below should be read in conjunction with
Item 5. Operating and Financial Review and Prospects and the financial
statements and notes thereto included elsewhere in this annual report.

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

- 5 -

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

|(1) | EBITDA
represents earnings (loss) before interest, taxes, depreciation and
               amortization. EBITDA is presented because it is a measure commonly used in
the                telecommunications industry and is presented solely to enhance the
understanding                of our operating results. EBITDA, however, should not be
considered as an                alternative to operating income or income for the year as
an indicator of our                operating performance. Similarly, EBITDA should not be
considered as an                alternative to cash flow from operating activities as a
measure of liquidity.                EBITDA is not a measure of financial performance
under generally accepted                accounting principles and may not be comparable
to other similarly titled                measures for other companies. EBITDA may not be
indicative of our historic                operating results; nor is it meant to be
predictive of potential future results.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

- 6 -

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

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

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

- 7 -

---

---



|                                       | Year ended December 31 | Three months ended
|-------------------------------------- | ---------------------- | ------------------
|
|
|
|
|Partner Data                           |                        |                   
|Subscribers (000's) (at period end)(4) |                        |                   
|Pre-paid                               |                        |                   
|Post-paid (private)                    |                        |                   
|Post-paid (business)                   |                        |                   
|Share of total Israeli                 |                        |                   
|subscribers (at period end)(5)         |                        |                   
|Average monthly usage per              |                        |                   
|subscriber (mins.)(6)                  |                        |                   
|Average monthly revenue per            |                        |                   
|subscriber including                   |                        |                   
|inroaming (NIS)(7)                     |                        |                   
|Churn rate(8)                          |                        |                   
|Subscriber acquisition costs           |                        |                   
|per subscriber (NIS)(9)                |                        |                   
|Estimated coverage of                  |                        |                   
|Israeli population (at                 |                        |                   
|period end)(10)                        |                        |                   
|Number of operational base             |                        |                   
|stations (at period end)               |                        |                   
|Number of microsites out of            |                        |                   
|total number of operational            |                        |                   
|base stations (at period               |                        |                   
|Number of employees                    |                        |                   
|(full time equivalent)                 |                        |                   
|(at period end)(11)                    |                        |                   

- 8 -

---

---



|(1) | The
population estimates are published by the Central Bureau of Statistics in
               Israel.
|--- | ----------------------------------------------------------------------------------------------------

|(2) | We
have estimated the total number of Israeli mobile telephone subscribers from
               information contained in published reports issued by, and public
statements made                by, Pelephone Communications Israel Ltd., or Pelephone,
and Cellcom Israel Ltd.,                or Cellcom, or by their shareholders and from
Partner subscriber data at                December 31, 2003, 2004 and 2005.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Total
number of estimated Israeli mobile telephone subscribers expressed as a
               percentage of the estimated population of Israel. This includes dormant
               subscribers as well as other subscribers who are not included in the
Israeli                population figures, such as Palestinians, visitors, and foreign
workers.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | In
accordance with general practice in the mobile telephone industry, we use the
               term subscriber, unless the context otherwise requires, to
indicate                a telephone, rather than either a bill-paying network customer,
who may have a                number of telephones connected to the network, or a mobile
telephone user who                may share a single telephone with a number of other
users.                Subscriber includes our pre-paid customers. References
to the number                of subscribers are stated net of subscribers who leave or
are disconnected from                the network, or who have not generated revenue for
the Company for a period of                over six consecutive months ending at a
reporting date.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

|(8) | We
define the churn rate as the total number of subscribers who
               disconnect from our network, either involuntarily or voluntarily, in a
given                period expressed as a percentage of the average of the number of our
subscribers                at the beginning and end of such period. Our churn rate
includes subscribers who                have not generated revenue for us for a period of
the last six consecutive                months ending at a reporting date. Involuntary
churn includes disconnections due                to non-payment of bills or suspected
fraudulent use, and voluntary churn                includes disconnections due to
subscribers switching to a competing mobile                telephone network or
terminating their use of our services. From July 2002, we                refined our
criteria for reporting active subscribers. As a result, we have                included
in churn for this period those subscribers who generated minute                revenues
only from incoming calls directed to their voice mail.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(10) | We
measure coverage using computerized models of our network, radio propagation
               characteristics and topographic information to predict signal levels at
two                meters above ground level in areas where we operate a cell site.
According to                these coverage results, we estimate the population serviced
by our network and                divide this by the estimated total population of
Israel. Estimates are published                by the Central Bureau of Statistics in
Israel.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | A
full-time employee is contracted to work a standard 186 hours per month.
               Part-time employees are converted to full-time equivalents by dividing
their                contracted hours per month by the full-time standard. The result is
added to the                number of full-time employees to determine the number of
employees on a                full-time equivalent basis.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 9 -

---

---



Exchange Rate Data

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

|              | 2001 | 2002 | 2003 | 2004  | 2005
|------------- | ---- | ---- | ---- | ----- | ----
|
|
|
|
|Average(1)    |      |      |      | 4.220 |     
|High          |      |      |      | 4.416 |     
|Low           |      |      |      | 4.067 |     
|End of period |      |      |      | 4.416 |     

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

|     | November
2005 | December
2005 | January
2006 | February
2006 | March
2006 | April
2006
|---- | ------------- | ------------- | ------------ | ------------- | ---------- | ----------
|
|
|
|
|High |               |               |              | 4.741         |            |           
|Low  |               |               |              | 4.64          |            |           

On May 17, 2006, the exchange rate was
NIS 4.433 per US dollar as published by the Bank of Israel. Changes in the exchange rate
between the shekel and the US dollar could materially affect our financial results.

# 3B. Capitalization and
Indebtedness

Not applicable.

3C.
          Reasons for the Offer and Use of Proceeds

Not applicable.

# 3D. Risk Factors

We operate in a highly regulated
telecommunications market which limits our flexibility to manage our business. In
particular, the regulators decisions may materially adversely affect our results of
operations.

Our
business is highly regulated. We are subject to government regulation regarding
telecommunications licenses, antitrust, frequency allocation and costs and arrangements
pertaining to interconnection and leased lines. Our business and operations could be
adversely affected by changes in laws, regulations or government policy affecting our
business activities, such as decisions by the regulator:

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

| | adopting
policies and imposing new regulations for the erection of antenna sites;
|- | ---------------------------------------------------------------------------------

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

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

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

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

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

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

| | limiting
our ability to charge for unanswered calls directed into voicemail or to charge for the
initial          seconds of such calls; and
|- | --------------------------------------------------------------------------------------------------------------------------------------------

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

- 10 -

---

---



Further
risks and uncertainties result from the fact that changes in such laws, regulations or
government policy may not be adopted or implemented in the manner that we expect and may
be further amended, interpreted or enforced in an unexpected manner or in a manner adverse
to us.

We may be adversely affected by
regulatory developments relating to interconnect tariffs.

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

In
November 2004, the Ministry of Communications issued regulatory changes further reducing
call termination tariffs, effective March 1, 2005, from NIS 0.45 to NIS 0.32, with
additional reductions mandated as follows: effective March 1, 2006, to NIS 0.29 per
minute; effective March 1, 2007, to NIS 0.26 per minute; and effective March 1, 2008, to
NIS 0.22 per minute. At the same time, the Ministry of Communications reduced SMS
termination tariffs, effective March 1, 2005, from NIS 0.285 to NIS 0.05, with an
additional reduction mandated effective March 1, 2006 to NIS 0.025. The tariffs described
above are now adjusted each March to conform to the CPI. In response to the tariff
reductions described above, we have implemented cost-cutting measures as well as price
increases and repackaging our tariff plans. Depending on the effectiveness of such steps,
and other factors such as general market conditions, these regulatory changes may
negatively impact our revenues and profits.

At
the same time as it announced the regulatory changes described above, the Ministry of
Communications also indicated that it intends to start implementing a process to bring
about unification of rates for calls terminating both on and off an operators
network. Preliminary hearings with the cellular operators in Israel on this matter
commenced in August 2005, and the Ministry of Communications has yet to publish a
decision. These changes, if implemented, could also adversely affect our revenues and
profits.

We have had difficulties obtaining
some of the permits for which we have applied, and have not yet applied for other permits
that are required for the erection of our antenna sites. These difficulties could continue
and therefore affect our ability to erect or maintain antenna sites. This could have an
adverse effect on the extent, quality and capacity of our network coverage and may result
in criminal or civil liability to us or to our officers and directors.

Our
ability to maintain and improve the extent and quality of our network coverage depends in
part on our ability to obtain appropriate sites and approvals to install our network
infrastructure, including antenna sites. The erection and operation of most of these
antenna sites require building permits from local or regional zoning authorities, as well
as a number of additional permits from governmental and regulatory authorities, such as:

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

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

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

In addition, as part of our 3G
network build out, we are erecting additional antenna sites and making modifications to
our existing antenna sites, for which we may be required to obtain new consents and
approvals.

Like
our competitors, we have experienced difficulties in obtaining some of these consents and
permits, especially from local building authorities. As of December 31, 2005,
approximately 30% of our antenna sites were operating without local building permits or
applicable exemptions. A substantial portion of these are microsites. We believe that a
portion of the sites operating without permits from local authorities do not require local
building permits under the Planning and Building Law 1965. In addition, some of the
building permits we have received are not compatible with the antenna sites for which they
were obtained. If we continue to experience difficulty in obtaining approvals for the
erection of antenna sites, this could adversely affect our existing network, delay the
erection of additional antenna sites to our network and adversely impact our 3G network
build-out. This difficulty could have an adverse effect on the extent, quality and
capacity of our network coverage and on our ability to continue to market our products and
services effectively. Our inability to resolve these issues in a timely manner could also
prevent us from achieving or maintaining the network coverage and quality requirements
contained in our license.

In
addition, we, like the other mobile telephone operators in Israel, provide repeaters, also
known as bi-directional amplifiers, to subscribers seeking an interim solution to weak
signal reception within specific indoor locations. In light of the lack of a clear policy
of the local planning and building authorities, and in light of the practice of the other
mobile telephone operators, we have not requested permits under the Planning and Building
Law for the repeaters. However, we have received from the Ministry of Communications an
approval to connect the repeaters to our communications network. We have also approached
the Ministry of the Environment, asserting that no permits are necessary for the
repeaters, based on the Ministrys previous advice that permits are not necessary for
devices with comparable levels of emission called Fixed Cellular Terminals. If
the local planning and building authorities determine that permits are necessary for the
installation of these devices, or any other receptors that we believe do not require a
building permit, it could have a negative impact on our ability to obtain permits for our
repeaters. Recently, the Non-Ionizing Radiation Law (5766-2006) was enacted, and defines
the various powers of the Ministry of the Environment as they relate, inter alia,
to the grant of permits for antenna sites and sets standards for permitted levels of
non-ionizing radiation emissions and reporting procedures. Pursuant to this law, which
will enter into effect on January 1, 2007, a request for an operating permit from the
Ministry of Environment with respect to either new sites or existing sites would require a
building permit for such site(s). If we will continue to face difficulties in obtaining
building permits from the local planning and building committee, we may fail to obtain
also operation permits from the Ministry of Environment. Operation of an antenna site
without a permit from the Ministry of Environment may result in criminal and civil
liability to us or to our officers and directors.

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The
erection of an antenna site without a required local building permit is a violation of the
Planning and Building Law, 1965 and, in some cases, has resulted in a demolition order
being imposed on us and in the filing of criminal charges and civil proceedings against us
and our officers and directors. We may be further faced with additional demolition orders,
monetary penalties and criminal charges, including against our officers and directors.

In connection with certain
building permits, we may also be required to indemnify certain planning committees in
respect of claims against them relating to the depreciation of property values or to
alleged health damage that result from antenna sites, which may have a material adverse
effect on our financial condition and results of operations.

The
extent of our potential liability in connection with alleged health risks relating to
antenna sites or in connection with alleged depreciation in the value of nearby properties
as a result of the building of antenna sites may be increased as a result of various
developments. For a description of alleged health damage relating to antenna sites, see
risk factor below, - There are alleged health risks related to antenna sites and the
use of mobile telecommunications devices, including handsets. The actual or perceived
health risks of mobile telephone communications devices could have a material adverse
effect on our business, operations and financial condition.

Under
the Planning and Building Law, 1965, local planning committees may be held liable for the
depreciation of the value of nearby properties as a result of approving a building plan.
Since National Building Plan 36 was approved, some planning committees have started to
require that, as a precondition for issuing new permits for antenna sites, we submit an
undertaking to indemnify the committee against claims for depreciation in the value of
nearby properties as a result of issuing a permit to build, and the building of, antenna
sites. Under the Non-Ionizing Radiation Law, which imposes criminal sanctions for
non-compliance with its dictates, as of January 2006, the National  Council for
Planning and Building was granted the power to determine the level of indemnification that
must be undertaken by cellular companies as a precondition for obtaining a building permit
for a new or existing antenna site that requires such a permit. The National Council has
decided that until National Building Plan 36 is amended to reflect a different
indemnification amount, cellular companies will be required to undertake to indemnify the
committees in full against all losses resulting from claims against a committee for
reduction in property values. Thus, at present, in order to obtain a building permit for a
new or existing antenna site, we must provide full indemnification for the reduction of
property value. We cannot predict whether the legal requirement to provide full
indemnification will be adopted in the amended National Building Plan 36, nor can we
predict when the National Building Plan 36 will be amended. To date, we have provided to
local authorities 24 letters of undertaking to provide such indemnification for the
benefit of such local authorities within 30 days from the enactment of a law or a final
court decision requiring such indemnifications. Such indemnifications expose us to risks
which are difficult to quantify or mitigate and which may have a material adverse effect
on our financial conditions and results of operations. In addition, the requirement to
provide such indemnifications in connection with new building permits may impede our
ability to obtain such building permits for existing antenna sites or to expand our
network with the erection of new antenna sites.

Further, there have been a number of
attempts, by local planning committees to include mobile phone operators in claims against
such committees for the depreciation in value of nearby properties as a result of the
erection of antenna sites. If the local planning committees succeed in including mobile
phone operators in these actions, it may expose us to significant liability and have a
material adverse effect on our financial condition and results of operation. For more
information, see - We have had difficulties obtaining some of the permits for which
we have applied, and have not yet applied for other permits that are required for the
erection of our antenna sites. These difficulties could continue and therefore affect our
ability to erect or maintain antenna sites. This could have an adverse effect on the
extent, quality and capacity of our network coverage and may result in criminal or civil
liability to us or to our officers and directors.

There are alleged health risks
related to antenna sites and the use of mobile telecommunications devices, including
handsets. The actual or perceived health risks of mobile telephone communications devices
could have a material adverse effect on our business, operations and financial condition.

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

Several
lawsuits have been filed out of Israel against operators and other participants in the
wireless industry alleging adverse health effects and other claims relating to radio
frequency transmissions to and from handsets and other mobile telecommunications devices.
We may be subject to potential future litigation relating to these health concerns.

Furthermore,
we do not expect to be able to obtain insurance with respect to such liability. If it will
ever occur that health risks existed or that there was a deviation from SAR standards
which would result in a health risk from sites or handsets, this would have a material
adverse effect on our business, operations and financial condition, including through
exposure to potential liability, a reduction in subscribers, reduced usage per subscriber
and increased difficulty in obtaining sites for base stations.

- 12 -

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

We
compete primarily with Cellcom and Pelephone, two of the other mobile telephone network
operators in Israel, and we also compete with MIRS. Because of the ease of switching
between cellular operators, we have already faced and may continue to face an increase in
our churn rate and may be forced to increase our customer retention costs, including
subsidies towards upgrades of subscribers handsets, in order to retain our
subscribers. These developments may adversely affect our market share, financial condition
and results of operations.

During
2003, Cellcom and Pelephone launched new technologies enabling faster transfers of data:
EDGE technology, in the case of Cellcom, and CDMA-1x, in the case of Pelephone. In 2004,
further technological enhancements were introduced by our competitors, Cellcom announcing
commercial service over UMTS coverage and Pelephone announcing the implementation and
commercial offering of EV-DO technology. In 2005 Cellcom expanded its UMTS spectrum and
began to implement High-Speed Downlink Packet Access (HSDPA) technologies in
preparation for a future launch of its 3.5G technologies. If Cellcom or Pelephone
successfully maximizes the potential of these technologies before we benefit more fully
from our 3G technology, we will be at a competitive disadvantage.

To
the extent that land-line telephones are used instead of mobile telephones, we also
compete with Bezeq, the incumbent land-line operator in Israel. Bezeq completed during
2004 its acquisition of 100% of the shares of Pelephone, and that may enable Pelephone to
offer combined packages of land-line, mobile telephone and other telecommunication
services, subject to regulatory approval.

The
following have either launched land-line service, have been granted a license for such
service or have applied for such a license. We are at a competitive disadvantage relative
to operators who may be able to offer combined packages of land-line, mobile telephone and
other communications services.

| |  | HOT,
a group jointly owned by the three cable companies in Israel, ("HOT") launched land-line
telephone                service;
| | - | -------------------------------------------------------------------------------------------------------------------------------

| |  | Golden
Lines was granted a land-line telephone service license and has started to recruit
subscribers                to this service;
| | - | -------------------------------------------------------------------------------------------------------------------------------------

| |  | GlobeCall
Communication Ltd. ("Globecall"), a company wholly-owned by IDB, which also controls
Cellcom,                was granted a land-line telephone service license;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | A
partnership controlled by Cellcom was recently granted a land-line telephone service
license; and
| | - | ---------------------------------------------------------------------------------------------------

| |  | Other
telecommunication companies, including Barak and Netvision, have also applied for a
land-line telephone service.
| | - | ----------------------------------------------------------------------------------------------------------------------

We
may also face competition from additional land-line operators, if additional land-line
licenses are granted. The Ministry of Communications may also choose to grant additional
mobile telephone operator licenses, which may further intensify competition in the mobile
market in Israel. The Ministry of Communications may also opt to grant licenses to mobile
virtual network operators (MVNOs), who may use Partners infrastructure
or other cellular operators to offer mobile telephone services.

Increased
competition may require us to increase our subscriber acquisition and customer retention
costs. Competition may also limit our ability in the future to increase tariffs, or cause
us to reduce tariffs. We experienced a material increase in churn in each of 2002 and
2003, and then a slightly lower churn in 2004 as compared to 2003. In 2005, we experienced
a higher churn rate than that experienced in 2004, primarily due to the prepaid sector.
Competition, including increased competition resulting from the introduction of number
portability, may further increase our level of churn.

Recent statements by the Israeli
Commissioner of Restrictive Trade Practices have indicated that he may seek a change in
the law that could result in increased anti-trust regulation on the mobile telephone
industry in Israel, which could have a material adverse effect on our revenues and
financial results.

In
recent statements, the Israeli Commissioner of Restrictive Trade Practices has expressed
his view that the mobile telephone industry in Israel operates as an oligopoly and that
the Israeli government should intervene to regulate prices. In part, the Commissioner
based his statements on the increase in prices by the mobile telephone operators as a
result of the Ministry of Communications decision to lower call termination tariffs.
The chairman of the Knessets Economic Committee announced that the committee would
act to declare the mobile telephone operators as an oligopoly. Such a finding could result
in increased regulatory intervention (including with regard to tariffs and tariffing
practices), the application of certain limitations on our conduct and increased
litigation.

Additional
regulation, including as a result of our being declared, together with the other mobile
telephone operators in Israel, as part of an oligopoly, could materially and adversely
affect our revenues and our financial results.

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

Although Israels mobile
telephone services market has experienced substantial growth, and we have experienced
substantial subscriber growth since our commercial launch in 1999, the Israeli market for
mobile telephone services is now highly penetrated, and the growth of the overall Israeli
market and of our own subscriber base has been slower than in the past. According to data
from the Central Bureau of Statistics, the population of Israel at the end of December
2005 was approximately 7.8 million. According to a recent report issued by a research
company, at December 31, 2005, Israels mobile telephone market penetration is
estimated to be 113%. This may include dormant subscribers as well as subscribers who are
not included in the Israeli population figures, such as Palestinians, visitors, and
foreign workers. Because the Israeli market for mobile telephones is highly penetrated, it
is not growing at the same rate as in the past, and our own subscriber growth is not
developing at the same rate as in the past. Similarly, whereas in the past our revenue
growth has largely resulted from growth in the overall market, our future revenues will
depend significantly on our ability to retain existing subscribers and to attract
subscribers from the other mobile telephone network operators. While our market share,
based on internal estimates, has increased from approximately 13% of Israeli mobile
subscribers at December 31, 1999 to approximately 32% at December 31, 2005, our market
share growth has slowed since 2003, and we expect this trend to continue.

High handset prices, delays in the
development of handsets, services and network compatibility and components, and supplier
interoperability may hinder the deployment of 3G technology and may increase the costs
related to both subscriber acquisition and subscriber retention. If we are unable to
successfully develop attractive 3G services for our subscribers or if the Ministry of
Communications is successful in restricting the use of internet search engines by our 3G
customers, our results of operations will be adversely affected.

Establishing
a 3G network and developing services requires investing substantial capital resources.
There is no assurance that subscribers will adopt 3G services, how widespread the usage
of these new services will be, how many subscribers will be willing to pay for these
services and new devices and whether the revenue generated from these services will
justify the costs involved in establishing and operating our 3G networks. If we are
unable to develop attractive 3G services for our subscribers, we may be required to write
off all or a portion of our investment and our results of operations would be adversely
affected.

High handset prices may make our 3G
offering less attractive to potential subscribers or increase costs related to SAC as well
as costs related to retaining subscribers (SRC), as the costs of providing handsets and
upgrades to customers will increase. We also rely on applications developers to develop
services that will stimulate demand for our 3G network. We cannot predict whether customer
demand will develop as expected. If applications developers fail to develop such services,
or experience delays in their development of such services, our ability to generate
revenues from our 3G network will be adversely affected.

We
have selected both Nortel Networks and Ericsson to supply the infrastructure necessary to
build-out our 3G network. We were one of the first 3G networks in the world to be built
with Nortel equipment, and we cannot assure you that Nortel, together with Ericsson, will
be able to successfully deliver all of the requirements of our network, including
interoperability with our existing GSM network. We also cannot assure that the Nortel and
Ericsson equipment will successfully interoperate. 3G handsets may not be available at
reasonable prices or in the timeframe required or in the amounts needed. If we cannot
obtain and offer reasonably priced devices, technologically proven network equipment or
software with sufficient functionality or speed from Nortel, Ericsson, or other suppliers,
or if we experience delays in the delivery or functional deployment of devices, handsets
and related network equipment or software, our ability to further develop our 3G network,
and our customers ability to access it, will be impaired.

A
recent amendment to our general license imposed by the Ministry of Communications extends
to our 3G network restrictions regarding adult services accessed via our cellular
technologies. These new restrictions restrict access not only to adult-content internet
sites, but also access via our internet portal to popular internet search engines, such as
Google, that could potentially facilitate a search for such adult-content internet sites.
We have filed a petition challenging the legality of the restrictions imposed by the
Ministry of Communications. See Regulations  Our License. If we are
unsuccessful in our challenge to this amendment to our general license, our ability to
generate revenues from our 3G network could be adversely affected.

The telecommunications industry is
subject to rapid and significant changes in technology which could reduce the appeal of
our services.

We
may face competition from existing or future technologies, including land-line and
cordless technologies, satellite-based personal communications services, private and
shared radio networks, wireless broadband access services, voice over Internet Protocol
services, wireless fidelity, or Wi-Fi, technologies,Wimax, and other
communications services that have the technical capability to handle mobile telephone
calls and to interconnect with the land-line telephone network. The effect of emerging
and future technological changes, including the convergence of technologies and the
introduction of new competitors with the ability to provide mobile telecommunication
services to customers while mobile, or the viability or competitiveness of our network
cannot be accurately predicted. We cannot assure you that the technologies we employ or
intend to employ, including 3G technologies, will not become obsolete or subject to
competition from new technologies in the future, nor can we predict the effect of
competition from new technologies in the future on our financial condition or results of
operations.

- 14 -

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We may be required in the future
to offer access to our network infrastructure to other operators. This may lower the entry
barriers for potential new competitors and adversely affect our financial condition and
our ability to provide services to our subscribers. These operators could also gain market
share at our expense by offering lower prices to our customers.

Under
the Communications Law (Telecommunications and Broadcasting), 1982, the Ministry of
Communications has the power to require us, like the other telephone operators in Israel,
to offer access to our network infrastructure to other operators. Our license also
requires us, upon demand by the Minister of Communications, to permit other operators to
provide telecom services using our network. Such access to our network would lower the
entry barriers for potential new competitors and increase the likelihood of additional new
competitors entering the mobile telephone market in Israel. Our capacity is limited, and
if we are required to allocate capacity to other operators, the services to our
subscribers may be harmed or we may be required to invest additional capital in order to
enable additional use of our network. If we fail to agree with new operators that are
given access to our network regarding the tariffs for the usage of our infrastructure, the
Ministry of Communications may determine those tariffs. In addition, operators, such as
MVNOs, could offer mobile telecommunication services to our current customers at prices
that are lower than our prices, thereby reducing our market share. If the Ministry of
Communications sets those tariffs too low, this may adversely affect our financial
condition.

# Our company is
controlled by a single shareholder.

As
of March 31, 2006, our controlling shareholder, Hutchison Telecommunications International
Limited, or Hutchison Telecom, held approximately 51.6% of our shares.

Hutchison
Telecom has the ability to influence our business through its ability to control all
actions that require shareholder approval and through its representatives on our Board of
Directors. Hutchison Telecom is not obligated, however, to provide us with financial
support or to exercise its rights as a shareholder in our best interests or the best
interests of our minority shareholders and noteholders, and it may engage in activities
that conflict with such interests. If the interests of our controlling shareholder
conflict with the interests of our other shareholders and noteholders, those shareholders
and noteholders could be disadvantaged by the actions that this controlling shareholder
chooses to pursue. In addition, our controlling shareholder may cause our business to
pursue strategic objectives that may conflict with the interests of our other shareholders
and noteholders.

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

Hutchison
Telecom and its major shareholder, Hutchison Whampoa Limited, or HWL, are global leaders
in the mobile telecommunications market, and we rely on and benefit from the assistance,
knowledge and experience of Hutchison Telecom and HWL, for example, in connection with our
ability to access supply of 3G handsets on favorable pricing terms. In December 2005,
HWL announced the acquisition by Orascom Telecom Holding S.A.E. of an
indirect 19.3% interest in Hutchison Telecom. See below - Our telecommunications
license imposes certain restrictions on who can own our shares. If these restrictions are
breached, we could lose our license. We cannot assure you that Hutchison Telecom
will continue to be our controlling shareholder or that HWL will continue to be a major
shareholder of Hutchison Telecom. Nor can we assure you that if Hutchison Telecom ceases
to be our controlling shareholder, or HWL ceases to be a major shareholder of Hutchison
Telecom, that we will continue to enjoy the benefits of our relationship with Hutchison
Telecom and HWL that we currently do.

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

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

- 15 -

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

Our
ability to provide commercially viable mobile telephone services depends upon our ability
to interconnect with the telecommunications networks of existing and future land-line,
mobile telephone and international operators in Israel in order to complete calls between
our customers and parties on the land-line or other mobile telephone networks. All
land-line, mobile telephone and international operators in Israel are legally required to
provide interconnection to, and not to discriminate against, any other licensed
telecommunications operator in Israel. We have signed interconnect agreements with
Pelephone, Cellcom and MIRS, the other mobile telephone network operators in Israel, and
with the Israeli international operators Bezeq International, Barak, Netvision, Internet
Gold and Exfone. We have an operating arrangement with Golden Lines. We are currently
operating without any formal interconnect agreements with Bezeq. We are not aware of any
interconnect agreement that Cellcom, Pelephone, or MIRS has signed with Bezeq. Our
day-to-day arrangements with Bezeq substantially conform to a draft interconnect agreement
negotiated with Bezeq. We have no control over the quality and timing of the investment
and maintenance activities that are necessary for these entities to provide us with
interconnection to their respective telecommunications networks. The failure of these or
other telecommunications providers to provide reliable interconnections to us on a
consistent basis could have a material adverse effect on our business, financial condition
or results of operations.

We
currently lease most of our transmission capacity from Bezeq, and we lease additional
capacity from other suppliers, primarily Cellcom. We have no control over the quality and
timing of the investment and maintenance activities that are necessary for these suppliers
to provide us with transmission services. Disruptions, stoppages, strikes and slowdowns
experienced by them may significantly affect our ability to provide mobile telephone
services. In particular, Bezeq has experienced labor disputes with its employees,
including stoppages, notably in recent years during the privatization process and as the
liberalization of the telecommunications market in Israel developed. The failure by our
suppliers to provide reliable transmission services to us on a consistent basis could have
a material adverse effect on our business, financial condition or results of operations.

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

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

Furthermore,
although we believe that we are currently in compliance with all material requirements of
our license, the interpretation and application of the technical standards used to measure
these requirements, including the requirements regarding population coverage and minimum
quality standards, and other license provisions may not be certain, and disagreements have
arisen and may arise in the future between us and the Ministry of Communications. We have
provided a bank guarantee to the Ministry of Communications in the amount of US$10 million
to guarantee our performance under our license. If we are found to be in material breach
of our license, the guarantee may be forfeited and our license may be revoked.

Our telecommunications license
imposes certain restrictions on who can own our shares. If these restrictions are
breached, we could lose our license.

As
with other companies engaged in the telecommunications business in Israel, our license
requires that a certain minimum of the economic and voting interest, and certain other
defined means of control, of our company be owned by Israeli citizens and residents or
entities in their control. If this requirement were not complied with, we could be found
to be in breach of our license and our license could be revoked. The Ministry of
Communications amended our license effective April 14, 2005, reducing the required
holdings by Israeli citizens and residents from 20% to 5%, which shall be held by our
founding shareholders who are Israeli entities or their approved substitutes, and
requiring that these shareholders appoint, at least, 10% of our board of directors. In
addition, according to the amendment, among other things (i) we are required to appoint a
Committee for Security Matters consisting only of members who have security clearance and
security compatibility to be determined by the General Security Service and (ii) the
Minister of Communications shall be entitled to appoint an observer to our board of
directors and its committees subject to certain qualifications and confidentiality
undertakings. See Item 4B. Regulation. In addition, no transfer or acquisition
of 10% or more of any of such means of control, or the acquisition of control of our
company, may be made without the consent of the Ministry of Communications. Our license
also restricts cross-ownership and cross-control among competing mobile telephone
operators, including the ownership of 5% or more of the means of control of both our
company and of a competing operator, without the consent of the Ministry of
Communications, which may limit certain persons from acquiring our shares. Shareholdings
in breach of these limits relating to transfers or acquisitions of means of control or
control of Partner could have two consequences. First, the shares that are in excess of
the limits will be converted into dormant shares, with no rights other than
the right to receive dividends or other distributions to shareholders, and to participate
in rights offerings until such time as the consent of the Ministry of Communications has
been obtained. Second, the breach of the limits could be the basis for revoking our
license unless our founding shareholders or their approved substitutes hold an aggregate
of at least 26% of our ordinary shares.

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In
December 2005, HWL, Hutchison Telecoms major shareholder, announced the acquisition
by Orascom Telecom Holding S.A.E., or Orascom Telecom, of an indirect 19.3% interest in
Hutchison Telecom, representing an indirect 9.98% interest in Partner at that time. As
part of that transaction and, subject to the receipt of consent from the Ministry of
Communications, Orascom Telecom may acquire a number of additional shares that represents
approximately 3.69% of Hutchison Telecoms total outstanding shares. HWL (Hutchison
Telecoms major shareholder) and Orascom Telecom also entered into a shareholders
agreement extending certain corporate governance rights in respect of Hutchison Telecom.
We have been informed that the Ministry of Communications is currently reviewing the
transaction to ensure that no breach of our license has occurred as a result of this
transaction. If the Ministry of Communications decides that a breach were to have
occurred, this could be a basis for revoking our license or imposing new license
conditions.

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

Our
marketing strategy is based upon the international Orange brand. We can operate our
business under the Orange brand only if we have the right to use it under the brand
license agreement with Orange International Developments Limited, a subsidiary of Orange
plc. Under this license agreement, we are required to comply with the Orange brand
guidelines established by Orange International. We have the right to use the Orange brand
as long as we are able and legally eligible under the laws of Israel to offer
telecommunications services to the public in Israel. However, the brand license agreement
may be terminated by mutual agreement, or at our discretion, or by Orange International if
a court determines that we have materially misused the brand and we continue to materially
misuse the brand after such determination of material misuse. If we lose the right to use
the Orange brand, our financial condition and results of operations may be materially
adversely affected.

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

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

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

Pursuant to legislation passed on
March 29, 2005, the Ministry of Communications is putting regulatory measures into place
that would require mobile and land-line telephone operators to implement number
portability, which would permit mobile and land-line network subscribers in Israel to
change network operators without having to change their telephone numbers. According to
the legislation, each operator must institute the necessary technology in its system for
number portability by April 30, 2006, complete all necessary coordination with the other
operators by July 31, 2006, and implement the number portability plan by September 1, 2006
(an extension of up to three months may be granted under certain circumstances). Because
this will eliminate one of the major barriers that we believe currently prevents
subscribers from changing network operators, we expect that number portability will
increase competition in our industry and increase churn and may increase subscriber
acquisition and retention costs. In addition, we cannot be sure how implementation of
number portability will affect the overall functioning of our network and billing systems.
Partner is a member of a 12-operator forum (including land-line, cellular, and
international call operators) involved in a program plan to implement number portability.
As of December 31, 2005, the head of the forum had notified the General Manager of the
Ministry of Communications as well as the Minister of Finance that the operators will not
be able to implement the plan by September 1, 2006, as scheduled, and requested an
extension of approximately one year to implement the program. If we do not receive such an
extension, we will probably not meet the statutory deadline, and we may be exposed to
legal claims and financial sanctions that may have an adverse financial impact on us.
Furthermore, we expect to incur material expenditures during 2006 in order to meet the
technological challenges presented by the requirement to comply with the expected
regulatory measures implementing number portability.

Although
we cannot predict with certainty the consequences of number portability, including the
response of mobile telephone subscribers following the implementation of number
portability, these developments may have a material adverse effect on our business and on
the overall functioning of our system.

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

Substantially
all of our revenues and a majority of our operating expenses are denominated in shekels.
However, through December 31, 2005, a substantial amount of our operating expenses were
linked to non-shekel currencies. These expenses related mainly to the acquisition of
handsets where the price paid by us is based on various foreign currencies. In addition, a
substantial majority of our capital expenditures (including with respect to our 3G
networks) are incurred in, or linked to, non-shekel currencies. Thus, any devaluation of
the shekel against the dollar (or other foreign currencies), will increase the shekel cost
of our non-shekel denominated or linked expenses and capital expenditures. Such an
increase may have an adverse impact on our results, which may be material. Material
changes in exchange rates may cause the amounts that we must invest to increase materially
in shekel terms.

- 17 -

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We
hedge a portion of our foreign currency commitments. As of December 31, 2005, the notional
amounts of our foreign currency derivatives were approximately US$28 million. Our
derivative transactions are mainly designed to hedge the cash flows related to anticipated
payments in respect of purchases of handsets and capital expenditures in foreign currency.

Our
bank credit facility borrowings and Notes due 2012 are currently in shekels, most of which
are linked to the Israeli consumer price index, or CPI. We may not be permitted to raise
our tariffs pursuant to our license in a manner that would fully compensate for any
increase in the Israeli CPI. Therefore, an increase in the rate of inflation may also have
a material adverse impact upon us by increasing our financial expenses without an
offsetting increase in revenue. We enter into derivative transactions in order to protect
ourselves from an increase in the CPI. As of December 31, 2005, the notional amounts of
our CPI derivatives were approximately NIS 1,500 million (or approximately two-thirds of
our CPI exposure).

Identification of significant
deficiencies or material weaknesses as a result of our implementation of procedures
designed to comply with Section 404 of the Sarbanes-Oxley Act of 2002 relating to
evaluation of our internal control over financial reporting may have an adverse impact
on our financial condition and results of operations and the trading price of our
shares.

Commencing with our annual report on
Form 20-F for the year ending December 31, 2006, we will include a report from our
management relating to its evaluation of our internal control over financial reporting as
required under Section 404 of the U.S. Sarbanes-Oxley Act of 2002. As a consequence of
systems and procedures currently being reviewed and implemented to comply with these
requirements, we may uncover circumstances that may be determined to be significant
deficiencies or material weaknesses, or that may otherwise result in disclosable
conditions. Although we intend to take prompt measures to remediate any such identified
significant deficiencies or material weaknesses in our internal control structure,
measures of this kind may involve significant effort and expense, and any disclosure of
such significant deficiencies, material weakness or other disclosable conditions may
result in a negative market reaction.

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

The
political and military conditions in Israel directly influence us. Since the establishment
of the State of Israel in 1948, a number of armed conflicts have taken place between
Israel and its Arab neighbors. Hostilities involving Israel, the interruption or
curtailment of trade between Israel and its trading partners and political instability
within Israel or its neighboring countries are likely to cause our revenues to fall and
harm our business.

Ongoing
violence between Israel and its Arab neighbors and Palestinians may have a material
adverse effect on the Israeli economy, in general, and on our business, financial
condition or results of operations.

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

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

# Our high leverage could
adversely affect our financial health.

We
are highly leveraged. On December 31, 2005, our total long-term indebtedness was
approximately NIS 2,688 million ($584 million). This debt represents approximately 76.7%
of our total capitalization (bank loans plus Notes payable plus shareholders equity)
on December 31, 2005. Our credit facility and the indenture governing the Notes due 2012
currently permit us to incur additional indebtedness, subject to some limitations.

Our
substantial debt could adversely affect our financial health by, among other things:

| | increasing
our vulnerability to adverse economic, industry or business conditions or increases in
prevailing interest rates, particularly because a substantial portion of our borrowings
is linked to the Israeli consumer price index, or CPI;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

- 18 -

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

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

Our credit facility contains a
number of restrictions and obligations that limit our operating and financial flexibility.

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

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

We cannot assure that we will
distribute dividends in the future, nor the amounts of any such dividends.

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 the first quarter of 2006, our
Board of Directors and shareholders approved the distribution of an additional cash dividend in the amount of NIS 0.65 per
share (totaling approximately NIS 100 million).  In the second quarter of 2006, we adopted a dividend policy targeting a
payout ratio of 60% of net income over 2006.  As part of this policy, our Board of Directors approved the distribution of a
cash dividend of NIS 0.45 per share (totaling approximately NIS 70 million) for the first quarter of 2006.    Restrictions
under Israeli Law and those contained in our credit facility limit the amount of dividends we may pay. In addition, our board
may not decide to distribute dividends in the future.

The
recently enacted Class Actions Law, 2006 may increase our exposure to class action lawsuits.

The
recently enacted Class Actions Law, 2006, inter alia, expands the causes of action for
which a class of litigants may bring suit.  The new law may increase the number of
requests for approval of class actions against the Company and may increase our legal
exposure as a result of such class action lawsuits and, as a result, may materially and
adversely affect our financial results.

# ITEM 4. INFORMATION ON
THE COMPANY

# 4A. History and
Development of the Company

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

In
our short history, we have achieved a number of important milestones:

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

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

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

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

| | In
October 1999, we completed our initial public offering of ordinary shares in the form of
American Depositary Shares, and received net proceeds of approximately NIS 2,092 million,
with the listing of our American Depositary Shares on NASDAQ and the London Stock
Exchange. We used part of these net proceeds to repay approximately NIS 1,494 million in
indebtedness to our principal shareholders, and the remainder to finance the continued
development of our business.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | In
August 2000, we completed an offering, registered under the US Securities Act of 1933, as
amended, of $175 million (approximately $170.5 million after deducting commissions and
offering expenses) in 13% unsecured senior subordinated notes due 2010.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

| | In
March 2005, we completed a debt offering, raising NIS 2.0 billion in a public offering in
Israel of the Notes due 2012. In April 2005 we entered into a new credit facility as part
of our 2005 Refinancing, consisting of a $450 million term loan facility and a $100
million revolving loan facility, replacing our previous bank facility. In May 2005, we
exercised an option to reduce the term facility from $450 million to $150 million.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | In
August 2005, we redeemed our outstanding $175 million 13% Senior Subordinated Notes, due
2010.
|- | -------------------------------------------------------------------------------------------------

| | 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 to our shareholders of record as of September 26, 2005.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 22, 2006, we signed an agreement with MED I.C.  1 (1999) Ltd., a
transmission and hosting company, to purchase its fiber-optic transmission business for
approximately $14.8 million, subject to certain adjustments, 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. Completion of the transaction is subject to
the satisfaction of various closing conditions, including, approval by the Ministry of
Communications.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | In
the first quarter of 2006, our Board of Directors and shareholders approved the
distribution of an additional cash dividend in the amount of NIS 0.65 per share (totaling
approximately NIS 100 million) to our shareholders of record as of April 10, 2006.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the second quarter of 2006, we adopted a dividend policy targeting a payout ratio of 60%
of net income over 2006.          As part of this policy, our Board of Directors approved
the distribution of a cash dividend of NIS 0.45 per          share (totaling
approximately NIS 70 million) for the first  quarter of 2006 to shareholders of
record          as of June 6, 2006.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our net capital expenditures for the
first fiscal quarter of 2006 were approximately NIS 67.7 million. For more information on
our capital expenditures for the last three financial years, see Item 5B. Liquidity
and Capital ResourcesCommitments and Contractual Obligations.

# 4B. Business Overview

We
were the first GSM mobile telephone network operator in Israel and on December 1, 2004,
commercially launched our UMTS third generation, or 3G, service. We received our mobile
telephone license in April 1998 and commenced full commercial operations of our digital
GSM mobile telephone network in January 1999. Since then, we have expanded rapidly, and on
December 31, 2005, we had approximately 2.59 million subscribers, representing an
estimated 32% of total Israeli mobile telephone subscribers at that date. During the
twelve months ended December 31, 2005, we increased our customer base by approximately
8.07%. At December 31, 2005, approximately 50% of our private subscribers had post-paid
tariff plan contracts with us, approximately 30% of our subscribers were in pre-paid
subscriber plans, and approximately 20% of our total subscribers were business
subscribers. As of December 31, 2005, we also had more than 100,000 3G customers, all of
whom are post-paid subscribers.

We
market our services by capitalizing on the strong international Orange brand and the
experience of our largest shareholder, Hutchison Telecom. The Orange brand, which is
licensed to us, has been used successfully in other markets to promote mobile telephone
services. Market surveys show that we have achieved strong brand awareness in Israel. We
have also received awards recognizing our high standards of customer service. In 2005 we
were named by both Globes Israeli business daily newspaper as well as by the Israeli daily
newspaper, Yediot Ahronot, as the number-one provider of customer service in Israel in the
telecommunications market.

We
currently operate our GSM network in the 900 MHz and 1800 MHz bands. Our GSM network
covers approximately 97% of the Israeli population. Our GSM services include standard and
enhanced GSM services, as well as value-added services and products such as roaming, voice
mail, voice messaging, color picture messaging, icon, ringtone and game downloads,
information services, General Packet Radio Services, or GPRS, which enables the packet
transfer of data in an always on mode at a speed of up to 20-30 Kbps, personal
numbering and data and fax transmission services.

Our
3G network, which as of the end of 2005 covered approximately 92%, of the Israeli
population, offers a wide range of new services, such as video calls, a new portal of
content services including a rich selection of video-based services under the obox
live brand, and the transmission of data at speeds of up to 384 Kbps.

In
March 2006, we soft launched HSDPA to the business sector, which is a technological
enhancement to our 3G services and offers subscribers the ability to access our 3G
services at higher speeds. We offer an HSDPA data card modem which enables our subscribers
to access our network at higher speeds. We soft launched HSDPA with limited coverage in
the center of Israel and plan to expand the coverage area gradually.

We
have set forth in the following table an estimate of each operators share of total
subscribers in the Israeli cellular market at December 31, 2001, 2002, 2003, 2004 and
2005:

|Market Share* | 2001 | 2002 | 2003 | 2004 | 2005
|------------- | ---- | ---- | ---- | ---- | ----
|
|
|
|
|Partner       |      |      |      | 27   | %   
|Cellcom       |      |      |      | 41   | %   
|Pelephone     |      |      |      | 28   | %   
|MIRS          |      |      |      | 4    | %   

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

We
operate in one business segment, mobile telephony and related services, and one geographic
segment, Israel.

Overview of Mobile
Telecommunications Industry in Israel

There
are currently four mobile telephone network operators in Israel: Partner, Pelephone,
Cellcom and MIRS. Pelephone is an Israeli corporation wholly owned by Bezeq, the
land-line operator in Israel. The major beneficial owner of Bezeq following Bezeqs
privatization during 2005 is an entity comprised of the S.C.G. Group (Haim Saban), the
Apax Fund, and Arkin Communications (Mori Arkin). Pelephone currently operates nationwide
mobile telephone networks in Israel using both the N-AMPS analog and the CDMA digital
system and recently upgraded its network to CDMA1x. The major beneficial shareholders of
Cellcom are Discount Investment Corporation Ltd, DIC Communications Ltd., and PEC Israel
Economic Corporation. Cellcom operates nationwide mobile telephone networks based on GMS
1800 MHz and D-AMPS technologies. In 2004, further technological enhancements were
introduced by our competitors, with Cellcom announcing commercial service over UMTS/HSDPA
spectrum and Pelephone announcing the implementation and commercial offering of EV-DO
technology. MIRS is an Enhanced Specialized Mobile Radio, or trunking, iDEN
network. MIRSs major shareholder is Motorola Communications (Israel) Ltd.

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In
addition, the Palestine Telecommunication Co. Ltd., or Paltel, operates a GSM mobile
telephone network under the name Jawwal in the Palestinian Authority
administered areas of the West Bank and Gaza Strip, as well as a land-line network.
Paltels GSM network competes with our network in some border coverage overlap areas.

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

Since
the end of 1996, there has been continued strong growth in the Israeli mobile telephone
market. Market data from industry sources indicates that the total market size was
approximately 7.9 million subscribers at December 31, 2005, representing approximately
113% of the Israeli population.

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

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

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

| | Calling
Party Pays. In Israel, only the party originating a telephone call pays for the
airtime (except for 1-800 numbers). Mobile telephone network operators do not charge
subscribers to receive calls on their handsets, except while roaming. This encourages
higher rates of mobile telephone usage.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | High
Mobile Telephone Penetration. Since Cellcoms launch in 1994, the market has
sustained a rapid annual rate of growth from a 2.6% penetration rate at year-end 1994 to
an estimated penetration rate in Israel at December 31, 2005 of 113% representing
approximately 7.9 million subscribers. This may include dormant subscribers and
subscribers to multiple networks as well as other subscribers who are not included in the
Israeli population figures, such as Palestinians, visitors, and foreign workers.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Multiple
Different Mobile Telephone Technologies. The four mobile telephone licensees in
Israel have systems based on multiple technologies. Pelephone uses the N-AMPS analog, the
CDMA and CDMA1x digital systems, and the EVDO system, and Cellcom uses the
D-AMPS,GSM/GPRS, EDGE, and UMTS/ High Speed Downlink Pack Technologies (HSDPA) systems.
MIRS uses an iDEN system. We are currently one of two network operators using a GSM
digital system and a UMTS system. GSM is an advanced, internationally accepted
technology, and according to an industry source, was used by approximately 1.8 billion
people worldwide as of March 31, 2006.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

Strategy

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

| | Achieve
Leadership in 3G Services. We believe that demand for 3G services will provide an
important source of future mobile subscriber growth and usage in Israel. As a result, we
are leveraging our brand and our outstanding reputation for network quality, innovation,
and customer service to develop our 3G business in order to benefit from that growth. We
aim to offer desirable content and to make our 3G services widely accessible and
affordable.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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| | Be
First in Technology. We believe that we have benefited historically from being a
first-mover in technology, and aim to retain this first-mover advantage in order to drive
our future subscriber growth. We believe that we will have an advantage in our ability to
gain subscribers by continuing to capitalize on technological innovation in this manner
in the future.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Competitive Strengths

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

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

| | 3G
Services. As of December 31, 2005, we had an Israeli nationwide UMTS network, which
offers high speed data, advanced video content and video telephony. Cellcom does not yet
have a nationwide UMTS network, and Pelephone has an EVDO network without the ability to
offer video calling. We believe that as of December 31, 2005, we offered the markets
most advanced and comprehensive 3G services.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Focus
on Customer Service. We believe we provide outstanding customer service through
quick, simple and reliable handling of customer needs and interactions, which we have
achieved through investments in technology and training of customer service skills. In
2004, we were named by the Israeli Management Institute as the best provider of customer
service in Israel for the third year in a row in the telecommunications market. In 2005,
we were named by both Globes Israeli business daily newspaper, as well as by the Israeli
daily newspaper, Yediot Ahronot, as the number one provider of customer service in Israel
in the telecommunications market. We also believe that we have achieved high customer
loyalty, as evidenced by our customer churn rate of 13.6%for the year ended December 31,
2005.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Beneficial
Relationship with Hutchison Telecom. Our largest shareholder, Hutchison Telecom and
its major shareholder, HWL, are global leaders in the 2G and 3G mobile telecommunications
market. Hutchison Telecom has a substantial interest in a 3G operating company in Hong
Kong, and HWL has a substantial interest in 3G operating companies in Austria, Australia,
Denmark, Ireland, Italy, Sweden and the United Kingdom. We derive benefits from the
knowledge and experience of Hutchison Telecom and HWL and from a cost sharing agreement
with certain members of the HWL group of companies for the joint acquisition and
development of information technology platforms and software solutions, hardware, content
and other services in connection with our 3G business. In particular, our relationship
with Hutchison Telecom and HWL enhances our competitive position in the provision of 3G
services by giving us access to supply of 3G handsets on favorable terms.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Strong
Financial Performance and Financial Position. Our net cash provided by operating
activities less net cash used in investing activities has improved significantly and has
grown from negative NIS 1,163.0 million in the year ended December 31, 2000 to positive
NIS 459.6 million in the year ended December 31, 2005.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Strong
and Motivated Management Team. Since our inception, we have been able to attract a
number of Israeli senior managers from the telecommunications, high-tech and consumer
products industries. Our management team has a strong track record of successfully
managing our company from our start-up phase in 1998 to our position today as the leading
provider of GSM and UMTS services in Israel. We believe that our performance-based
incentive package aligns the interests of senior management with those of our investors.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Marketing and Brand

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

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Our
marketing strategy is based on the concept of high value for money and introducing
advanced services for subscribers. In order to carry out our strategy, we offer our
subscribers competitive tariffs, technologies and services that we believe are advanced,
including our 3G services as well as our GPRS services. During 2005, the primary objective
of our marketing strategy was to increase our 3G subscriber base and 3G usage by our
customers.

We
commercially launched our 3G network on December 1, 2004, having implemented our
soft launch in June 2004, when we distributed 3G handsets to selected
customers for the purpose of evaluating the quality of our 3G network and services. As of
December 31, 2004, we had approximately 8,000 3G subscribers, and as of December 31, 2005
we had more than 100,000 3G subscribers. As of the end of 2005, our 3G network covered
approximately 92% of the population of Israel. During 2006 we plan to further expand our
3G population coverage. Our 3G network offers a wide range of new services, such as video
calls, which are currently offered exclusively by us; a new portal of content services
including a rich selection of video-based and MP3 based services under the obox
live bran;, and the transmission of data at speeds of up to 384 Kbps. We have
concluded content agreements with a variety of content providers and suppliers in the
Israeli television and entertainment industry. As a result of our relationship with
Hutchison Telecom and HWL, we have a supply of 3G handsets on favorable pricing terms. As
of December 31, 2005, we offered our 3G services with four different handsets and one 3G
data card.

In
order to promote our advanced new services and to increase awareness of these services, we
are taking many promotional steps, using a broad range of advertising media. We also
intend to maintain our advertising presence in the media in order to maintain high
exposure for our brand and advanced technologies. During 2005, our main advertising
activities focused on promoting the subscribership and usage of the 3G services. Our
marketing strategy focuses on promoting our services to various segments of the Israeli
population, and we have extended this to our 3G services. We advertise our services in
several languages. In addition to traditional media, we promote our brand and services by
sponsoring and initiating cultural and community programs, such as a special events
program on the Passover holiday, a three-day international music festival held in the
Haifa harbor, a lecture by the conductor and author, Benjamin Zander, for our business
customers and the International Film Festival, a major cultural event in Israel that takes
place every year in Jerusalem and attracts international attention. We usually focus our
sponsorship activities on events which are of an international nature to support the
international value of the brand. We use the distinctive Orange Brand logo in all our
promotional activities and advertising.

At
December 31, 2005, approximately 20% of our subscribers were business subscribers. We are
continually developing tailored value-added services to meet the special needs of business
subscribers.

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

Services and Products

Our
principal business is the provision of mobile telephone services in Israel. Our goal is to
offer our subscribers a wide range of sophisticated and easy to use services based upon
the latest proven technology. Our most basic service is telephony service  provided
on both our GSM/GPRS network and our UMTS/HSDPA network. Our basic offer includes
international dialing, roaming, voice mail, short message services, intelligent network
services, content based on our mobile portal, data and fax transmission and other
services. Our use of HSCSD, GPRS, UMTS and HSDPA technologies enables high speed data
transmission. All our content services are unified under the obox brand; our 2G and 2.5G
content services are all branded as obox; and our 3G services are branded as obox live.
Our orange obox services enable the downloading of rich applications and content and WAP
browsing, while our obox live services are enhanced by the video and audio capabilities of
our UMTS network. Our MMS services enable subscribers to send photos, multimedia and
animation from handset to handset and from handset to web. We also offer 24-hour,
seven-day a week customer service, as well as handset repair and replacement services, to
subscribers who acquire these services.

We
received and maintain the accreditation of the ISO 9002 Standard from the Israeli
Institute of Quality and Control. ISO 9002 is a quality management system specification
whose requirements are aimed primarily at achieving customer satisfaction by preserving
standardization at all stages, and throughout company processes.

Tariff Plans

Since
the beginning of our full commercial operations, we have introduced tariff plans aimed at
bringing innovation to the Israeli mobile communications market. Our tariff plans offer
features attractive to business users such as: the charging of fees based on airtime usage
without adding the interconnect charges imposed by other mobile and land-line providers
for calls made by our subscribers that terminate on third party networks, and the
provision of discounts for calls to designated numbers within a subscribers calling
circle. In addition, we usually offer handset subsidies to customers joining these tariff
plans.

Our
tariff plans aimed at private customers usually have no contractual obligations for a
minimum subscription period. Such plans feature a certain number of free minutes for calls
made between family members and offer limited handset subsidies. The elements of our
tariff plans for private customers are packaged and marketed in various ways to create
tariff packages attractive to target markets, including families, soldiers, Orthodox Jews,
Arab and Russian communities, teens and students.

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We
offer our 3G customers similar rate plans to those that we offer to our 2G customers, but
with an additional fixed monthly fee. In all of our 3G rate plans, video call minutes are
charged at the same rate as voice call minutes. We also offer a pre-paid plan. Upon
purchase of a phone card or prepayment by credit card, customers can use our network,
including some of our value-added services, without the need to register with us or enter
into any contract. Our pre-paid plans enable us to compete in the growing pre-paid mobile
services market.

International Roaming

Israelis
are frequent travelers. According to the Israel Central Bureau of Statistics, in 2005,
more than 3.7 million overseas departures of Israelis were recorded, and almost 1.9
million people visited Israel during 2005. Roaming allows a mobile phone subscriber to
place and to receive calls while in the coverage area of a network to which he or she does
not subscribe and to be billed for such service by his or her home network. Facilitating
international roaming was a primary design goal of the GSM system from its inception. A
GSM roamer can therefore expect to enjoy substantially the same services, features and
security while traveling as he does at home. We consider international roaming to be a
significant source of revenue. The Ministry of Communications may introduce new
regulations that would limit our revenues from roaming services. See Item 4. Information on the Company  4B.
Business Overview  Regulation.

At
December 31, 2005, we had open commercial roaming relationships with 347 operators in 162
countries or jurisdictions. We also have agreements with satellite operators, providing
global coverage, requiring the use of unique handsets, some of which can be used with the
standard customer SIM card. Creating roaming relationships with multiple operators in each
country increases potential incoming roaming revenue for us and gives our subscribers more
choice in coverage, services and prices in that country.

On
December 31, 2005, we had 3G roaming agreements with operators in 22 countries, enabling
our 3G roamers to experience video calls, high speed data and video and audio content
while abroad. Since we operate our GSM services on the 900 MHz band, which is the most
widely-used among GSM operators worldwide in terms of handsets, and also on the 1800 MHz
band, all of our roaming enabled subscribers may roam to most countries where we have
roaming capability using their own handsets without modification. In some countries
cellular networks use either the 1900 MHz band of GSM or other technologies (GSM 850, CDMA
or UMTS) with which we have established international roaming. Our subscribers who own
dual or tri-band handsets that work on GSM 1900 as well as GSM 900 may also use their own
handsets in countries that deploy GSM 1900 frequency with networks using GSM 1900. Other
subscribers who advise us of their intention to visit those countries are either loaned
free of charge a compatible handset into which they insert their SIM, thus retaining their
own phone number, phone book and all other regular features, or are given the option to
rent such handsets at their destination upon their arrival. Since the launch of our 3G
network, UMTS networks around the world are becoming gradually available to our 3G
subscribers.

Value-Added Services

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

Our
main focus throughout 2005 was to market and develop our 3G services. During the year we
launched our 3G content portal, which we branded as obox live and consists of
advanced video and audio streaming and downloads. The main value-added services we
currently offer include the following:

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

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

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

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

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

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

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

| | Orange
Hotspots. A service that allows access from laptops to wireless networks, using WIFI
technologies, from thousands of locations in Israel, overseas, and from airplanes.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

| | WAP
Services. We have WAP technology that enables WAP-related services. WAP services
create a significant incremental demand for content services and increase usage of our
network.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Handsets

We
provide handsets to our subscribers at discounts of up to 100% when they first become
subscribers. The price at which the handset is provided depends upon the tariff package
and special promotions.

We
currently offer a range of different handset models supplied by a number of manufacturers.
We offer handsets to satisfy our subscribers roaming needs in the 900 MHz, 1800 MHz
and 1900 MHz bands and recently in 2100 MHz (UMTS) as well. Not all handsets support all
band ranges. We evaluate the technical features of every new mobile handset and, if we
decide to make it available to subscribers, we obtain a type approval from the Ministry of
Communications for such handset. We advise our sales representatives and dealers on
compatibility and technical issues. All our handsets are EFR compatible to provide high
voice quality. Most of our handset models have Hebrew language displays. Because of the
wide international acceptance of GSM technology, handset manufacturers generally make
their latest model handsets available for use on GSM networks before networks based on
other technology. We have begun selling some innovative handsets with enhanced
applications, including multicolor, large screens with high resolution displays, high
quality music performance and MMS capabilities. Pursuant to the launch of our 3G network,
we sell 3G handsets that enable customers to make video calls, consume video and MP3
audio-based content services and use laptops with high-speed rates of data transmission.

Customer Division

Our
Customer Division incorporates all service, sales and distribution channels, and on
December 31, 2005, had approximately 2,400 full-time employees, including managers, sales
representatives and service representatives.

Customer Service

Our
customer support and service provides several channels for our customers: call centers,
walk-in centers and self-services, such as IVR, web-based services and via SMS.

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

Walk-in
Centers.We currently operate 36 Partner owned service and sales centers covering
almost all areas of Israel. These centers provide a face-to-face, uniformly designed,
contact channel and offer all services that we provide to customers: sales, handset
upgrade, handset maintenance and other services (finance, rate-plan changes, subscription
to new services etc.). Several of these centers are focused on sales to both private and
small business customers. These stores are located in central locations, such as shopping
malls in Tel Aviv and its periphery, Jerusalem, Haifa and Beer-Sheba. Lease
agreements for our retail stores and service centers are for periods of two to five years.
We have the option to extend the lease agreements for different periods of up to twenty
years including the initial lease period . The average size of our retail stores and
service centers is approximately 230 square meters. See also Note 8a(3)(b) to our
consolidated financial statements.

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

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

Sales and Distribution

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

We
distribute our services and products primarily through:

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

| |  | Indirect
sales channels, which consist of traditional networks of specialized dealers and
non-traditional networks of retail chains and stores that account for the majority of our
sales.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Direct Sales Channels

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

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

| |  | A
team of regional representatives and customer account managers, located in five regional
offices, supports small to medium-sized businesses. This team primarily focuses on small-
and medium-sized enterprises, which tend to use more airtime and yield higher margins.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | A
team of corporate representatives and customer account managers services large corporate
customers.
| | - | -----------------------------------------------------------------------------------------------------

| |  | Specialized
VIP representatives provide service to opinion leaders and prominent individuals.
| | - | ---------------------------------------------------------------------------------------------

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

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

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

Indirect Sales
Channels

Traditional
Dealer Networks. On December 31, 2005, we had agreements with 35 traditional dealers
providing 44 points of sale, selling a range of our products. The private dealer network
is an important distribution channel because of its ability to attract existing cellular
users to our network. Our dealer network focuses primarily on sales to individual
customers and, to a lesser extent, small business customers. Most of our dealers
specialize in sales for post-paid customers, and others specialize on sales for pre-paid
customers and distribution of pre-paid handsets to sub-dealers. Our dealers are highly
professional and some of them have previous experience selling cellular services in
Israel. In addition, we have specific dealers that target different segments of the
Israeli population with the appropriate style, language and locations. We provide regular
training to employees of our dealers to update them on our products and services. Our
dealer managers visit dealers on a regular basis to provide information and training,
answer questions and solve any problems that may arise. We pay our dealers competitive
commissions and provide handset subsidies. However, dealers are not entitled to
commissions for any customers that terminate their service within 60 days of activation.

Non-Traditional
Dealer Networks. Non-traditional dealers consist of generalist retailers or
specialized stores that sell related products. This distribution channel is not common in
the Israeli cellular market today, and we believe that it provides us with a competitive
advantage over and differentiates us from our competitors.

We
have a contract with Super-Pharm, the largest drug-store chain in Israel, to
sell our network services. At December 31, 2005, our services were sold in 96
Super-Pharm stores nationwide in a variety of formats, including Partner
shop-in-shops, kiosks, wall-unit displays and at front counters. In 2005, approximately
13% of our new subscribers were recruited through sales by Super-Pharm. Under
our agreement with Super-Pharm, Super-Pharm sells our network services in
their stores, and we cooperate with them in establishing a chain of stores called
Super-Link that is dedicated to selling communications services and equipment.
The agreement between the parties, which has received the approval of the Israeli
Commissioner for Restrictive Trade Practices, is in effect until May 31, 2006.

In
addition, we continue to develop our distribution network with other non-traditional
dealers, such as the Cellular Center for Vehicles, which has approximately 34
locations for the sale, installation and maintenance of car kits, and Auto
Depot, which has nine such locations. Another non-traditional dealer is
Eurocom Communications Ltd. See Item 7. Major Shareholders and Related
Party Transactions. We provide regular training to the employees of our
non-traditional dealers to update them on our products and services.

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

Customer Contracts,
Credit Policy, Billing Bad Debt and Disconnection

Part
of our subscriber contracts for customers on our original tariff plans provide for a
36-month term. Under the terms of these contracts, customers who terminate their contracts
prior to the expiration of the 36-month term and have purchased their handset from our
dealers or from us can be charged for payment of the residual price of their handset. This
charge reflects the difference between the price they paid for the handset, if any, and
the list price, adjusted for the number of months that the customer has been a subscriber.

Most of our subscribers pay for the
handsets in 36 installments, which is charged directly to their credit card or to their
monthly bill. If the customer opts to pay for the installment via his monthly bill, the
outstanding installment payments are not secured.

Subscribers
are billed monthly for airtime charges and charges per services. Most of our business
customers have signed 36-month contracts.

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

All
business subscribers and some of our individual subscribers can subscribe and pay for
their services by credit card or direct debit. Customers acquiring more than eight
handsets (or four in certain circumstances) are subject to a credit scoring review
performed by outside credit agencies. All customers are subject to a monthly maximum
credit limit. When the monthly limit is exceeded, usage may be limited. Roaming access for
direct debit subscribers is subject to credit scoring by outside credit agencies and may
require additional guarantees or credit checks. Subscribers are subject to periodic credit
risk reviews, taking into consideration payment history, disconnection history and new
circumstances.

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Our Network

We
have built an extensive, resilient and advanced mobile network system in Israel, allowing
us to offer our services with extensive coverage and consistent high quality. Through
December 31, 2005, we have made net capital expenditures of NIS 3,429 million ($745
million) in our network infrastructure and other related fixed assets.

Overview

The
first generation of wireless communication, based on analog technology,
provides simple voice telephony. The second generation of wireless
communication, such as the digital GSM standard, provides additional data facilities
ranging from short messaging services to narrow band data, which is sufficient for the
basic data services offered by network operators, but cannot support high resolution video
or multimedia applications.

New
types of services are made possible by the roll out of technological developments that
increase the speed and efficiency of existing GSM networks such as GPRS, which is a 2.5G
technology. 2.5G technology network operators are able to deliver multimedia and services
at speed rates that are higher than the rates offered through second
generation technology. Packet data rates vary from 20 Kbps-44 Kbps, depending mainly
on handset capabilities. Approximately 55% of our customers who have GPRS enabled handsets
use and pay for GPRS services.

Third
generation wireless communication, which offers full interactive multimedia capabilities
at data rates of up to 384 Kbps, are bringing wire-free networks significantly closer to
the capabilities of land-line networks. Improvements in coding and data compression
technology will provide better voice quality and more reliable data transmission. UMTS is
the global standard adopted for the implementation of third generation wire-free
telecommunications. HSDPA is also part of 3G technology and enhances network output and
performance. In March 2006, we soft launched HSDPA to the business sector, which offers
subscribers the ability to access our 3G services at higher speeds. We offer an HSDPA data
card modem which enables our subscribers to access our network at higher speeds. We soft
launched the HSDPA with limited coverage in the center of Israel and plan to expand the
coverage area gradually. HSDPA standards provide for download rates ranging from 1.8 Mbps,
which is the current standard for roll-out, to up to 14.4 Mbps, which is envisaged for
2007.

Infrastructure

On
December 31, 2005, our GSM network consisted of 1,549 macrobase transceiver stations and
714 microbase transceiver stations, all linked to 30 base station controllers. The base
station subsystem is controlled by 11 mobile switching centers. Base transceiver stations,
mobile switching centers and base station controllers are interconnected by approximately
4,190 transmission links. Ericsson and Nokia supply our base station controller and base
transceiver station sites for our GSM and GPRS network.

On
December 31, 2005, our UMTS network consisted of 1,280 macrobase transceiver base stations
and 110 microbase and indoor transceiver stations, all linked to eight radio network
controllers. The base station subsystem is controlled by one mobile switching center and
one media gateway. The base transceiver stations, the mobile switching center and the
radio network controllers are interconnected by approximately 1,400 transmission links.
Nortel Networks and Ericsson supply our 3G UTRAN and core network equipment.

In
addition, our network is interconnected with two public switched telephone companies:
Bezeq and HOT, in several locations across Israel. Our network is also directly connected
to the mobile networks of Pelephone, Cellcom, Mirs and the six Israeli international
operators, Bezeq International, Barak, Golden Lines, Internet Gold, Netvision and Exfone,
and indirectly to the land-line and mobile telephone networks of Paltel.

Our
transmission network is made up of leased lines from Bezeq and Cellcom and our own
microwave links. Currently most of our transmission network consists of leased lines. As
our GSM network currently covers 97% of the Israeli population, we are now selectively
expanding the capacity of our GSM network primarily in urban areas by adding
infrastructure to improve outdoor and indoor coverage. We plan to continue increasing the
capacity of our GSM network due to the growth of voice and data in the GPRS traffic.

On
January 22, 2006, we signed an agreement with MED I.C.  1 (1999) Ltd., a
transmission and hosting company, to purchase its fiber-optic transmission business for
approximately $14.8 million, subject to certain adjustments, 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. Completion of the transaction is subject to
the satisfaction of various closing conditions, including approval by the Ministry of
Communications.

Our
UMTS network covers the highly populated areas of Israel, including Tel Aviv and the Dan
metropolitan area, Jerusalem, Haifa, Beer Sheba as well as smaller cities and major
highways. We are continuing to expand and improve the coverage, capacity and quality of
our UMTS network to additional areas. Current UMTS population coverage exceeds 92%.

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Network Design

Our
primary design objective is to build a UMTS mobile telephone network engineered to provide
high voice, video and packet quality, call reliability, high capacity and high coverage
quality and to maintain technological advantages over our competitors. In formulating our
network design objectives, we have been guided by our business strategy to build the
highest quality network. We follow high quality standards which exceed those set forth in
our license. The quality parameters that we seek to satisfy are those that we believe are
important to mobile phone users: voice quality, high data rate packet sessions, low
blocked call rate, low dropped call rate and deep indoor
penetration, especially in densely populated areas or areas of special commercial
interest. The two main examined parameters used to measure network performance for voice
and packet data are the setup call success rate and the drop calls rate. Blocked calls are
calls that fail because access to the network is not possible due to insufficient network
resources. Dropped calls are calls that are involuntarily terminated.

With
these quality parameters in mind, we have rolled out our UMTS network, which shares
locations with the GSM sites. We use monitoring probes and counters to ensure network
quality.

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

Spectrum Allocation and
Capacity

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

In
the December 2001 spectrum auction in Israel, the Ministry of Communications awarded us
the two bands of spectrum for which we had submitted bids: 2 x 10 MHz of GSM 1800 spectrum
and 2 x 10 MHz and 1 x 5 MHz of UMTS third generation spectrum. During 2002, we started
deploying GSM 1800 MHz band base transceiver stations to enhance the capacity of our GSM
900 MHz network, and to further improve our GSM 900 MHz networks quality. Following
a possible rearrangement of spectrum in the 900 MHz band, an additional 900 MHz spectrum
may be offered to operators in the future. If one of our competitors is allocated this
additional spectrum and not us, our network may face interference and we will no longer be
the sole GSM operator operating both in the 900 MHz frequency band and in the 1800 MHz
frequency band.

Other Systems

On
December 1, 2004 we commercially launched our UMTS network with advanced applications and
services including, among others, a 3G content portal offering a variety of services such
as live TV broadcasts, JAVA games, maps and directions application, wide range of music
(MP3) services and an e-commerce movie ticketing application.

We
have installed a video gateway and a streaming server, enabling us to offer our customers
a full range of video services on their 2.5G and 3G handsets.

Site Procurement

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

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

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

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

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

See
Item 4B. Information on the CompanyBusiness OverviewRegulation for
a description of the approvals that are required for the erection and operation of antenna
sites.

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Suppliers

Our
network utilizes standard equipment, which is available from a limited number of
suppliers. In November 2003, we entered into a framework agreement with Nortel Networks to
supply us with our UMTS wireless network. Under the agreement, Nortel supplies us with
mobile switching centers, radio network controllers, Node Bs and other UMTS
equipment In September 2005, we entered into a framework agreement with Ericsson as a
second vendor for 3G UMTS/HSDPA infrastructure equipment. One of our major GSM equipment
suppliers is Ericsson and its affiliates, which supply us with mobile switching centers,
base station controllers, base transceiver stations, transit transmission centers,
operation support systems and transmission systems equipment. Ericsson is also our major
supplier of GPRS network equipment, including GPRS support nodes and gateway GPRS support
nodes. Nokia also supplies us base station controllers, base transceiver stations and
network management system equipment. We have agreements with Baran Raviv, Bintech and H.
Mer, all Israeli engineering companies, for the construction of our sites. We continue to
purchase certain network components from various other key suppliers. We believe that our
network suppliers price structure is competitive with industry standards. See
Item 3D. Key InformationRisk FactorsWe depend on a limited number of
suppliers for our network equipment. Our results of operations could be adversely affected
if our suppliers fail to provide us with adequate supplies of network equipment or
maintenance support on a timely basis.

Interconnection

All
telecommunications providers with general licenses in Israel have provisions in their
licenses requiring them to allow interconnection of their networks with all other
telecommunications networks in Israel. Currently, our network is connected to all other
telecommunications networks operating with general licenses in Israel. Our network is
directly interconnected to the networks of the Israeli telecommunications operators 
Bezeq, Cellcom, Pelephone, MIRS, Bezeq International, Barak Golden Lines, Golden Lines and
HOT. Our network is indirectly interconnected to the network of Netvision, Exfone,
Internet Gold and Paltel through the Bezeq network for the purpose of bilateral transfer
of calls. We are in the process of interconnecting our network to that of Golden Lines and
GlobeCall which have recently been granted special licenses for the provision of
land-line telephony.

We
are currently operating without any formal interconnect agreements with Bezeq. We are not
aware of any interconnect agreement that Cellcom, Pelephone or MIRS has signed with Bezeq.
Our day-to-day arrangements with Bezeq substantially conform to a draft interconnect
agreement negotiated with Bezeq. The interconnect rates charged by Bezeq are set by
Israeli legislation and Bezeq is required by law not to discriminate against any licensed
telecommunications operator in Israel with respect to the provision of interconnect
services.

We
currently pay Bezeq an interconnection fee based on a tariff structure set forth in the
Interconnection Regulations (Telecommunications and Broadcasts) (Fees for Interconnection)
(2000).

We
have formal interconnect agreements with Cellcom, Pelephone and MIRS. The agreements have
one-year terms and are renewable for an unlimited number of additional one-year terms. The
agreements can be terminated on 90 days written notice by either party. The
interconnect agreements with Cellcom, Pelephone and MIRS do not contain any pricing terms.
The interconnection tariffs charged by Cellcom, Pelephone and MIRS are set forth in the
Interconnection Regulations (Telecommunications and Broadcasts) (Fees for
Interconnections) 2000 that, coupled with a change to the mobile telephone operators
licenses, imposes a uniform call termination tariff for all mobile telephone operators. In
addition we have a formal interconnect agreement with HOT, which came into effect in May
2005 and will remain in effect for five years. The interconnect agreement with HOT renews
automatically for additional five-year terms. The agreement can be terminated on 90
days written notice by either party. The interconnection fees under our agreement
with HOT are set by the Interconnection Regulations (Bezeq and Broadcasts) (Fees for
Interconnection) (2000). Because we transfer and receive all traffic to and from
Paltels network through the Bezeq network, we pay Bezeq a transit fee for each call.
In the beginning of 2004, the Ministry of Communications amended our license and the
relevant regulations, reducing SMS termination tariffs from NIS 0.38 to NIS 0.285
effective May 1, 2004. In November 2004, the Ministry of Communications issued regulatory
changes significantly reducing call termination tariffs, effective March 1, 2005, from NIS
0.45 to NIS 0.32, with additional reductions mandated as follows: effective March 1, 2006,
to NIS 0.29 per minute; effective March 1, 2007, to NIS 0.26 per minute; and effective
March 1, 2008, to NIS 0.22 per minute. At the same time, the Ministry of Communications
reduced SMS termination tariffs, effective March 1, 2005, from NIS 0.285 to NIS 0.05, with
an additional reduction mandated effective March 1, 2006 to NIS 0.025. A recent regulatory
change linked call termination tariffs and SMS termination tariffs to the CPI, such that
the call termination tariffs were adjusted to NIS 0.2969 per minute and the SMS
termination tariffs were adjusted to NIS 0.0256. The tariffs described above will be
adjusted each March to conform to changes in the CPI. In response to the tariff reductions
described above, we implemented cost-cutting measures as well as price increases and
repackaging of our tariff plans. Depending on the effectiveness of such steps, and other
factors such as general market conditions, these regulatory changes may negatively impact
our revenues and profits. See   Regulation  Telecommunications Law
below.

We
have written interconnect agreements with Bezeq International, Barak, Netvision, Internet
Gold and Exfone. We currently have an operating arrangement with Golden Lines. The
Ministry of Communications regulation and the change to the mobile telephone
operators licenses also impose a uniform call termination tariff for incoming
international calls of NIS 0.25 per minute. This rate will be reduced to NIS 0.22 per
minute, in line with the reduction in termination tariffs for incoming domestic calls,
effective March 1, 2008 (adjusted to conform to changes in the CPI).

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Competition

There
are currently four mobile telephone network operators in Israel: Partner, Cellcom,
Pelephone and MIRS. The major beneficial shareholder of Cellcom is IDB . Cellcom operates
nationwide mobile telephone networks based on GSM 1800 MHz, EDGE and D-AMPS, technologies.
Cellcom is expected to launch is UMTS service in 2006. For more information, see
Item 3D. Risk FactorsCompetition from existing competitors may require us to
increase our subscriber acquisition costs and customer retention costs and increase our
churn rate. Our second competitor is Pelephone. During 2004, Bezeq, the land-line
operator in Israel, completed its acquisition of 100% of the shares of Pelephone. The
major beneficial owner of Bezeq, following Bezeqs privatization during 2005, is an
entity comprised of the S.C.G. Group (Haim Saban), the Apax Fund, and Arkin Communications
(Mori Arkin). Pelephone currently operates nationwide mobile telephone networks in Israel
using both the N-AMPS analog and the CDMA and CDMA1 xRTT, as well as the EV-DO technology.
Our third competitor is MIRS, an Enhanced Specialized Mobile Radio, or
trunking, network, which was granted a general license to operate as a mobile
telephone operator on February 5, 2001. MIRSs major shareholder is Motorola
Communications (Israel) Ltd.

According
to our estimations, at December 31, 2005, Cellcom had approximately 2,603,000 customers,
representing approximately 33% of the Israeli mobile telecommunications market; Pelephone
had approximately 2,345,000 paying customers, representing approximately 30% of the
Israeli mobile telecommunications market and MIRS had over 375,000 users, representing
approximately 5%of the Israeli mobile telecommunications market. We compete with Cellcom,
Pelephone and MIRS principally on the basis of telecommunications service quality, brand
identity, variety of handsets, tariffs, value-added services and the quality of customer
services.

In the sense that land-line
telephony may, in some instances, be an alternative to cellular telephony, we also compete
with Bezeq, which has been the only incumbent land-line operator in Israel until
recently, when HOT launched a land-line telephone service on a very limited basis. In
2006, GlobeCall, Golden Lines and Cellcom were also granted special licenses for the
provision of land-line telephony. Other telecommunications companies, including Barak and
Netvision, have been reported to have applied for similar licenses. We requested such a
license in early May 2006 as well.

The
Palestine Telecommunication Co. Ltd., or Paltel, operates a GSM mobile telephone network
under the name Jawwal in the Palestinian Authority administered areas of the
West Bank and Gaza Strip, as well as a land-line network. Paltels GSM network
competes with our network in some border coverage overlap areas.

Information Technology

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

While
many of our systems have been developed by third-party vendors, all of them have been
modified and refined to suit our particular needs. In certain instances, we have developed
critical information technology systems internally to meet our specific requirements. For
example, significant segments of our CRM and business information infrastructure were
developed internally and were designed to integrate our customer service outreach with our
overall sales and marketing effort. In other cases, conversely, we have outsourced
responsibility for certain systems to third parties. We have completed upgrading our
systems to support data packet switching services for 2.5 and third generation. Our
Vantive CRM system is becoming obsolete and we contracted with IBM to
implement a new CRM system based upon Seibel software.

Intellectual Property

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

We
have entered into a brand license agreement with Orange International Developments
Limited, a subsidiary of Orange plc. Under this agreement, Orange International appointed
us as a permitted user of its trademarks in Israel. Under this license agreement, we have
the exclusive right to use the Orange Brand in advertising and promotional materials in
Israel. The term of the brand license began on July 1, 1998. The trademark license is
royalty-free for the first 15 years of its term. In 2012, the parties are to discuss the
royalties to be paid for a five-year term beginning July 1, 2013. In 2017, the parties are
to again consider the royalties to be paid for an additional five-year term beginning July
1, 2018. Under this license agreement, we are required to comply with the Orange Brand
guidelines established by Orange International. We have the right to use the Orange Brand
as long as we are able and legally eligible under the laws of Israel to offer
telecommunications services to the public in Israel. However, the license agreement may be
terminated by mutual agreement, or at our discretion, or by Orange International if a
court determines that we have materially misused the brand and we continue to materially
misuse the brand after such determination of material misuse.

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

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

Regulation

Overview

We
operate within Israel primarily
under the Communications Law (Telecommunications and Broadcasting), 1982 (the
Telecommunications Law), the Wireless Telegraphy Ordinance (New Version), 1972
(the Wireless Telegraphy Ordinance), the regulations promulgated by the
Ministry of Communications and our license. The Ministry of Communications issues the
licenses which grant the right to establish and operate mobile telephone service in
Israel, and sets the terms by which such mobile telephone service is provided. The
regulatory framework under which we operate consists also of the Planning and Building
Law, 1965, the Consumer Protection Law, 1981, and the Non-Ionizing Radiation Law, 2006.
Additional areas of Israeli law may be relevant to our operations, including antitrust
law, specifically the Restrictive Trade Practices Law, 1988, the Class Actions Law, 2006,
and administrative law. The Israeli telecommunications market is in a state of transition,
moving to a more liberalized environment in which various markets, such as the mobile,
international services, and domestic markets and infrastructure, are gradually being
opened to competition and in which government-owned monopolies are being privatized, such
as was the case with Bezeq, whose privatization was completed this past year. As a result,
there is a possibility that changes may take place in the regulatory framework described
below.

Telecommunications Law

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

General
licenses, which relate to telecommunications activities over a public network or for the
granting of nationwide services or international telecommunications services, have been
awarded to Bezeq, and to HOT, to the four mobile telephone operators, Pelephone, Cellcom,
Partner and MIRS, and to the six international operators, Barak, Bezeq International,
Golden Lines, Netvision, Internet Gold and Exfone. In addition, the Ministry of
Communications may issue additional mobile telephone operator and other licenses in the
future.

In
2003, the Ministry of Communications decided to open the international call market to new
competitors. However, the Ministry notified that it will not allow mobile operators to
enter the international call market, at this stage.

On
November 30, 2004, following a hearing process, the Ministry of Communications published a
preliminary policy on Voice over Broadband, or VoB, services. The policy, among other
things, allows licensed third parties (VoB operators) to use the access
infrastructure of Bezeq and of HOT, to provide VoB services to customers, charging
customers directly, with no need to pay to the access owner any usage fees. The policy
indicates that usage of cellular operators infrastructure will be discussed and
decided at a later date. Due to strong reactions from Bezeq and from HOT, the Ministry of
Communications re-opened the hearing process on December 29, 2004, and responses were
required to be submitted by January 30, 2005. However, due to the resignation of the
Minister of Communications, the hearings have not yet proceeded.

On June 21, 2004, the Ministry of
Communications published a draft license form, for potential providers willing to commit
to license terms and be awarded a license to provide domestic land-line (wireline and
wireless) services to customers, competing with Bezeq and HOT, on a non-universal service
basis. Services provided under such license must be precisely defined by the provider,
must be provided to customers in a region, or regions, defined by the provider and must be
provided to a defined type of customer. Under the terms of such license, the provider must
demonstrate aggregate revenues of no less than NIS 50 million within 3 years from the
launching of the services. The license term is 20 years. We and various companies,
including Golden Lines, Cellcom and Globecall, have requested this license. Golden Lines
and Cellcom have already been granted this license.

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

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

The
Ministry of Communications has promulgated regulations that, coupled with a change
effected in the mobile telephone operators licenses, impose a uniform call and SMS
termination tariff. In November 2004, the Ministry of Communications announced regulatory
changes significantly reducing call termination tariffs and SMS termination tariffs,
effective March 1, 2005, with additional reductions mandated for the coming years. In
addition, the Ministry of Communications further announced that billing units will be
reduced from the present intervals of up to 12 seconds to 1 second, effective December 31,
2008. Furthermore, the Ministry of Communications also indicated that it intends to start
implementing a process to bring about unification of rates for calls terminating both on
and off an operators network, and disallow charging the customer with a separate
interconnect tariffs. Preliminary hearings with the cellular operators in Israel on this
matter commenced in August 2005, and the Ministry of Communications has yet to publish a
decision. The Telecommunications Law also includes certain provisions which may be applied
by the Ministry of Communications to general licensees, including rights of way which may
be accorded to general licensees to facilitate the building of telecommunications networks
or systems and a partial immunity against civil liability which may be granted to a
general licensee, exempting the licensee, inter alia, from tort liability with the
exception of direct damage caused by the suspension of a telecommunications service and
damage stemming from intentional or grossly negligent acts or omissions of the licensee.
The Ministry of Communications has applied the partial immunity provisions to us,
including immunity in the event that we cause a mistake or change in a telecommunication
message, unless resulting from our intentional act or gross negligence.

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
foreign network operators customers while in Israel using our network as well for
calls made by our own customers using their handsets abroad. Because we consider roaming
charges to be a significant source of revenue, such regulatory limits could adversely
affect our revenues.

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

New
Numbering Plan.The Ministry of Communications instructed all mobile network operators
to implement as of April 20, 2004, a new national numbering plan, which gives each mobile
operator a single prefix and adds a new digit to the beginning of each subscribers
current number. We have implemented the plan successfully, providing us with a range of
eight million numbers for our customers.

Number
Portability.On March 29, 2005, amendment to the
Telecommunications Law requires the Minister of Communications to put into place a mobile
number portability plan and, separately, a fixed number portability plan by September 1,
2006 (a three-month extension may be granted under certain circumstances), with the
technological capacity to effect such implementation to be established by the companies by
April 30, 2006, and coordination efforts with the other mobile telephone operators to be
put in place by July 31, 2006. The number portability plan would permit mobile network
subscribers in Israel to change operators without having to change their telephone
numbers. Because this will eliminate one of the major barriers that we believe currently
prevents subscribers from changing network operators, we expect that this will increase
competition in our industry and churn rates and may increase subscriber acquisition and
retention costs. Partner is a member of a 12-operator forum (including land-line, cellular,
and international call operators) involved in a program plan to implement number
portability. As of December 31, 2005, the head of the forum had notified the General
Manager of the Ministry of Communications as well as the Minister of Finance that the
operators will not be able to implement the plan by September 1, 2006, as scheduled, and
that a program delay is requested. If we do not receive such an extension, we will not
meet the statutory deadline, and we may be exposed to legal claims and financial sanctions
that may have an adverse financial impact on us. The forum has submitted to the Antitrust
Commissioner a formal request to allow the forum members to establish a central
clearinghouse, owned by the operators, for administrative purposes related to number
portability.

Fair Competition and
Antitrust Law

Provisions
protecting Partner from anti-competitive practices can be found in our license and in the
licenses of the other telecommunications operators, in the various telecommunications
regulations and in the Restrictive Trade Practices Law. Our license emphasizes the
principle of granting users equal access to the systems of each of the operators upon
equitable terms. The Telecommunications Law also provides certain protection against
disruption of service by Bezeq, whose interconnection and transmission services are
necessary in order for us to be able to provide certain services.

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

Furthermore,
in recent statements, the Israeli Commissioner of Restrictive Trade Practices has
expressed his view that the mobile telephone industry in Israel operates as an oligopoly
and that the Israeli government should intervene to regulate prices In part, the
Commissioner based his statements on the increase in prices by the mobile telephone
operators as a result of the Ministry of Communications decision to lower call
termination tariffs. The chairman of the Knessets Economic Committee announced that
the committee would act to declare the mobile telephone operators as an oligopoly. Such a
finding could result in increased regulatory intervention (including with regard to
tariffs and tariffing practices), the application of certain limitations on our conduct
and increased litigation.

Our License

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

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

The
cost of the license fees is NIS 180 million for the GSM 1800 spectrum, payable in two
installments and NIS 220 million for the UMTS third generation spectrum, payable in six
installments. We have one installment left on the UMTS third generation spectrum in the
amount of NIS 22 million plus interest.

Under
the terms of the amended license, we have provided a $10 million guarantee to the State of
Israel to secure the Companys adherence to the terms of the license. For more
information, see Item 5B. Operating and Financial Review and
ProspectsLiquidity and Capital Resources.

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

In
March, 2004 and December, 2004, our license was amended to allow for adult voice services
through all cellular media including voice, picture, chat and dating services. The access
to adult voice services is through a domestic dialing code by a plan set by the Ministry
of Communications and a service number that we allocate to the provider of the adult voice
services. Access to the adult voice services is automatically barred as a default for all
our subscribers unless they specifically request the service and verify that they are over
18 years of age. This amendment has been applied to all cellular operators, to Bezeq and
recently to the international operators. The Ministry of Communications will hold the
operators and not the content providers liable and accountable for any infractions of this
amendment. An additional amendment in March 2006 extended the restricted access for adult
voice services described above to 3G technologies as well, including non-voice and
internet services. This additional amendment, which came into effect March 29, 2006,
imposes,inter alia, restrictions not only on access to adult-content internet
sites using our cellular technologies, but also access via our internet portal to internet
search engines, such as Google, that could potentially facilitate a search for
such adult-content internet sites. We have filed a petition with the Israeli Supreme Court
of Israel challenging the legality of the restrictions on access to internet search
engines on the grounds that such restrictions infringe on basic freedoms of speech and our
freedom to conduct our business, and that such restrictions unfairly discriminate against
our provision of internet services as compared to non-cellular internet service providers
who do not face similar restrictions. The petition is currently pending in the Israel
Supreme Court.

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

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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 results 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
share capital and of each of our means of control. Israeli entities are
defined as individuals who are citizens and residents of Israel and entities formed in
Israel and controlled, directly or indirectly, by citizens and residents of Israel,
provided that indirect control is only through entities formed in Israel, unless otherwise
approved by the Israeli Prime Minister or Minister of Communications.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
least 10% of our board of directors must be appointed by Israeli entities, as defined
above, among our founding shareholders or their approved substitutes, provided that if the board
is comprised of up to 14 members, only one such director must be so appointed, and if the
board of directors is comprised of between 15 and 24 members, only two such directors
must be so appointed.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
new board committee shall be formed to deal with security matters. Only directors with
the required clearance and those deemed appropriate by Israels General Security
Service may be members of this committee.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

In
October 2005, the Ministry of Communications announced its plans to investigate the
possibility of requiring cellular operators to permit customers to terminate a call
without charge if the call went directly to voicemail rather than reach the intended
party, or to limit charges for the initial seconds of such calls. On May 2007, the
Ministry of Communications proposed an amendment to our general license under which calls
that are to go directly to voicemail would first trigger a message that would notify the
caller that his call is about to go directly to voicemail and allow the caller to opt out
to going to voicemail and avoid being charged for such call. The mobile telephone
operators, including Partner, have been requested by the Ministry of Communications to
submit their respective positions on such proposal. Such regulation may adversely affect
our financial results.

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

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

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

Service
Approval. The Ministry of Communications has the authority to require us to submit for
approval details of any of our services (including details concerning tariffs). In
addition, we are required to inform the Ministry of Communications 30 days prior to the
activation of any service on a specified list of services.

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

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

Territory
of License. Our license authorizes us to provide mobile telephone services within the
State of Israel. In May 2000, we were also granted a license from the Israeli Civil
Administration, which is responsible for administering the territories of the West Bank
and Gaza that are not under the administration of the Palestine Authority.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

| | Neither
the general manager of Partner nor a director of Partner may continue to serve in office
if he has been convicted of certain legal offenses.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our Permit Regarding
Cross Ownership

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

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

Discount
Investment Company Ltd., an indirect shareholder of Elbit, one of our founding Israeli
shareholders, was deemed to be an Interested Party in both Partner and Cellcom by virtue
of the special calculation described above. Accordingly, we applied for and received a
permit from the Ministry of Communications which authorized Discounts indirect
ownership of equity in both Partner and Cellcom. Our permit was also amended on April 14,
2002 and on June 2, 2002. Our permit contains certain guidelines which apply to Discount
and the related companies PEC Israel Economic Corporation, Elron Electronic Industries
Ltd., the parent of Elbit, Elbit and IDB Development Company Ltd., the parent of Discount,
and persons who control any one of them (collectively, the IDB Group). Our
permit establishes limits on the holdings of the IDB Group in the equity of Cellcom and
Partner. Changes in these holdings require a permit from the Ministry of Communications,
and may require Elbit to significantly reduce its holdings in Partner. In addition, our
permit limits the number of directors of Partner that may be appointed by the IDB Group.
Our permit also limits the exchange of information regarding Partner within the IDB Group
and its subsidiaries, limits the involvement of the three directors and office holders of
Discount Investment Company Ltd. who are also directors of Cellcom in matters relating to
Partner, and prohibits these directors from certain activities within the IDB Group which
would provide them with access to information about Partner. On April 20, 2005, we
purchased a material portion of the Partner shares owned by Elbit and as a result,
Elbilts holdings in Partner were reduced to less than 5%. See Item 7B. Related
Party TransactionsRepurchase of Shares from Founding Israeli Shareholders.

ISP License

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

Other Licenses

The
Ministry of Communications has granted us a trade license pursuant to the Wireless
Telegraphy Ordinance. This license regulates issues of servicing and trading in equipment,
infrastructure and auxiliary equipment for our network.

We
have also been granted a number of encryption licenses that permit us to deal with means
of encryption, as provided in the aforementioned licenses, within the framework of
providing mobile radio telephone services to the public.

On March 1, 2006, we submitted a
request to the Ministry of Communications to obtain a national transmission license after
we signed an agreement with MED I.C.  1 (1999) Ltd. to purchase the companys
fiber-optic transmission business. On April 30, 2006 we requested, in conjunction with the
aforementioned request, that the national transmission license previously granted to MED
I.C. -1 be transferred to Partner.

In
early May 2006 we applied for a special license for the provision of land-line telephony.

Antenna Site Permits

Permits
of the Ministry of Environment

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

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

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

Local
Building Permits

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

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

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

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

National
Building Plan No. 36

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

Since
National Building Plan 36 was approved, some planning committees have started to require
that, as a precondition for issuing new permits for antenna sites, we submit an
undertaking to indemnify the committee against claims for depreciation in the value of
nearby properties as a result of issuing a permit to build, and the building of, antenna
sites. To date, we have provided to local authorities 24 letters of undertaking to provide
such indemnification for the benefit of such local authorities within 30 days from the
enactment of a law or a final court decision requiring such indemnifications.

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

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

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Other
Approvals

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

We,
like other mobile telephone operators in Israel, provide repeaters, also known as
bi-directional amplifiers, to subscribers seeking an interim solution to weak signal
reception within specific indoor locations. In light of the lack of a clear policy of the
local planning and building authorities, and in light of the practice of the other mobile
telephone operators, we have not requested permits under the Planning and Building Law for
the repeaters. However, we have received from the Ministry of Communications an approval
to connect the repeaters to our communications network. We have also approached the
Ministry of the Environment, asserting that no permits are necessary for the repeaters,
based on the Ministrys previous advice that permits are not necessary for devices
with comparable levels of emission called Fixed Cellular Terminals.

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

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

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

Liberalization
of Handset Market

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

# 4C. Organizational
Structure

We
currently have two active subsidiaries, Partner Future Communications 2000 Ltd., an
Israeli corporation, and Partner Land-Line Communications Solutions LLP, an Israeli
limited partnership (of which Partner Future Communications 2000 Ltd. serves as the
general partner and the Company serves as the limited partner), which are wholly-owned by
us. We are an indirect subsidiary of Hutchison Telecom, which holds approximately 51.6% of
our outstanding shares, as of March 31, 2006. Hutchison Telecom is a leading international
provider of mobile and land-line telecommunications services with operations in nine
markets.

- 42 -

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# 4D. Property, Plants and
Equipment

Headquarters

We
lease our headquarter facilities in Rosh Ha-ayin, Israel, as follows:

|(1) | Main
office at 8 Amal St.  a building of 10,532 square meters plus 6,345
               square meters mainly for parking. The lease agreement is for a 20 year
period                commencing on June 1998. We have an option to shorten the lease
period by 3.5 to                8.5 years.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Main
office at 6 Amal St.  a building of 9,172 square meters plus 14,877
               square meters of parking and service areas. In 2003, we increased our
lease to                18,151 square meters and 14,877 square meters for parking and
service areas. In                2004, we increased our lease to 19,000 square meters
plus 14,877 square meters                for parking and service areas. The lease
agreement is for a 16 year period                commencing in November 2002. We have an
option to shorten the lease period by                3.5 to 8.5 years.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Main
office at 10 Amal St.  2,468 square meters plus 500 square meters of
               parking and service areas. The lease agreement is for an initial period of
24                months commencing in December 2002. We have an option to continue the
lease                period for seven additional periods of 24 months each. The lease for
the main                office at 10 Amal St. renews automatically at the end of each
term.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
lease a call center at 5 Kornas St. in Haifaa building of 2,525 square meters. The
lease agreement is for a 5 year period commencing in November 2001. We have the option to
extend the lease period for 6 years.

Network Sites

We
lease most of the sites where our mobile telecommunications network equipment is installed
throughout Israel. At December 31, 2005, we had 2,252 antenna sites (including
micro-sites). The lease agreements relating to our cell sites are generally for periods of
two to three years. We have the option to extend the lease periods up to ten years
(including the original lease period).

The
operation of most of these antenna sites requires building permits from local or regional
zoning authorities, as well as a number of additional permits from governmental and
regulatory authorities, and we have had difficulties in obtaining some of these permits.
Difficulties obtaining required permits could continue and therefore affect our ability to
maintain antenna sites. See Item 3. Key Information  3D. Risk Factors
 We have had difficulties obtaining some of the permits for which we have applied,
and have not yet applied for other permits that are required for the erection of our
antenna sites. These difficulties could continue and therefore affect our ability to erect
or maintain antenna sites. This could have an adverse effect on the extent, quality and
capacity of our network coverage and may result in criminal or civil liability to us or to
our officers and directors.

Service Centers and
Points of Sale

Lease
agreements for our retail stores and service centers are for periods of two to five years.
We have the option to extend the lease agreements for different periods of up to twenty
additional years (including the original lease period). The average size of our retail
stores and service center is approximately 230 square meters. See also Note 8a(2)(b) to
our consolidated financial statements.

# ITEM 4A. UNRESOLVED
STAFF COMMENTS

Not applicable.

# ITEM 5. OPERATING AND
FINANCIAL REVIEW AND PROSPECTS

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

# Overview

We
were formed in September 1997. We submitted our bid to the Ministry of Communications
for our license on October 28, 1997. The Ministry of Communications awarded us our
license on April 7, 1998, and we began full commercial operations to the general
public in January 1999.

In
December 2001 we were awarded additional spectrum: second generation (2G)
band (1800 MHz) and third generation (3G) UMTS band (1900 MHz and 2100 MHz).
We commercially launched our 3G network in December 2004. See Item 4A.
Information on the CompanyHistory and Development of the Company for
significant events since we commenced commercial operations and Item 5B.
Liquidity and Capital Resources for information on the costs required to build and
expand our network and services.

The
attached table is a summary of selected financial and operating data for each of the years
ended December 31, 2005, 2004, 2003, 2002 and 2001:

- 43 -

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|                                                         | 2005 | 2004 | 2003 | 2002  | 2001
|-------------------------------------------------------- | ---- | ---- | ---- | ----- | ----
|
|
|
|
|Revenues (NIS million)                                   |      |      |      | 5,123 |     
|Operating profit (NIS million)                           |      |      |      | 903   |     
|Income (loss) before taxes (NIS million)                 |      |      |      | 557   |     
|Net income (loss) (NIS million)                          |      |      |      | 355   |     
|Capital expenditures, net (NIS million)                  |      |      |      | 486   |     
|Cash flow provided by (used in) operating activities net |      |     
|of investment activities (NIS million)                   |      |      |      | 460   |     
|Subscribers (thousands)                                  |      |      |      | 2,529 |     
|Annual churn rate (%)                                    |      |      |      | 13.6  | %   
|Average monthly usage per subscriber (in minutes)        |      |      |      | 294   |     
|Average monthly revenue per subscriber (NIS)             |      |      |      | 156   |     
|Average subscriber acquisition costs (NIS)               |      |      |      | 282   |     

Revenues

Our
principal source of revenues is from the sale of network services, primarily network
airtime usage fees, and is denominated primarily in shekels. In 2005, as in each of 2004
and 2003, over 50% of network airtime usage fees were derived from outgoing calls, with
the remainder generated from incoming calls, roaming and value-added services. We also
derive revenues from sales of handsets, car kits, accessories and handset maintenance
services to subscribers as well as other services. Network airtime usage fees are derived
from subscribers originating calls on our network and payments received from other
telecommunications network operators, both local and international, for delivering calls
originating on their networks and terminating on our network. We recognize revenues from
airtime usage and other services at the time we provide the service to the subscriber. We
recognize revenues from handset sales, car kits and other equipment only upon delivery and
the transfer of ownership to the subscriber.

Cost of Revenues

Our
principal components of cost of revenues are:

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

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

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

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

| |  | leases;
| | - | -------

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

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

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

Selling and Marketing
Expenses

Our
principal components of selling and marketing expenses are:

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

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

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

General and
Administrative Expenses

Our
principal components of general and administrative expenses are:

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

- 44 -

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

| |  | insurance;
| | - | ----------

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

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

Financial Expenses

Our principal
components of financial expenses are:

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

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

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

Key Business Indicators
(Operating Data)

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

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

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

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

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

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

2005 Developments

We
operate in a highly regulated telecommunications market. During 2005, reductions in
interconnect tariffs resulted in lower revenues, adversely affecting our financial
results. Additional reductions have already become effective March 1, 2006. To mitigate
the effects of these reductions, we have implemented cost-cutting measures, including
reducing distribution and advertising costs, implemented price increases and repackaged
our tariff plans. We are not able to predict with certainty the effect of future
regulatory changes, including the effect of the implementation of number portability, and
how we will address these changes.

As
part of our overall efforts to reduce costs, we raised approximately NIS 2 billion in a
public offering in Israel and entered into a new $550 million bank credit facility in
April 2005, which was reduced to $268 million as of December 31, 2005, and redeemed our
13% USD Notes due 2010.

On
January 22, 2006, we signed an agreement with MED I.C.  1 (1999) Ltd., a
transmission and hosting company, to purchase its fiber-optic cable infrastructure
comprising of a network of approximately 900 kilometers of submerged and terrestrial
transmission fiber for approximately $14.8 million, subject to certain adjustments, 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. Completion of the
transaction is subject to the satisfaction of various closing conditions, including,
approval by the Ministry of Communications. We believe that demand for 3G services will
provide an important source of future mobile subscriber growth and usage in Israel. During
2005, we expanded our 3G population coverage from approximately 60% of Israeli population
to approximately 92% of the Israeli population at a cost of approximately $50 million. In
addition, the primary objective of our marketing strategy in 2005 was to increase our 3G
subscriber base and 3G usage by our customers while marketing and developing our 3G
services available to our customers. We intend to continue our efforts to increase our 3G
subscriber base and 3G usage.

Critical Accounting
Policies and Estimates

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

- 45 -

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

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

Revenue Recognition

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

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

Long-Lived Assets

We
have substantial investments in tangible and intangible long-lived assets, primarily our
communications network, our license and spectrum. Changes in technology or changes in our
intended use of these assets can cause the estimated period of use or the value of these
assets to change. We amortize our communications network by the straight-line method,
mainly over 6.7 years (15% per year). For instance, had the percentage of
depreciation been decreased by 5%, our operating profit would increase by approximately
NIS 141 million and had the percentage of depreciation increased by 5%, our operating
profit would decrease by approximately NIS 124 million. We amortize our license by the
straight-line method mainly over the utilization period of the license, which is based
upon the license period. During 2002, our license was extended by 14 years to 2022.
Consequently, the amortized balance of our license is amortized as of 2002 over the period
ending in 2022. We review our communications network, license and spectrum for impairment
or whenever events or changes in circumstances indicate that the carrying amounts may not
be recoverable through undiscounted future cash flows. If necessary, we write down the
assets to their estimated fair values. No write-downs of our long-lived assets have been
recorded since incorporation.

Allowance for Doubtful
Accounts

We
maintain allowance for doubtful accounts for estimated losses resulting from the inability
of our subscribers to make required payments. We base our allowance on the likelihood of
recoverability of accounts receivable based on the aging of the balances, our historical
write-off experience net of recoveries, changes in the credit worthiness of our customers,
and collection trends. The allowance is periodically reviewed. The allowance charged to
expenses is determined in respect of specific debts doubtful of collection, calculated as
a specified percentage of the outstanding balance in each debt age group, with the
percentage of the allowance increasing as the age of the debt increases. For example, a
debt that is between 1 to 1.5 years overdue is reserved for at the rate of 78%. If we
decreased our percentage of the allowance for all aging debts by 15%, our operating profit
would increase by NIS 16 million. If we increased such percentage by 15%, our operating
profit would decrease by NIS 11 million. The debt becomes fully reserved once it is at
least 1.5 years overdue. Actual customer collections could differ from our estimates.
For example, if the financial condition or our customers were to deteriorate, additional
allowances may be required. Our bad debt expenses as a percentage of revenues were 0.5%,
0.4% and 0.6% for the years ended December 31, 2003, 2004 and 2005, respectively.

Results of Operations for
the Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004

Revenues
in 2005 were NIS 5,122.9 million (US$ 1,113.0 million), down 0.3% from NIS 5,140.7 million
in 2004.

Revenues
in 2005 from services were NIS 4,619.9 million (US$ 1,003.7 million), approximately equal
to the revenues from services in 2004 of NIS 4,615.8 million.Compared with 2004,
total network minutes in 2005 increased by 12.8%, offset by a 12.9% dilution in the
average tariff per minute including incoming calls. The increase in total network minutes
was driven primarily by an expanding subscriber base which grew by 8.1% from the end of
2004 to the end of 2005. The dilution in the average tariff per minute compared with 2004
was driven primarily by the reduction in interconnection tariffs which went into effect in
March 2005, as well as increased competition and the increased weight of business
subscribers in our customer base. The average business subscriber generates substantially
more minutes of use than post-paid private and prepaid subscribers, whilst their average
tariff per minute is materially lower.

- 46 -

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Revenues
in 2005 from equipment were NIS 503.0 million (US$ 109.3 million), a decrease of 4.2% from
NIS 525.0 million in 2004. The decrease in 2005, compared with 2004, was driven by a
decrease in the average revenue per sale.

Data
and content revenues, including SMS messages, in 2005 were NIS 404.2 million (US$ 87.8
million), accounting for 7.9% of total revenues or 8.7% of service revenues, up from NIS
351.1 million, or 6.8% of total revenues, 7.6% of service revenues, in 2004, despite the
reduction in SMS interconnection tariffs. The increase in 2005, compared with 2004, was
driven by data and content non-SMS service revenues which increased by 34.5%. Revenues
from SMS services in 2005 decreased by 4.0% compared with 2004, reflecting the reduction
in SMS interconnect tariffs from March 2005, as mandated by the Ministry of
Communications. In 2005, SMS messages accounted for approximately 42% of data and content
revenues, compared with approximately 50% in 2004.

Cost
of revenues in 2005 increased by 4.2% to NIS 3,766.4 million (US$ 818.2 million) from NIS
3,615.0 million in 2004.

Cost
of revenues  services in 2005 increased by 4.8% to NIS 3,022.5 million (US$ 656.6
million), from NIS 2,885.1 million in 2004. The increase was primarily driven by the
increased depreciation and amortization of over NIS 100 million which was recorded
following the launch of the 3G network towards the end of 2004 together with the
additional network expenses associated with the 3G network.

Cost
of revenues  equipment in 2005 increased by 1.9% to NIS 743.9 million (US$ 161.6
million) from NIS 729.9 million in 2004. The increase was driven primarily by the
marketing of more advanced and higher cost handsets and approximately 5% growth in sales
transactions to new and upgrading subscribers.

Gross
profit for 2005 was NIS 1,356.6 million (US$ 294.7 million), the equivalent of
26.5% of revenues, down 11.1% from NIS 1,525.7 million, or 29.7% of revenues, in 2004. The
decrease can be primarily attributed to the increased depreciation, amortization and
network expenses related to the Companys 3G network.

Selling
and marketing expenses in 2005 were NIS 272.9 million (US$ 59.3 million), a decrease of
16.1% from NIS 325.2 million in 2004. The decrease was principally due to reductions in
distribution and advertising costs.

General
and administrative expenses in 2005 were NIS 180.8 million (US$ 39.3 million), a decrease
of 0.2% from NIS 181.1 million in 2004.The decreases in general and administrative
expenses, as with the decreases in selling and marketing expenses, reflect cost-cutting
measures the Company put in place as part of its plan to mitigate the effects of the
inter-carrier termination rate reductions that were mandated by the Ministry of
Communications.

Operating
profit for 2005 was NIS 902.9 million (US$ 196.2 million), a decrease of 11.4% from
NIS 1,019.3 million in 2004. As a percentage of revenues, operating profit
decreased from 19.8% in 2004 to 17.6% in 2005. The decrease can be primarily attributed to
the impact of the inter-carrier termination rate reductions that were mandated by the
Ministry of Communications, as well as the increased depreciation, amortization and
network expenses related to the Companys 3G network.

Financial
expenses in 2005 were NIS 345.4 million (US$ 75.0 million), an increase of 32.6% from NIS
260.5 million in 2004. The increase was primarily driven by a one-off charge in the amount
of NIS 63 million related to the redemption of the US$ 175 million 13% Senior
Subordinated Notes on August 15, 2005, interest charges related to both the redeemed Notes
and the new CPI-linked shekel-denominated Notes and a one-off amortization of capitalized
expenses related to the Companys previous bank facility.

Income
before taxes for 2005 was NIS 557.5 million (US$121.1 million) down 26.5% compared to NIS
758.8 million in 2004.

Net
income in 2005 was NIS 354.6 million (US$ 77.0 million) or earnings of NIS 2.19 (US$ 0.48)
per basic ADS or share (NIS 2.17 per diluted ADS or share), representing a 24.8% decrease
from NIS 471.6 million, or earnings of NIS 2.57 per basic ADS or share (NIS 2.56 per
diluted ADS or share), in 2004. The decrease in 2005 net income compared with 2004
resulted primarily from the financial expenses related to the restructuring of the
Companys debt, the impact of the inter-carrier termination rate reductions that were
mandated by the Ministry of Communications, and the increased depreciation, amortization
and network expenses related to the Companys 3G network.

During
2005, our net active subscribers increased by 189,000, or 8.1%.

As
of December 31, 2005 our net active subscriber base was 2,529,000, accounting for an
approximate market share of 32%. The Companys subscriber base at the end of December
2005 included approximately 507,000 business subscribers (20% of the base), approximately
1,268,000 postpaid private subscribers, (50% of the base), and approximately 754,000
prepaid subscribers, (30% of the base). Of the Companys subscriber base,
approximately 103,000 were 3G subscribers. Net new active subscribers in the business
sector accounted for approximately 39% of net new active subscribers in the year.

The
annual churn rate in 2005 increased to 13.6% from 12.0% in 2004. The increase was
primarily due the prepaid sector.

Average
monthly usage per subscriber (MOU) for 2005 was 294 minutes, an increase of 2.8% compared
with 286 minutes in 2004. In 2005, average monthly revenue per subscriber (ARPU) was NIS
156 (US$ 33.9), a decrease of 8.2% compared with approximately NIS 170 in 2004. The
decrease in ARPU is attributed primarily to the reduction in interconnection charges
mandated by the Ministry of Communications, despite the increase in MOU.

- 47 -

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In
2005, handset subsidies per new subscriber increased compared with 2004. However, the
average cost of acquiring a new subscriber (SAC) in 2005 decreased to NIS 282
(US$ 61.3) from NIS 295 in 2004. The reduction reflects a reduction in non-handset
subsidy components of SAC including commissions.

Trends

In
2006, due to the highly penetrated market, we expect the rate at which we continue to add
net subscribers to be lower than in 2005. With respect to 3G subscriber growth in 2006, we
anticipate that lower 3G handset prices should reduce the price differential from 2G
handset prices and drive 3G subscriber growth higher.

We
also expect revenues to grow in 2006, despite the decline in ARPU that will result
primarily from the 9% decline in inter-carrier termination rates from March 2006, as
mandated by the Ministry of Communications. Along with a rise in revenues, we foresee
increases in operating income, net income and earnings per share and all related margins
in 2006. We expect to continue to grow shareholder value in 2006, with the EPS to increase
substantially due to higher operating income, substantially lower financial expenses,
resulting from the refinancing of our long-term debt in 2005, and the lower average shares
outstanding after we repurchased approximately 17% of our outstanding shares from our
founding Israeli shareholders. We anticipate that capital expenditures which were lower in
2005 compared with 2004 will rise in 2006, owing to the infrastructure transaction with
Med-1. The additional infrastructure purchased from Med-1 will enable us to reduce
operating costs over the long-term. In addition, we expect subscriber acquisition and
retention costs per subscriber to be higher due to higher subsidies on 3G handsets as
compared to 2G handsets. Furthermore, we expect churn to continue to increase, primarily
in the prepaid sector.

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

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

Revenues
in 2004 from services increased by 12.1% to NIS 4,615.8 million, as compared to NIS
4,117.9 million in 2003. The increase was driven primarily by a 16.2 percent increase in
total network minutes, offset by a 7.1% dilution in the average tariff per minute
including incoming calls. The increase in total network minutes was driven primarily by an
expanding subscriber base which grew by 11.3% from the end of 2003 to the end of 2004. The
dilution in average tariff per minute in 2004 as compared to 2003 was caused by increased
competition and the increased weight of business subscribers in our customer base. The
average business subscriber generates substantially more minutes of use than post-paid
private and prepaid subscribers, whilst their average tariff per minute is materially
lower.

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

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

Cost
of revenues in 2004 increased by 15.3% to NIS 3,615.0 million from NIS 3,136.5 million in
2003.

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

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

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

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

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

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

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

Income
before taxes for 2004 was NIS 758.8 million, up 43.3% compared to NIS 529.6 million in
2003.

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

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

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

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

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

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

Impact of Inflation and
Exchange Rate Fluctuations

Substantially
all of our revenues and a majority of our operating expenses are denominated in shekels.
However, through December 31, 2005, a substantial amount of our operating expenses
were linked to non-shekel currencies. These expenses related mainly to the acquisition of
handsets where the price paid by us is based on various foreign currencies. In addition,
most of our capital expenditures are incurred in, or linked to, non-shekel currencies, and
our notes redeemed in August 2005, were denominated in US dollars and require US dollar
interest payments. Thus, any devaluation of the shekel against the non-shekel currencies
will increase the shekel cost of our non-shekel denominated or linked expenses. Such an
increase may have an impact on our results, which may be material. We hedge most of our
foreign currency commitments.

Although
we have the ability to borrow under our bank credit facility in US dollars and Euro, our
borrowings are in shekels, and most of our shekel bank borrowings and our new notes are
linked to the Israeli CPI. We may not be permitted to raise our tariffs pursuant to our
license in a manner that would fully compensate for any increase in the Israeli CPI.
Therefore, an increase in the rate of inflation may also have a material adverse impact
upon us by increasing our financial expenses without an offsetting increase in revenue. We
partly hedge the principal amount of our new notes (due 2012), against adverse movement in
the Israeli Customer Price Index (CPI).

# 5B. Liquidity and
Capital Resources

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

- 49 -

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Currently,
our main sources of liquidity are:

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

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

| |  | our
Notes due 2012.
| | - | -------------------

On
April 14, 2005, we entered into a new $550 million bank credit facility, replacing our
previous bank facility. The new facility includes a $450 million term loan facility and a
$100 million revolving loan facility, both maturing in six years. With effect May 1, 2005,
we exercised an option to reduce the term facility (other than an advance of approximately
$25 million carried over from the previous facility) to $150 million and change the
maturity date for both facilities to September 1, 2009. The new credit facility is secured
by a first ranking, floating charge on our assets, and those of our wholly-owned
subsidiary. Bank Hapoalim B.M., Bank Leumi Le-Israel B.M., Israel Discount Bank Ltd. and
United Mizrahi Bank Ltd. are participating in the facility, with Bank Hapoalim B.M.
serving as facility agent and Bank Leumi Le-Israel B.M. serving as coordinating agent. At
December 31, 2005, the balances available for drawing were approximately
$88 million under Facility B, and $28 million under Facility A.

On
March 31, 2005, we completed the offering of our Notes due 2012, raising NIS 2.0 billion
in a public offering in Israel. Of these, notes having an aggregate principal amount of
approximately NIS 36.5 million were purchased by our wholly owned subsidiary Partner
Future Communications 2000 Ltd., or PFC. PFC also received an additional allocation of
notes having an aggregate principal amount of NIS 500 million. The notes that PFC received
pursuant to this additional allocation do not confer the right to receive any payment
whatsoever on account of principal or interest until they are sold by PFC to a third
party.

The
term of the Notes due 2012 is seven years and the principal and interest payments are
linked to the Israeli consumer price index. The annual interest on the notes is 4.25% and
will be paid quarterly. Quarterly principal repayments will begin in June 2009. The notes
were rated AA- by Maalot, and Aa2 by Midroog, two of Israels rating agencies. We
used the net proceeds from the offering to pay down some of our existing credit facility,
to repurchase up to 33.3 million shares from our founding Israeli shareholders and to
redeem our 13% Senior Subordinated Notes due 2010. These 13% Senior Subordinated Notes due
2010 were originally issued in August 2000, and net proceeds from the offering for those
notes were used at that time mainly to repay a portion of the outstanding indebtedness
under our credit facility.

On
April 20, 2005, the Company repurchased approximately 33.3 million of its shares pursuant
to an offer received from its founding Israeli Shareholders in February 2005. These
shareholders held together approximately 22.5% of the Companys outstanding shares at
the time of the offer. As a result of the repurchase, the collective shareholdings of the
founding Israeli shareholders were reduced to approximately 5.4% of the Companys
issued and outstanding share capital. The price per share at which these shares were
acquired was NIS 32.2216 per share. The total consideration paid for the shares was
approximately NIS 1,074 million. The Company cancelled the repurchased shares.

On
August 15, 2005, the Company redeemed its outstanding US$ 175 million 13% Senior
Subordinated Notes due 2010. According to the terms of the Notes, the redemption price was
106.5% of the principal amount, or $186.375 million. The redemption, which was financed
from the Companys new bank facility and funds generated from current operations,
concluded the refinancing of the Companys long term debt into lower cost CPI linked
shekel-denominated debt.

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 to our shareholders of record as of September 26, 2005.

In
the first quarter of 2006 our Board of Directors and shareholders approved the
distribution of an additional cash dividend, in the amount of NIS 0.65 per share (totaling
approximately NIS 100 million) to our shareholders of record as of April 10, 2006.

In
the second quarter of 2006, we adopted a dividend policy targeting a payout ratio of 60%
of net income over 2006. As part of this policy, our Board of Directors approved the
distribution of a cash dividend of NIS 0.45 per share (totaling approximately NIS 70
million) for the first  quarter of 2006 to shareholders of record as of June 6,
2006.

The
Company signed on January 22, 2006, an agreement with MED I.C.- 1 (1999) Ltd (Med 1)
to purchase its fiber-optic cable infrastructure comprising of a network of approximately
900 kilometers of submerged and terrestrial transmission fiber for approximately US$ 14.8
million, subject to certain adjustments. Completion of the transaction is subject to
fulfillment of closing conditions.

Cash
flows generated from operating activities in 2005(NIS 1006.3 or US$ 218.6 million) net of
cash flows from investing activities (NIS  546.7 million or $US 118.7 million),
totaled NIS 459.6 million (US$ 99.9 million). Cash flows generated from operating
activities in 2004 (NIS 1272.8 million), net of cash flows from investing activities (NIS
673.6 million) totaled NIS 599.2 million in 2004, a decrease of 23.3%. The decrease was
primarily due to a decrease in cash flows from operating activities, offset by a decrease
in the level of investment in fixed assets. The main reasons for the decrease in cash
flows from operating activities were the payment of one-off charges related to the
redemption of the US$ 175 million 13% Senior Subordinated Notes, interest charges related
to both the redeemed Notes and the new CPI-linked shekel-denominated Notes and inventory
charges

We
expect cash flows from operations net of cash flows from investing activities to increase
from 2005 amounts.

- 50 -

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From
January 1, 2003 to December 31, 2005, we made cumulative net capital
expenditures of approximately NIS 1,319 million, of which NIS 486 million ($106
million) was incurred in 2005. We expect that capital expenditures for our network will
continue to represent the largest portion of our total capital expenditures over the next
few years. We expect capital expenditures, which were lower in 2005, compared with 2004 to
increase in 2006, owing to the infrastructure transaction with Med-1.

We believe that funds from our operations, together with funds available under our new credit facility and our Notes due 2012,
will provide us with enough liquidity and resources to fund our expected capital expenditure needs, as well as our obligations
under our financing agreements, our license payments and our other material commitments, at least for the next 12 months.
However, the actual amount and timing of our future requirements may differ materially from our estimates.

# 5C. Research and
Development, Patents and Licenses

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

# 5D. Trend Information

See
-Trends in Item 5A. Results of Operations for the Year Ended December 31,
2005, Compared to the Year Ended December 31, 2004 above.

# 5E. Off-Balance Sheet
Arrangements

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

# 5F. Aggregate
Contractual Obligations

Set forth below are our contractual
obligations and other commercial commitments as of December 31, 2005:

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

# ITEM 6. DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES

# 6A. Directors and Senior
Management

Directors

|Name of Director             | Age | Position                          
|---------------------------- | --- | ----------------------------------
|
|
|
|
|Fok Kin-ning, Canning        | 54  | Chairman of the Board of Directors
|Dr. Michael J. Anghel (2)(4) | 67  | Director                          
|Chan Ting Yu (1)(3)          | 55  | Director                          
|Chow Woo Mo Fong, Susan      | 52  | Director                          
|Uzia Galil                   | 80  | Director                          
|Erez Gissin (1)(2)           | 47  | Director                          
|Dennis Pok Man, Lui (1)(3)   | 55  | Director                          
|Pesach Shachar (1)           | 72  | Director                          
|Amikam Shorer                | 38  | Director                          
|Frank John Sixt              | 54  | Director                          
|Moshe Vidman (1)(2)(3)(4)    | 62  | Director                          

---

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

|(2) | Member
of the Audit Committee and independent director under the listing
               requirements of the Nasdaq National Market.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

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

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

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

Dr.
          Michael J. Anghelbecame a director of Partner in March 2006.  From
          1977 to 1999, he led the Discount Investment Corporation Ltd. (of the IDB
Group)           activities in the fields of technology and communications.  Dr.
Anghel was           instrumental in founding Tevel, one of the first Israeli cable
television           operators and later in founding Cellcom  the second Israeli
cellular           operator.   In 1999 he founded CAP Ventures, an advanced
technology           investment company.  From 2004-2005, Dr. Anghel served as
President and CEO           of DCM, the investment banking arm of the Israel Discount
Bank.   He           has been involved in various technology enterprises and
has served on the boards           of various major Israeli corporations and financial
institutions including           Elron, Elbit, Nice, Gilat, American Israeli Paper Mills,
Maalot (the Israeli           affiliate of Standard and Poors) and Hapoalim Capital
Markets.  He           currently serves on the boards of Syneron Medical Ltd.,
Orbotech Ltd.,           Powerdsine Ltd., and Scopus Ltd.  Prior to launching his
business career,           Dr. Anghel served as a full-time member of the Recanati
Graduate School of           Business Administration of the Tel Aviv University, where he
taught finance and           corporate strategy.  He currently serves as Chairman of
the Tel Aviv           Universitys Executive Program, which he originally helped to
found.           Dr. Anghel holds a B.A. (Economics) from the Hebrew University in
Jerusalem and           an M.B.A. and Ph.D. (Finance) from Columbia University in New
York.

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

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

Uzia
Galil has been a director of Partner since August 1999. Mr. Galil currently serves as
Chairman and Chief Executive Officer of Uzia Initiatives and Management Ltd., a company
specializing in the promotion and nurturing of new businesses associated with mobile
communication, electronic commerce and medical information media, which he founded in
November 1999. From 1962 until November 1999, Mr. Galil served as President and Chief
Executive Officer of Elron Electronics Industries Ltd., an Israeli high technology holding
company, which he founded and of which he also served as Chairman of the Board. From
January 1981 until leaving Elron, Mr. Galil also served as Chairman of the Board of
Directors of Elbit Ltd., an electronic communication affiliate of Elron, and as a member
of the Boards of Directors of Elbit Systems Ltd., a defense electronics affiliate of
Elron, and all other private companies held in the Elron portfolio. Mr. Galil currently
serves as a member of the Boards of Directors of Orbotech Ltd., NetManage Inc., and as
Chairman of Zoran Corporation. From 1980 to 1990, Mr. Galil served as Chairman of the
International Board of Governors of the Technion. Mr. Galil holds a M.S. in Electrical
Engineering from Purdue University and a B.S. from the Technion. Mr. Galil has also been
awarded an honorary doctorate in technical sciences by the Technion in recognition of his
contribution to the development of science-based industries in Israel, an honorary
doctorate in philosophy by the Weitzman Institute of Science, an honorary doctorate in
engineering by Polytechnic University, New York, and an honorary doctorate from the
Ben-Gurion University of the Negev in Israel and the Solomon Bublick prize laureate from
the Hebrew University of Jerusalem. In 1997 he was awarded the prestigious Israel Prize
for his contribution to the development of the Israeli hi-tech industry. Until April 20,
2005, Mr. Galil had been a director nominated by Elbit.COM. Since then, Mr. Galil serves
as a director on behalf of Advent Investments Pte Ltd.

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

Dennis
Pok Man Lui has been a director of Partner since April 2004 and is the Chairman of the
Executive Committee and the Chairman of the Compensation Committee. Mr. Lui is an
Executive Director and the Chief Executive Officer of Hutchison Telecommunications
International Limited. He first joined the Hutchison Whampoa Limited group in 1986 and was
the managing director in charge of the mobile telecommunications, land-line, multi-media,
internet and paging businesses in Hong Kong, China, Taiwan and Macau from January 1989
until 2000. Mr. Lui rejoined the Hutchison Whampoa Limited group in May 2001 as group
managing director of HTI (1993) Holdings Limited (HTI) overseeing all the
operations and new business development of the HTI group. He holds a Bachelor of Science Degree from the University of Oregon. Mr. Lui was nominated
as a director, and as a member of the Executive Committee, by Advent Investments Pte Ltd.

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

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

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

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

Termination of Office

Professor
Ben-Zion Zilberfarb served as a external director under the Companies Law until February
2006.

- 53 -

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Senior Management

|Name of Officer | Age | Position                                                             
|--------------- | --- | ---------------------------------------------------------------------
|
|
|
|
|Amikam Cohen    | 57  | Chief Executive Officer                                              
|David Avner     | 54  | Deputy Chief Executive Officer and Chief Operating Officer           
|Alan Gelman     | 50  | Chief Financial Officer                                              
|Iris Beck       | 40  | Vice President, Marketing                                            
|Chaim Beker     | 61  | Vice President, Operations                                           
|Alon Berman     | 45  | Vice President, Technologies                                         
|Adi Biran       | 62  | Vice President, Regulation and New Business Development              
|Michal Dana     | 50  | Vice President, Human Resources and Operations (from May 2006)       
|Dan Eldar       | 52  | Vice President, Carrier, International and Investor Relations        
|Amnon Gideon    | 53  | Vice President, Human Resources and Operations (until April 30, 2006)
|Zion Ginat      | 46  | Vice President, Customers                                            
|Roly Klinger    | 46  | Vice President, Chief Legal Counsel and Joint Company Secretary      
|Edith Shih      | 53  | Joint Company Secretary                                              

---

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

David
Avner was appointed Deputy CEO in April 2005 and COO in January 2006. Prior to joining
the Company, Mr. Avner served as Senior Vice President of Operations and Member of the
executive management at Amdocs Limited. Previously, he served at Amdocs as Group President
Europe and LATAM & Member of Management. Prior to that, Mr. Avner served at Strauss
Dairy Ltd. for 17 years, the last four as General Manager of the Dairy Division. He was
also the General Manager of Strauss Ice Creams Ltd., and Manager of Information Systems at
Strauss Dairy Ltd. Mr. Avner also served as Active Director of Yotvata Dairies Subsidiary
since 1998. He holds a Bachelor of Arts degree in Mathematics/Computer Sciences and
Philosophy from Haifa University in Israel and an MBA degree from the Technion, Israel
Institute of Technology.

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

Iris
Beck was appointed Vice President, Marketing in December 2002. Prior to joining the
Company, she served as General Manager of Lever Israel (local subsidiary of Unilever). Ms.
Beck worked at Lever Israel from 1996 and held senior positions such as Marketing Director
and Technical Director before her appointment as General Manager. Ms. Beck worked as Brand
Manager at Strauss Ice Cream from 1993 to 1996, and as Project Controller at Kulick &
Soffa from 1991 to 1993. Ms. Beck holds a Bachelors degree in Economic Science (with
distinction) from Haifa University, and Master of Arts degree in Marketing (with
distinction) from Bar-Ilan University.

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

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

Adi
Biran joined Partner in October 1997 and in April 1998 became Vice President,
Regulation and New Business Development. Mr. Biran came to Partner from Elbit Ltd., where,
since 1992, he headed their effort to enter the telecommunications market and in that
capacity, guided their participation and managed the bid preparation process that resulted
in Partners mobile radio telephone license. Prior to joining Elbit, he was Managing
Director of Efrat Future Technology Ltd., a subsidiary of Comverse Technology Inc. Mr.
Biran continued till October 2003 to be an employee of Elbit in connection with matters
unrelated to Partner on which he worked prior to joining Partner. He completed his 20-year
career in the Israel Air Force as a colonel and as chief of research and development. Mr.
Biran holds a Bachelors degree in Aeronautical Engineering with distinction from the
Israel Institute of Technology (Technion), Haifa, Israel.

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

Dan
Eldar serves as Vice President, Carrier, International and Investor Relations for
Partner. He is also responsible for strategic planning. Dr. Eldar joined Partner in April
1998. Since 1989, Dr. Eldar has served as the managing director of an Israeli consulting
firm specializing in strategic planning, negotiation and project management. Dr. Eldar has
managed many large-scale projects in the telecommunications and semiconductor industries,
as well as in other areas. He holds PhD and M.A. degrees from Harvard University and M.A.
and B.A. degrees from the Hebrew University, Jerusalem.

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

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

Roly Klinger Vice President, Chief Legal Counsel and Joint Company Secretary, joined
Partner in August 1998. From 1993, she served as Legal Advisor and Corporate General
Secretary of Keshet Broadcasting Ltd., which holds an operating franchise for
Israels first commercial television channel. Previously, while practicing in the
private sector, she lectured on communications law at the College of
ManagementAcademic Studies, Tel-Aviv. Ms. Klinger received an LL.B degree from Tel
Aviv University and is admitted to the Israel Bar.

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

Except
as disclosed above, none of the above directors or members of senior management has any
family relationship with any other director or senior manager of the Company. Senior
managers, except for the Chief Financial Officer, as disclosed above, are selected by the
CEO with the approval of the Board for an indefinite term of office and may be removed by
the Board at any time.

# 6B. Compensation

The
aggregate compensation paid, and benefits in kind granted to or accrued on behalf of all
our directors and senior managers for their services in all capacities during the year
ended December 31, 2005 was approximately NIS 23 million ($5 million). In 2005 options
were granted to our senior management under the 2004 Employee Stock Option Plan to
purchase up to 375,000 of our ordinary shares at an exercise price of NIS 30.73 and NIS
33.72 per share. These options will expire in December 2014, subject to earlier expiration
upon the termination of employment under certain circumstances. For more information, see
Item 6E. Directors, Senior Management and EmployeesShare Ownership2004
Employee Stock Option Plan. Included in the above, the total amount set aside or
accrued to provide pension, retirement or similar benefits on behalf of all our directors
and senior managers during the year ended December 31, 2005 was approximately NIS
0.8 million ($0.2 million).

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# 6C. Board Practices

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

Terms of Directors

Directors
are elected at the annual shareholders meeting to serve for three years, in the case of
external directors under the Companies Law, or until the next annual meeting of the
shareholders, in the case of other directors; or until their respective successors are
elected and qualified, whichever occurs first. An extraordinary meeting of the Company may
elect any person as a director to fill an office which became vacant, or to serve as an
external director or an independent director, or if the number of the members of the Board
of Directors is less than the minimum set in the Articles of Association. Any director
elected in such manner (excluding an external director) shall serve in office until the
coming annual meeting. The Articles of Association also provide that the Board, with the
approval of 75% of the directors, may appoint an additional director to fill a vacancy.
The Companys Articles of Association provide that the Board may delegate all of its
powers to committees of the Board as it deems appropriate, subject to the provisions of
the Companies Law. No director has a service contract with the company or its wholly-owned
subsidiaries providing for benefits upon termination of employment. Officers of Partner
serve at the discretion of the Board or until their successors are appointed. See Item 4. Information on the
Company  4B. Business Overview  Regulation  Our License. for
description of additional requirements of the composition of our Board of Directors and
the appointment of its members.

Alternate Directors

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

External Directors under
the Companies Law

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

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

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

Financial Experts under
the Companies Law

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

Executive Committee

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

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Audit Committee

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

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

The
Board has determined that Moshe Vidman is an audit committee financial expert
as defined by applicable SEC regulations. See Item 16A. Audit Committee Financial
Expert below.

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

Compensation Committee

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

Security Committee

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

Internal Auditor

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

Fiduciary Duties of an
Office Holder

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

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

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Approval of Related Party
Transactions

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

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

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

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

Duty of a Shareholder

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

Indemnification

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We are participating in a new
directors and officers liability insurance policy procured by our controlling
shareholder, Hutchison Telecom, insuring our directors and officers liability
and our undertaking to indemnify them, in respect of certain matters permitted by the
Companies Law. The new policy includes coverage in respect of our directors and
officers liability. The new policy, which replaced as of November 1, 2005 our
previous directors and officers liability insurance, provides for coverage in
an aggregate amount for Hutchison Telecom and its participating subsidiaries, including
Partner, of up to US$100 million. Our participation in the annual premium for the new
policy is expected to be substantially lower than the annual premium we paid for our
previous policy which was approximately US$2 million, should Hutchison Telecom or its
affiliates decide to debit their subsidiaries of their respective share of the premium
paid for the new policy.

# 6D. Employees

At
December 31, 2005, we had 3,403 employees on full time equivalent basis, compared with
3,164 at December 31, 2004 and 2,769 at December 31, 2003. The number of employees for
2005, 2004, and 2003, divided by their activity, was as follows:

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

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

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

We
generally contribute funds on behalf of our employees to a fund known as
Managers Insurance. This fund provides a combination of provident fund,
insurance and severance pay benefits to the employees, giving the employees a lump sum
payment upon retirement and securing most of the severance pay, if legally entitled, upon
termination of employment. The employers deposits are the property of the company
until termination of employment. Most employees are entitled to participate in the plan
upon the start of employment or after an initial period. Each of the participating
employees contributes an amount equal to 5% of his salary and we contribute between 5% and
15.8% of such employees salary.

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

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

Since
October 2001, most of our employees participate in a Health Insurance Program which
provides additional benefits and coverage which the public health system does not provide.
Eligibility to participate in the policy depends on seniority and position. Non eligible
employees can participate by their own means and receive the same prices and coverage as
eligible employees.

# 6E. Share Ownership

As
of December 31, 2005, our directors and senior managers beneficially owned an aggregate of
1,392,938 or approximately 0.91%, of our outstanding ordinary shares. No individual
director or senior manager beneficially owns 1% or more of our outstanding ordinary
shares.

As
of December 31, 2005, our senior managers, in the aggregate, held options to purchase up
to 2,652,522 of our ordinary shares. No individual senior manager holds options to
purchase 1% or more of our outstanding ordinary shares. Of these options, 46,668 have an
exercise price of $0.343 and will expire after the eighth anniversary date of the
commencement of the vesting schedule with respect to the options, subject to earlier
expiration upon the termination of the option-holders employment under certain
circumstances. An additional 580,854 of these options have an exercise price of between
NIS 20.45 and NIS 22.23. The remaining 2,025,000 of these options have an exercise price
of between NIS 26.74 and NIS 33.72

Until
November 2003, we granted options to our senior managers and other employees pursuant to
our 1998 and 2000 Employee Stock Option Plans described below. In November 2003 we amended
our stock option plans to conform with recent changes in the Israeli Income Tax Ordinance
(New Version), 1961. As a result, any grants of options after November 2003 are subject to
the terms of our 2000 Employee Stock Option Plan as so amended, referred to as the 2003
Amended Plan. In addition, in 2004 and 2005 we granted options to our managers and other
employees pursuant to the 2004 Employee Stock Option Plan.

1998 Employee Stock
Option Plan

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

The
1998 Plan currently authorizes the issuance of options to purchase up to 5,104,167
ordinary shares. As of December 31, 2005, 5,505,557 options had been granted pursuant to
the 1998 Plan (including reissuance of options that had been forfeited), of which options
to purchase 4,475,942 ordinary shares had been exercised under the 1998 Plan. As of
December 31, 2005, options to purchase 432,474 ordinary shares were outstanding, and
195,751 were available for grant. The exercise prices of the outstanding options range
from $0.343 per share to fair market value at the date of grant. The fair market value was
determined on the basis of the average closing sale price of our ordinary shares during
the 30 trading days prior to the date of grant.

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

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

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

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

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

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

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

2000 Employee Stock
Option Plan

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

The
2000 Plan authorizes the issuance of options to purchase up to 4,472,222 ordinary shares.
In November 2003, 419,930 options under this plan were transferred to the 2003 Amended
Plan. As of December 31, 2005, 5,317,555 options had been granted pursuant to the 2000
Plan (including reissuance of options that had been forfeited or expired), of which
options to purchase 2,223,891 ordinary shares had been exercised. As of December 31, 2005,
options to purchase 1,583,581 ordinary shares were outstanding, and 244,820 were available
for grant. The exercise prices of the outstanding options range from NIS 17.25  NIS
27.35, which represent the fair market value as of the date of grant, measured on the
basis of the average closing sale price of our ordinary shares during the 30 trading days
prior to the date of grant.

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

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

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

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

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

The
Board of Directors may, at any time and from time to time, terminate or amend the 2000
Plan in any respect, subject to any applicable approvals or consents that may be otherwise
required by law, regulation or agreement, and provided that no termination or amendment of
the 2000 Plan shall adversely affect the terms of any option which has already been
granted.

2003 Amended Plan

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

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

In
November 2003, we offered to employees who had previously been granted options under our
stock option plans the right to exchange their unvested options for options with identical
terms under the 2003 Amended Plan. Employees holding options to purchase 962,104 ordinary
shares accepted this offer. On November 2003, 419,930 options under the 2000 Plan were
transferred to options under the 2003 Amended Plan, out of which options to purchase
195,000 ordinary shares were granted at an exercise price of NIS 20.45 per share, which
was less than the market value.

As
of December 31, 2005, 195,000 options were outstanding and 224,930 options were available
for grant under the 2003 Amended Plan.

In
December 2002, we entered into an agreement with the Israeli tax authorities reducing the
individual tax rate applicable to the taxable income of employees from the receipt and
exercise of their options. In exchange, we agreed to defer the deduction of the expense
corresponding to such taxable income for a period of four years from the date on which we
commence paying income taxes. The agreement applies to employees who received options
under the 1998 Plan who have joined the agreement and relates to (1) options that are
exercised by December 31, 2002 and (2) options that vest by December 31, 2003 and are
exercised by May 31, 2004. In each case, the trustee must have held the options for a
period of 24 months from the date on which they were granted. See Note 9(d) to our
consolidated financial statements.

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

2004 Employee Stock
Option Plan

Under
the 2004 Share Option Plan, as amended to date, 5,775,000 ordinary shares are reserved for
issuance upon the exercise of 5,775,000 options to be granted without consideration. The
options will be granted to employees under the provisions of the capital gains tax
route provided for in Section 102 of the Israeli Income Tax Ordinance. The options vest in
four equal annual batches, provided the employee is still in the Companys employ.
The option holder may exercise all or part of his options at any time after the date of
vesting but no later than the expiration of the exercise period, which will be fixed by
the Employee Stock Option Committee and will not exceed ten years from the date of option
grant.

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

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

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

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

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

As
of December 31, 2005, 5,614,000 options had been granted to Companys employees
pursuant to the 2004 Plan (including options that had been forfeited or expired), of which
257,500 options had been exercised. As of December 31, 2005, options to purchase 4,855,750
shares were outstanding and 661,750 options were available for grant under the 2004 Plan.

The
NIS denominated exercise price per share of the options is equal to the average market
price of the Companys shares for the 30 trading days preceding the day on which the
options are granted, less 15%.

Due
to requirements of The Stock Exchange of Hong Kong Ltd., where the securities of our
controlling shareholder, Hutchison Telecom, are listed, we cannot grant additional options
under the 2004 Plan until the shareholders of Hutchison Telecom approve the 2004 Plan.

# ITEM 7. MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

# 7A. Major Shareholders

The
following table sets forth certain information with respect to the beneficial ownership of
our ordinary shares as of March 31, 2006 with respect to each person who we believe to be
the beneficial owner of 5% or more of our ordinary shares. Except where otherwise
indicated, we believe, based on information furnished to us by the principal shareholders,
that the beneficial owners of the ordinary shares listed below have sole investment and
voting power with respect to such ordinary shares. None of our major shareholders has any
different voting rights than any other shareholder.

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|Name and Address                   | Number of Ordinary Shares
Beneficially Owned | Percent of Outstanding
Ordinary Shares
Beneficially Owned
|---------------------------------- | -------------------------------------------- | ---------------------------------------------------------
|
|
|
|
|Hutchison Telecommunications       |                                              |                                                          
|International Limited (1)          |                                              |                                                          
|20/F Hutchison Telecom Tower       |                                              |                                                          
|99 Cheung Fai Rd                   |                                              |                                                          
|Tsing Yi                           |                                              |                                                          
|Hong Kong                          |                                              |                                                          
|Hutchison Whampoa Limited(2)       |                                              |                                                          
|22/F Hutchison House               |                                              |                                                          
|10 Harcourt Road                   |                                              |                                                          
|Central Hong Kong                  |                                              |                                                          
|Cheung Kong (Holdings) Limited (3) |                                              |                                                          
|7/F Cheung Kong Center             |                                              |                                                          
|2 Queen's Road Central             |                                              |                                                          
|Hong Kong                          |                                              |                                                          

---

|(1) | Based
on publicly available SEC filings by Hutchison Telecommunications
               International Limited, or Hutchison Telecom, Advent Investments Pte Ltd.,
or                Advent, Hutchison Telecommunications International (Netherlands) B.V.,
or                Hutchison (Netherlands), and Cheung Kong (Holdings) Limited, or Cheung
Kong.                Hutchison Telecom, a company whose ordinary shares are listed on the
Hong Kong                Stock Exchange and ADSs are listed on the New York Stock
Exchange, Inc. owns                Partner shares through two indirect subsidiaries,
Advent and Hutchison                (Netherlands), which own approximately 62,621,184 and
16,318,920 ordinary shares                of Partner, respectively. Advent, incorporated
in Singapore, is an indirect                wholly-owned subsidiary of Hutchison Telecom,
owned through a chain of                wholly-owned subsidiaries as follows: Advent is
owned by Amber International                Holdings Inc., which is owned by Hutchison
Telecommunications International                (Cayman) Holdings Limited, which is owned
by Hutchison Telecom. Hutchison                (Netherlands) is also an indirect
wholly-owned subsidiary of Hutchison Telecom,                owned through a chain of
wholly-owned subsidiaries as follows: Hutchison                (Netherlands) is owned by
Hutchison Telecommunications (Cyprus) Limited, which                is owned by Amber
International Holdings Inc., which is owned by Hutchison
               Telecommunications International (Cayman) Holdings Limited, which is owned
by                Hutchison Telecom.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Based on publicly available SEC
filings by Hutchison Telecom, Advent, Hutchison (Netherlands), and Cheung Kong, Hutchison
Whampoa Limited, or HWL, a company listed and traded on the Hong Kong Stock Exchange, owns
Partner shares through its direct wholly owned subsidiary Hutchison International Limited,
which in turn directly holds 100% of Hutchison Telecommunications Limited, which in turn
directly holds 100% of Hutchison Telecommunications Investment Holdings Limited, or HTIHL,
which in turn directly holds approximately 45.8% and through its wholly owned subsidiary,
New Brilliant Holdings Ltd., indirectly holds approximately 4.0% of the total outstanding
ordinary shares of Hutchison Telecom, which indirectly owns 78,940,104 of the ordinary
shares of Partner. Based on publicly available SEC filings by Orascom Telecom Holding
S.A.E., an Egyptian company (Orascom Telecom) and through its direct wholly
owned subsidiary, Orascom Telecom Eurasia Limited (Orascom Eurasia), a BVI
company holds approximately 19.3% of Hutchison Telecoms total outstanding share
capital and, subject to the receipt of consent from the Ministry of Communications,
Orascom Eurasia may acquire a number of additional shares that represents approximately
3.69% of Hutchison Telecoms total outstanding shares. See Item 3. Key
Information  3D. Risk Factors  Our telecommunications license imposes certain
restrictions on who can own our shares. If these restrictions are breached, we could lose
our license. HTIHL, HWL, Orascom Telecom, and Orascom Eurasia are parties to a
shareholders agreement relating to, among other things, the nomination of certain members
of the Board of Directors of Hutchison Telecom.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Based
on publicly available SEC filings by Hutchison Telecom, Advent, Hutchison
               (Netherlands), and Cheung Kong, Cheung Kong, through its indirect
ownership of                approximately 49.97% of the issued shares of HWL and its
indirect ownership of                52,092,587 ordinary shares of Hutchison Telecom, may
be deemed to have sole                voting and dispositive power over the ordinary
shares of Partner beneficially                owned by HWL and Hutchison Telecom.
However, as stated in its Schedule 13D,                pursuant to Rule 13d-4 under the
Exchange Act, Cheung Kong expressly disclaims                beneficial ownership of such
ordinary shares of Partner.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Controlling Shareholders

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

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

The
following is a description of the significant changes during the last three years in the
percentage ownership held by our major shareholders:

| |  | On
September 17, 2004, Hutchison (Amsterdam) transferred 16,318,920 shares of Partner to
Advent, which transferred them to Hutchison (Netherlands).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | On
April 20, 2005, we repurchased approximately 33.3 million shares from our Israeli
founding shareholders, as follows: 12,765,190 shares from Elbit, 9,359,915 shares from
Eurocom, 7,783,444 shares from Matav Investments and 3,409,384 shares from Polar
Communications Ltd. as described in Item 7B. Related Party Transactions Repurchase
of Shares from Founding Israeli Shareholders. As a result the shareholdings of
Hutchison Telecom increased to 52.15% at completion of the transactions.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other

On
March 2, 2006, 11,728,993 ADSs (equivalent to 11,5728,993 ordinary shares or approximately
7.67% of the total outstanding ordinary shares) were outstanding and held of record by 25
registered holders in the United States. Additionally, on March 2, 2006, there were
approximately eight holders of record of our ordinary shares. Of these holders, none had a
registered address in the United States, although certain accounts of record with
registered addresses other than in the United States may hold our ordinary shares, in
whole or in part, beneficially for United States persons. We are aware that many ADSs and
ordinary shares are held of record by brokers and other nominees and accordingly the above
numbers are not necessarily representative of the actual number of persons who are
beneficial holders of ADSs and ordinary shares, or the number of ADSs and ordinary shares
beneficially held by such persons.

As described above, we are controlled
by Hutchison Telecom. As far as we know, there are no arrangements that might result in a
change in control of our Company. See footnote (2) to the table above for a description of
the acquisition by Orascom Telecom of an interest in Hutchison Telecom.

# 7B. Related Party
Transactions

Relationship Agreement

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

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

License/Required Israeli
and Founding Shareholder Percentages

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

Foreign Mobile Radio
Telephone Operator

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

Compulsory Transfer in
the Event of Default

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

Term and Termination

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

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Transactions with
Affiliates

Until
January 1, 2006 we operated under an unwritten arrangement with Eurocom Communications
Ltd., one of our principal shareholders, pursuant to which Eurocom sold our services or
distributed handsets in connection with their sale of Nokia handsets in four outlets and
with a group of approximately 100 sales representatives who sell our services to private
customers and small business customers. Eurocom received a commission for the activation
of each handset that it sold to customers as one of our distributors and for the
logistical support related to the supply of handsets.

We
currently purchase a portion of our Nokia handsets from Eurocom. In the year ended
December 31, 2005, purchases from Eurocom constituted approximately 42% of all of our
handset purchases.

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

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

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

We
have a strong relationship with Hutchison Telecom, previously one of our principal
shareholders and now our majority shareholder, and HWL, Hutchison Telecoms major
shareholder, and are working with them in connection with the development of products and
services for UMTS third generation mobile communications. Hutchison Telecom and HWL are
global leaders in UMTS third generation technology and, in particular the deployment and
development of third generation cellular networks and products and services worldwide.

We
are participating in a new directors and officers liability insurance policy
procured by Hutchison Telecom, insuring our directors and officers liability
and our undertaking to indemnify them, in respect of certain matters permitted by the
Companies Law. The policy provides for coverage in an aggregate amount for Hutchison
Telecom and its participating subsidiaries, including Partner, of up to US$100 million.
See Item 6C. Board Practices  Indemnification.

In
August 2002, we signed a Cost-Sharing Agreement, or the CSA, with certain members of the
HWL group of companies for the joint acquisition and development of information technology
platforms and software solutions, hardware, content and other services, in connection with
the UMTS third generation business.

The
CSA allows us to participate in acquisition and development projects with other UMTS third
generation companies within the HWL and Hutchison Telecom groups, and to benefit from the
combined purchasing power and resources of the groups which include companies in Austria,
Australia, Denmark, Hong Kong, Ireland, Italy, Sweden and the United Kingdom.

As
of December 31, 2005, we had given notice of our participation in seven joint contracts.
We expect that our share in these contracts in financial terms (including our share of
joint expenses and liabilities) is not material.

We
believe that the CSA gives us an advantage unavailable to our competitors. The CSA gives
us an opportunity to maximize economies of scale and operational efficiencies for
development and procurement activities associated with our 3G business. See Note 14(c) to
our consolidated financial statements.

In
March 2005, we entered into a transaction with Hutchison Telephone Company Ltd., a
subsidiary of Hutchison Telecom, and Research in Motion Ltd. (RIM) by which we
became the operators of RIMs Blackberry service in Israel.

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

In
2004, we entered into an agreement with HI3G Access AB, a subsidiary of HWL, for the
purchase of Novotel/Lucent 3G UMTS datacards.

On
September 1, 2003, we entered into a supply agreement with Elron Telesoft Ltd., a
wholly-owned subsidiary of Elron Electronics Industries Ltd. for the purchase of
Agilents Signaling Monitoring System, as well as for the purchase of support and
maintenance services. The purpose of the system is to monitor our network in order to
improve network performance levels and maintenance response times. In addition, in 2004 we
entered into another agreement with Elron Telesoft Ltd. for the purchase of a CDR
Verification System.

In
2004 we entered into an agreement with Goldmind, a subsidiary of Eurocom Communications,
for the supply of content from its website through WAP. This agreement terminated in
January 2006. In March 2005, we entered into an agreement with Cellular Center for
Vehicles Ltd., a company wholly owned by Mr. Talmai Cohen, the brother of the
companys Chief Executive Officer, Amikam Cohen, for the sale, installation and
maintenance of car kits in approximately 35 locations.

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

In
April 2005, we entered into a new $550 million bank credit facility, replacing our
previous bank facility. Bank Hapoalim B.M., Bank Leumi Le-Israel B.M., Israel Discount
Bank Ltd. and United Mizrahi Bank Ltd. are participating in the facility, with Bank
Hapoalim B.M. serving as facility agent and Bank Leumi Le-Israel B.M. serving as
coordinating agent. During 2004, two of our directors served also as directors in banks
that are parties to the new credit facility  Mr. Mordechai Keret in Bank Hapoalim
B.M. and Mr. Moshe Vidman in Bank Leumi Le-Israel B.M. In addition, the new credit
facility facilitated our repurchase of shares from our founding Israeli shareholders, by
causing a release of the share pledges on these shares and by providing more flexible
covenants for permitted distributions. See Item 5. Operating and Financial Review
and ProspectsLiquidity and Capital Resources.

In
November 2005, we entered into an agreement with H3G Procurement Services S.à.r.l., a
subsidiary of HWL, for the purchase of LG Electronics Inc. U8330 3G UMTS handsets.

In
December 2005 we entered into a transaction with H3G Procurement Services S.à.r.l., a
subsidiary of HWL, for the purchase of Motorola E1000 3G UMTS handsets.

Registration Rights

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

# Repurchase of Shares
from Founding Israeli Shareholders

On
April 20, 2005, we repurchased approximately 33,317,933 million of our shares, pursuant to
an offer that we received in February 2005 from our founding Israeli shareholders, Elbit,
Eurocom, Polar. and Matav, who together held approximately 22.5% of our outstanding shares
at that time. The purchased shares held by Elbit, Eurocom, Matav and Polar, represented
approximately 18.1% of our then outstanding shares. As a result of the repurchase of these
shares, the holdings of our largest shareholder, Hutchison Telecom, increased from
approximately 42.84% to approximately 52.15% and the holdings of Elbit decreased to
approximately 2.04%, the holdings of Eurocom decreased to approximately 1.5%, the holdings
of Matav decreased to approximately 1.25% and the holdings of Polar decreased to
approximately 0.55% of our then outstanding share capital.

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

# 7C. Interests of Experts
and Counsel

Not applicable.

# ITEM 8. FINANCIAL
INFORMATION

# 8A. Consolidated
Financial Statements and Other Financial Information

Audited
financial statements for the three fiscal years ended December 31, 2005 are included
under "Item 18. Financial Statements."

Legal and Arbitration
Proceedings

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

We have experienced difficulties in
obtaining building permits from local authorities for the erection of antennas,
particularly before the signing of the agreement in principle with the Union of Local
Authorities in Israel. As a result, we, like other mobile telephone operators in Israel,
have erected antenna sites without the issuance of a building permit from the relevant
local or regional authority. As of December 31, 2005, approximately 30% of our antenna
sites were operating without local building permits or applicable exemptions. A
substantial portion of these are microsites. We believe that a portion of the sites
operating without permits from local authorities do not require building permits under the
Planning and Building Law. The erection of an antenna site without a required local
building permit is a violation of the Planning and Building Law and, in some cases, has
resulted in a demolition order being imposed on us and in the filing of criminal charges
and civil proceedings by Israeli municipalities against us and our officers and directors.

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As
of December 31, 2005, 292 criminal proceedings have been brought against us concerning the
erection of antenna sites without building permits. 150 of those proceedings have also
been brought against our officers and directors. 28 of those proceedings have been brought
against us regarding failure to comply with demolition orders, of which six have been
brought against our officers and directors and 27 have been settled. We are currently
negotiating with the relevant local authority to reach a settlement regarding the
relocation of affected sites or obtaining building permits for those sites. 275 of the
criminal proceedings brought against us have been settled, with Partner, but not our
directors or officers, admitting guilt and paying a fine, ranging from NIS 1,000 to NIS
80,000 per offense. The total amount of fines paid as of December 31, 2005, is
approximately NIS2.3 million, with NIS 0.3 million of that paid during 2002, NIS 0.2
million of that paid during 2003, NIS 0.1 million of that paid during 2004, and NIS0.2
million of that paid during 2005. These settlements also resulted in the imposition of
demolition orders for the relevant sites, the execution of which have been stayed for a
period of time to allow us to obtain the necessary permits or to relocate the relevant
antenna site. 143 of the criminal proceedings involving our officers and directors have
been settled with no admission of guilt by any of the officers and directors. In addition,
currently 72 administrative demolition order proceedings have been brought against us. Of
these, 72 have been settled with the imposition of demolition orders, the execution of
which has been stayed for a period of several months to allow us to obtain the necessary
permits or to relocate the relevant antenna.

There
can be no assurance that we will continue to be successful in settling legal proceedings
brought against us and our officers and directors or that we will not be faced with
demolition orders and criminal charges, including against our officers and directors. See
Item 3D. Key InformationRisk FactorsWe have had difficulties obtaining
some of the permits for which we have applied and have not yet applied for other permits
that are required for the erection of our antenna sites. These difficulties could continue
and therefore affect our ability to erect or maintain antenna sites. This could have an
adverse effect on the extent, quality and capacity of our network coverage and may result
in criminal or civil liability to us or to our officers and directors.

On
April 8, 2002, a claim was filed against us, together with a motion requesting
certification as a class action, alleging a variety of consumer complaints. The amount of
the claim against us is estimated at approximately NIS 545 million plus additional
significant amounts related to other alleged damages. Only preliminary hearings have taken
place. The Company submitted its response to the amended motion to certify the claim as a
class action on August 1, 2005. A hearing is scheduled for May 16, 2006.

At
this stage, and until the claim is recognized as a class action, we and our legal counsel
are unable to evaluate the probability of success of such claim, and therefore no
provision has been made. In addition, we and our legal counsel are of the opinion that
even if the request to recognize this claim as a class action is granted, and even if the
plaintiffs arguments are accepted, the outcome of the claim will be significantly
lower than the above-mentioned amount. See Note 8b(1) to our consolidated financial
statements.

On
April 13, 2003, a claim was filed against us and other cellular telecommunication
companies, together with a request for certification as a class action, for alleged
violation of antitrust law, alleging that no fee should have been collected for incoming
SMS messages or alternatively, that the fee collected is excessive and that it is a result
of illegal co-operation between the defendants. The amount of the claim against all the
defendants is estimated at approximately NIS 90 million (or, according to the
claimants response  NIS 100 million per year until March 1, 2005. We filed our
response on October 1, 2003, and the claimants have filed their response to our response
on July 12, 2005. A preliminary hearing took place on April 26, 2006. A motion to strike
out parts of the plaintiffs response is pending. Unless and until the claim is
recognized as a class action, we and our legal counsel are unable to evaluate the
probability of success of such claim, and therefore no provision has been made. See Note
8b(2) to our consolidated financial statements.

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. On January 3, 2006, the National Council for Planning and Building
published an interim decision conditioning the issuance of cell site permits by local
planning and building councils upon indemnification, by the cellular operators, against
reduction in property value. The Company provided to local authorities 24 letters of
undertaking to provide such indemnifications for the benefit of the local authority within
30 days from the enactment of a law or a final court decision requiring such
indemnifications. Management, based on the opinion of legal counsel, cannot at this date,
determine the effect, if any, of the above letters of undertaking on the financial results
and financial position of the Company. See Note 8b(4) to our consolidated financial
statements.

On
April 4, 2006, a claim was filed against us, together with a motion requesting
certification as a class action, alleging a variety of customer complaints relating
primarily to our alleged breach of one of the Companys tariff plans and the
termination of such plan as well as the amendment of the terms of other tariff plans. The
amount of the claim against us, should the claim is certified as a class action, is
approximately NIS 18.9 million for all customers subscribed to six tariff plans which
Partner allegedly changed during the last seven years. We are currently preparing our
response to this motion.

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At
this stage, no hearings have taken place, and unless and until the claim is recognized as
a class action, we and our legal counsel are unable to evaluate the probability of success
of such claim, and therefore no provision has been made.

Dividend Distribution
Policy

In
the third quarter of 2005, our Board of Directors and shareholders approved the distribution of our first cash
dividend.  See Item 3D. Key InformationRisk FactorsWe cannot assure that we will distribute dividends in the future, nor
the amounts of any such dividends.

A
recent amendment to our Articles of Association, in accordance with the Companies Law,
allows for our Board of Directors to approve all future dividend distributions, without
the need for shareholder approval. Until October 2005, we had never paid cash dividends
to our shareholders. In addition, the terms of our credit facility restrict the amount of
dividends we may pay to our shareholders. See Item 5. Operation and Financial
Review and ProspectsLiquidity and Capital ResourcesLiquidity. On April
20, 2005, we repurchased approximately 33.3 million shares from our founding Israeli
shareholders, for a total purchase price of approximately NIS 1,074 million. See Item
7B. Related Party TransactionsRepurchase of Shares from Founding Israeli
Shareholders.

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

# 8B. Significant Changes

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

# ITEM 9. THE OFFER AND
LISTING

# 9A. Offer and Listing Details

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

The
table below sets forth, for the periods indicated, the reported high and low closing
quotations, based on the Daily Official List of the London Stock Exchange, information
supplied by the National Association of Securities Dealers, Inc., and information supplied
by the Tel Aviv Stock Exchange.

|               | Nasdaq | London Stock Exchange | Tel Aviv Stock Exchange
|-------------- | ------ | --------------------- | -----------------------
|
|
|
|
|2001           |        |                       |                        
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        
|2002           |        |                       |                        
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        
|2003           |        |                      
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        
|2004           |        |                      
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        
|2005           |        |                       |                        
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        

---

*     The data
for the fourth quarter of 2004 is based on last trade reported to the London Stock
Exchange. From January 1, 2005 through April 30, 2006, there were no trades of our ADS
executed on the London Stock Exchange.

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

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Previous Six Months

|              | Nasdaq | London Stock Exchange | Tel Aviv Stock Exchange
|------------- | ------ | --------------------- | -----------------------
|
|
|
|
|November 2005 |        |                       |                        
|December 2005 |        |                       |                        
|January 2006  |        |                       |                        
|February 2006 |        |                       |                        
|March 2006    |        |                       |                        
|April 2006    |        |                       |                        

*     As
indicated above, from January 1, 2005 through April 30, 2006, there were no trades of our
ADS executed on the London Stock Exchange.

# 9B. Plan of Distribution

Not applicable.

# 9C. Markets

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

# 9D. Selling Shareholders

Not applicable.

# 9E. Dilution

Not applicable.

# 9F. Expenses of the Issue

Not applicable.

# ITEM 10. ADDITIONAL
INFORMATION

# 10A. Share Capital

Not applicable.

# 10B. Memorandum and Articles
of Association

Purposes and Objects of
the Company

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

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

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

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

The Powers of the
Directors

The
power of our directors to vote on a proposal, arrangement or contract in which the
director is materially interested is limited by the relevant provisions of the Companies
Law. In addition, the power of our directors to vote compensation to themselves or any
members of their body, requires the approval of the audit committee and the shareholders
at a general meeting. See Item 6C. Board PracticesApproval of Related Party
Transactions.

Rights Attached to Shares

Our
registered share capital consists of a single class of 235 million ordinary shares, par
value NIS 0.01 per share, of which 152,538,362 ordinary shares were issued and outstanding
as of December 31, 2005, and 153,035,488 shares were issued and outstanding as of April 2,
2006. All outstanding ordinary shares are validly issued. On April 20, 2005, we
repurchased 33,317,933 million ordinary shares from certain of our founding Israeli
shareholders, as described above under Item 7B. Related Party
TransactionsRepurchase of Shares from Founding Israeli Shareholders. These
shares were cancelled. The rights attached to our ordinary shares are as follows:

Dividend Rights

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

Shares
which are treated as dormant under our Articles of Association retain the rights to
receive dividends or other distributions to shareholders, and to participate in rights
offerings, but no other rights.

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

Voting Rights

Holders
of ordinary shares have one vote for each ordinary share held on all matters submitted to
a vote of shareholders. Such voting rights may be affected by the grant of any special
voting rights to the holders of a class of shares with preferential rights that may be
authorized in the future. The quorum required for an ordinary meeting of shareholders
consists of at least two shareholders present in person or by proxy who hold or represent,
in the aggregate, at least one third of the voting rights of the issued share capital. In
the event that a quorum is not present within thirty minutes of the scheduled time, the
shareholders meeting will be adjourned to the same day of the following week, or the
next business day thereafter, at the same time and place, or such time and place as the
Board of Directors may determine. If at such reconvened meeting a quorum is not present at
the time appointed for holding the meeting, one or more shareholders present in person or
by proxy holding or representing in the aggregate at least 10% of the voting rights in us
will constitute a quorum.

Any
shareholder seeking to vote at a general meeting of our shareholders must first notify us
if any of the shareholders holdings in us requires the consent of the Minister of
Communications. The instructions of a shareholder will not be valid unless accompanied by
a certification by the shareholder as to whether or not the shareholders holdings in
us or the shareholders vote requires the consent of the Ministry of Communications
due to a breach by the shareholder of the restrictions on transfer or acquisition of means
of control, or provisions regarding cross-ownership with other mobile telephone operators
or shareholdings or agreements which may reduce or harm competition. If the shareholder
does not provide such certification, his instructions will be invalid and his vote not
counted.

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

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Under
our articles of association our directors are elected by an ordinary majority of the
shareholders at each duly convened annual meeting, and they serve until the next annual
meeting, provided that external directors shall be elected in accordance with applicable
law and/or relevant stock exchange rules applicable to us. In each annual meeting the
directors that were elected at the previous annual meeting are deemed to have resigned
from their office, excluding an external director, who according to the Companies Law, is
elected for a period of three years. A resigning director may be reelected. Each ordinary
share represents one vote. No director may be elected or removed on the basis of a vote by
dormant shares. The ordinary shares do not have cumulative voting rights in the election
of directors.

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

Rights in the
Companys Profits

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

Rights in the Event of
Liquidation

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

Limitations on Ownership
and Control

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

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

Changing Rights Attached
to Shares

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

Annual and Extraordinary
Meetings

The
Board of Directors must convene an annual meeting of shareholders at least once every
calendar year, within fifteen months of the last annual meeting. Notice of a general
meeting must be sent to each registered shareholder within five days after the record date
set by the Board of Directors for that meeting, unless a different notice time is required
under applicable law or unless all shareholders who qualify to vote at the time approve in
writing of a shorter notice period. An extraordinary meeting may be convened by the board
of directors, as it decides or upon a demand of any two directors or 25% of the directors,
whichever is lower, or of one or more shareholders holding in the aggregate at least 4.99%
of our issued capital. An extraordinary meeting must be held not more than thirty-five
days from the publication date of the announcement of the meeting. See Item 10B.
Rights Attached to SharesVoting Rights.

Limitations on the Rights
to Own Our Securities

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

Limitations on Change in
Control and Disclosure Duties

For
limitations on change in control, see Item 4B. Information on the Company 
Business Overview  Our License  License Conditions, Item 4B.
Information on the Company  Business Overview  Our License  Our Permit
Regarding Cross Ownership and Item 10B. Rights Attached to Shares 
Limitations on ownership and control.

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Changes in our Capital

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

# 10C. Material Contracts

On
January 22, 2006, we signed an agreement with MED I.C.  1 (1999) Ltd., a
transmission and hosting company, to purchase its fiber-optic cable infrastructure
comprising of a network of approximately 900 kilometers of submerged and terrestrial
transmission fiber in Israel for approximately $14.8 million, subject to certain
adjustments. We entered into this agreement in order to enable us to reduce our
transmission costs as well as to provide our business customers with bundled services of
transmission of data and voice. Completion of this transaction is subject to the
satisfaction of various closing conditions, including approval by the Ministry of
Communications.

For
information on our share repurchase, see Item 7B. Related Party Transactions 
Repurchase of Shares from Founding Israeli Shareholders. For information on our
redemption of the Notes due 2010, see Item 5. Liquidity and Capital
Resources.

# 10D. Exchange Controls

There
are no Israeli government laws, decrees or regulations that restrict or that affect our
export or import of capital or the remittance of dividends, interest or other payments to
non-resident holders of our securities, including the availability of cash and cash
equivalents for use by us and our wholly-owned subsidiaries, Partner Future Communications
2000 Ltd. and Partner Land-Line Communications Solutions (of which Partner Future
Communications 2000 Ltd. serves as the general partner and the Company serves as the
limited partner), except or otherwise as set forth under Item 10E. Additional
Information  Taxation.

Under
Israeli law (and our memorandum and articles of association), persons who are neither
residents nor nationals of Israel may freely hold, vote and transfer ordinary shares in
the same manner as Israeli residents or nationals.

# 10E. Taxation

Israeli Tax Considerations

The
following is a summary of the current tax laws of the State of Israel as they relate to us
and to our shareholders and also includes a discussion of the material Israeli tax
consequences for persons purchasing our ordinary shares or ADSs, both referred to below as
the Shares. To the extent that the discussion is based on legislation yet to
be subject to judicial or administrative interpretation, there can be no assurance that
the views expressed herein will accord with any such interpretation in the future. This
discussion is not intended and should not be construed as legal or professional tax advice
and does not cover all possible tax considerations.

Potential
investors are urged to consult their own tax advisors as to the Israeli or other tax
consequences of the purchase, ownership and disposition of our ordinary shares, including,
in particular, the effect of any foreign, state or local taxes.

Israeli Tax Reforms

On
July 24, 2002, the Israeli Knesset enacted income tax reform legislation, commonly
referred to as the 2003 Tax Reform. The 2003 Tax Reform has introduced
fundamental and comprehensive changes into Israeli tax laws. Most of the legislative
changes took effect on January 1, 2003. The 2003 Tax Reform has introduced a transition
from a primarily territorial-based tax system to a personal-based system of taxation with
respect to Israeli residents. The 2003 Tax Reform has also resulted in significant
amendment of the international taxation provisions, and new provisions concerning the
taxation of capital markets including the abolishment of currently exempt investment
routes (e.g., capital gains generated by Israeli individuals from the sale of
securities traded on the Tel-Aviv Stock Exchange). Under the 2003 Tax Reform legislation
the Shares are no longer regarded and defined as foreign traded securities and
thus certain associated Israeli tax aspects will accordingly be subject to change as
discussed below.

A
relatively short time after the 2003 Tax Reform, the Israeli Parliament approved on July
25, 2005 an additional income tax reform legislation (the 2006 Tax
Reform) pursuant to the recommendations of a committee appointed by the Israeli
Minister of Finance, which incorporated additional fundamental changes to Israeli tax law.
The 2006 Tax Reform, inter alia, includes a gradual reduction of income tax rates
for both individuals and corporations through 2010, and outlines a path towards uniformity
in the taxation of interest, dividend and capital gains derived from securities. Most of
the amendments to the tax law are effective as of January 1, 2006, subject to certain
exceptions. Transition rules apply in certain circumstances.

Various
issues related to the 2003 Tax Reform and the 2006 Tax Reform remain unclear in view of
the legislative language utilized and the lack of authoritative interpretations at this
stage. The analysis below is therefore based on our current understanding of the new
legislation.

General Corporate Tax
Structure

In
accordance with the 2006 Tax Reform, the 34% corporate tax rate applicable in 2005 had
been scheduled to be reduced to 31% in 2006, 29% in 2007, 27% in 2008, 26% in 2009 and 25%
in 2010 and beyond.

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Special Provisions
Relating to Taxation under Inflationary Conditions

Our
taxable income is determined under the Income Tax (Inflationary Adjustment) Law 1985, or
the Inflationary Adjustments Law, which attempts to overcome some of the
problems presented to a traditional tax system by rapid inflation. Generally, the
Inflationary Adjustments Law provides tax deductions and adjustments to depreciation
deductions and tax loss carry forwards to mitigate the effects resulting from an
inflationary economy.

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

| | Where
a companys equity, as calculated under the Inflationary Adjustments Law, exceeds
the depreciated cost of its fixed assets (as defined in the Inflationary Adjustments
Law), a deduction from taxable income is permitted equal to the excess multiplied by the
applicable annual rate of inflation. The maximum deduction permitted in any single tax
year is 70% of taxable income, with the unused portion permitted to be carried forward,
and linked to the Israeli consumer price index. The unused portion that was carried
forward may be deductible in full in the following year.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Where
a companys depreciated cost of fixed assets exceeds its equity, then the excess
multiplied by the applicable annual rate of inflation is added to taxable corporate
business income but not to other income, such as capital gains.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subject
to specified limitation, depreciation deductions on fixed assets and losses carried
forward are adjusted for inflation based on the change in the consumer price index.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Israeli Income Tax Ordinance and regulations promulgated there under allow
Foreign-Invested Companies, to adjust their tax returns based on exchange rate
fluctuations of the shekel against the US Dollar rather than changes in the Israeli
Consumer Price Index or CPI, in lieu of the principles set forth by the
Inflationary Adjustments Law. For these purposes, a Foreign-Invested Company is a company
in which more than 25% of the share capital in terms of rights to distributions, voting
and appointment of directors, and of the combined share capital, including shareholder
loans and capital notes, is held by persons who are not residents of Israel. A company
that elects to measure its results for tax purposes based on the US Dollar exchange rate
cannot change that election for a period of three years following the election. We adjust
our tax returns based on the changes in the Israeli CPI. Because we qualify as a
Foreign-Invested Company, we are entitled to elect measurement of our results for tax
purposes on the basis of changes in the exchange rate of the US Dollar in future tax
years.

Tax on Capital Gains of
Shareholders

| | General.
Israeli law imposes a capital gains tax on the sale of capital assets by an Israeli
resident and on the sale of capital assets located in Israel or the sale of direct or
indirect rights to assets located in Israel, including on the sale of our Shares by some
of our shareholders (see discussion below). The Israeli Tax Ordinance distinguishes
between Real Gain and Inflationary Surplus. Real Gain is the
excess of the total capital gain over Inflationary Surplus computed on the basis of the
increase in the Israeli CPI between the date of purchase and the date of sale. In 2006,
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 ho have acquired their shares prior to an
initial public offering (that may be subject to a different tax arrangement).
Inflationary surplus that accrued after December 31, 1993, is exempt from tax.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Real
Gains derived from the disposal after January 1, 2003 of an asset purchased prior to this
date will be subject to capital gains tax at a blended rate. The regular corporate tax
rate of 31% (for 2006) and a marginal tax rate of up to 49% for individuals will be
applied to the gain amount which bears the same ratio to the total gain realized as the
ratio which the holding period commencing at the acquisition date and terminating on
January 1, 2003 bears to the total holding period. The remainder of the gain realized
will be subject to capital gains tax at a 25% rate for corporations and 20% for
individuals.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Generally,
within 30 days of a transaction a detailed return, including a computation of the tax due
should be submitted to the Israeli Tax Authorities and a tax advance amounting to the tax
liability arising from the capital gain is payable. At the sale of traded securities, the
aforementioned detailed return may not be submitted and the tax advance should not be
paid, if all tax due was withheld at the source according to applicable provisions of the
Israeli Tax Ordinance and regulations promulgated thereunder. Capital gains are also
reportable on annual income tax returns.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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The
following is a summary of the most significant Israeli capital gains tax implications
arising with respect to the sale of our Shares by shareholders who are not engaged in the
business of trading securities. As demonstrated below, the timing of that the
shareholders purchase of the shares will determine the tax outcomes in this regard.

# Sale of shares purchased
after January 1, 2003

Individuals

A
shareholder will generally be subject to tax at 20% rate on realized real capital gain. To
the extent that the shareholder claims a deduction of financing expenses, the gain will be
subject to tax at a rate of 25% (until otherwise stipulated in bylaws that may be
published in the future).

Corporations

# Corporations that are
subject to the Inflationary Adjustments Law

The
shareholder will be subject to tax at the corporate rate on the realized capital gain
(currently 31% for 2006).

# Corporations that are
not subject to the Inflationary Adjustments Law

Generally,
the shareholder will be subject to tax at the corporate tax rate of 25% on realized real
capital gains.

Different
taxation rules may apply to shareholders who purchased their shares prior to the listing
on the Tel Aviv Stock Exchange. They should consult with their tax advisors for the
precise treatment upon sale.

| | Taxation
of Non-Israeli Residents. As mentioned above, Israeli law generally imposes a capital
gains tax on sales of capital assets, including securities and any other direct or
indirect rights to capital assets located in Israel. This tax is also applicable to
nonresidents of Israel as follows:
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Foreign
investors (individuals and corporations) that are not engaged in the business of trading
securities through a permanent establishment in Israel, who purchased the shares after
the listing on the Tel Aviv Stock Exchange will be exempt from tax on capital gains
derived from the sale of the shares. Foreign corporations will not be entitled to such
exemption if an Israeli resident (i) has a controlling interest of 25% or more in such
non-Israeli corporation, or (ii) is the beneficiary of or is entitled to 25% or more of
the revenues or profits of such foreign corporation, whether directly or indirectly.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Different
taxation rules may apply to shareholders who purchased their shares prior to the listing
on the Tel Aviv Stock Exchange. They should consult with their tax advisors for the
precise treatment upon sale.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Taxation
of Investors Engaged in a Business of Trading Securities. Individual and corporate
dealers in securities in Israel are taxed at tax rates applicable to business income.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Withholding
at Source from Capital Gains from Traded Securities. Under the 2006 Tax Reform,
Israeli stockbrokers have a duty to withhold tax upon the sale of traded securities. The
applicable withholding tax rate is generally 20% from the real gain.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dividends

The
following Israeli tax consequences  shall apply in the event of actual payment of
any dividends on ordinary shares or ADSs.

Income
from dividends in 2006 and thereafter, other than bonus shares (stock dividends), to Israeli residents who purchased
our Shares will generally be subject to income tax at a rate of 20% for individuals, or 25% if the dividends receipt is a
Significant Shareholder (as defined above) )and will be exempt from income tax for Israeli corporations.

Non-residents
of Israel (both individuals and corporations) are subject to income tax on income accrued
or derived from sources in Israel, including dividends from Israeli corporations. The
distribution of dividend income, other than bonus shares (stock dividends), to
non-residents of Israel will generally be subject to income tax at a rate of 20% (or 25%
for a shareholder that is considered a Significant Shareholder (as described above) by way
of a tax withholding, unless a lower rate is stipulated by a treaty between Israel and the
shareholders country of residence.

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Taxation of Residents of
the United States under the US Treaty

Residents
of the United States will generally be subject to withholding tax in Israel on dividends
paid, if any, on Shares (including ADSs). Generally, under the Convention Between the
Government of the United States of America and the Government of the State of Israel with
Respect to Taxes on Income (the US Treaty), the maximum rate of withholding
tax on dividends paid to a holder of Shares (including ADSs) who is a resident of the
United States (as defined in the US Treaty) will be 25%. Since the tax rate of 25% is
higher than the maximum Israeli tax rate on dividends pursuant to the 2006 Tax Reform, the
maximum tax rate should be 20%. The maximum rate of withholding tax on dividends paid by
Israeli corporation to a US corporation generally will be 12.5% if, inter alia,
during the part of the Israeli corporations taxable year which precedes the date of
payment and during the whole of its prior taxable year, at least 10% of the outstanding
shares of the voting stock of the Israeli corporation was owned by the US corporation.

The
US Treaty exempts from taxation in Israel any capital gain realized on the sale, exchange
or other disposition of Shares (including ADSs) by a holder that (a) is a resident of the
United States for purposes of the US Treaty, and (b) owns directly or indirectly, less
than 10% of our voting stock at all times during the 12-month period preceding such sale,
exchange or other disposition.

Purchasers
of Shares (including ADSs), who are residents of the United States and who hold 10% or
more of the outstanding ordinary shares at any time during such 12-month period will be
subject to Israeli capital gains tax. However, under the US Treaty, residents of the
United States (as defined in the US Treaty) generally would be permitted to claim a credit
for this tax against US federal income tax imposed on the sale, exchange or other
disposition, subject to the limitations in US laws applicable to the utilization of
foreign tax credits generally.

The
application of the US Treaty provisions to dividends and capital gains described above is
conditioned upon the fact that such income is not effectively connected with a permanent
establishment (as defined in the US Treaty) maintained by the non-Israeli resident in
Israel.

A
non-resident of Israel that has dividend income derived from or accrued in Israel, from
which tax was withheld at the source, is generally exempt from the duty to file tax
returns in Israel in respect of such income, provided such income was not connected to or
derived from a trade or business conducted in Israel by the tax payer.

Repatriation

Non-residents
of Israel who acquire any of the Shares (including ADSs) of the Company will be able to
repatriate dividends, liquidation distributions and the proceeds from the sale of such
ADSs or ordinary shares, in non-Israeli currencies at the rate of exchange prevailing at
the time of repatriation provided that any applicable Israel income tax has been paid, or
withheld, on such amounts. US holders should refer to the United States Federal
Income Taxation  Dividends section below with respect to the US federal tax
treatment of foreign currency gain or loss.

United States Federal
Income Tax Considerations

The
following discussion is a summary of certain material US federal income tax considerations
applicable to a US holder (as defined below) regarding the acquisition, ownership and
disposition of ordinary shares or ADSs. This summary is based on provisions of the
Internal Revenue Code of 1986, as amended (the Code), existing and proposed US
Treasury regulations, administrative pronouncements, rulings and judicial decisions in
effect as of the date of this Annual Report. All of these authorities are subject to
change, possibly with retroactive effect, and to change or changes in interpretation. In
addition, this summary does not discuss all aspects of US federal income taxation that may
be applicable to investors in light of their particular circumstances or to investors who
are subject to special treatment under US federal income tax law, including US
expatriates, insurance companies, banks, regulated investment companies, securities
broker-dealers, financial institutions, tax-exempt organizations, persons holding ordinary
shares or ADSs as part of a straddle, hedging or conversion transaction, persons subject
to the alternative minimum tax, persons who acquired their ordinary shares or ADSs
pursuant to the exercise of employee stock options or otherwise as compensation, persons
having a functional currency other than the US dollar, persons owning (directly,
indirectly or by attribution) 10% or more of our outstanding share capital or voting
stock, and persons not holding the ordinary shares or ADSs as capital assets.

As
used herein, the term US holder means a beneficial owner of an ordinary share
or an ADS who is eligible for benefits as a U.S. resident under the limitation on benefits
article of the US Treaty (as defined above in Taxation of residents of the
United States under the US Treaty), and is:

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

| | a
corporation (or an entity taxable as a corporation for US federal income tax purposes)
created or organized in or under the laws of the United States or any political
subdivision thereof (including the District of Columbia),
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

If
a partnership, or other entity treated as a partnership for US federal income tax
purposes, holds ordinary shares or ADSs, the tax treatment of a partner generally will
depend upon the status of the partner and the activities of the partnership. A partner in
a partnership that holds ordinary shares or ADSs is urged to consult its own tax advisor
regarding the specific tax consequences of owning and disposing of ordinary shares or
ADSs.

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For
US federal income tax purposes, US holders of ADRs will be treated as owners of the ADSs
evidenced by the ADRs and the ordinary shares represented by the ADSs. Furthermore,
deposits or withdrawals by a US holder of ordinary shares for ADSs, or of ADSs for
ordinary shares, will not be subject to US federal income tax or Israeli income tax. The
statements of US federal income tax laws set forth assume that each obligation in the
Deposit Agreement and any related agreement will be performed in accordance with its
terms.

US
holders should review the summary above under Israeli Taxation and
Israeli TaxationTaxation of residents of the United States under the US
Treaty for a discussion of the Israeli taxes which may be applicable to them.

Holders
of ordinary shares or ADSs should consult their own tax advisors concerning the specific
Israeli, US federal, state and local tax consequences of the ownership and disposition of
the ordinary shares or ADSs in light of their particular situations as well as any
consequences arising under the laws of any other taxing jurisdiction. In particular, US
holders are urged to consult their own tax advisors concerning whether they will be
eligible for benefits under the US Treaty.

Dividends

A US
holder generally will be required to include in gross income as ordinary dividend income
the amount of any distributions paid on the ordinary shares and ADSs, including the amount
of any Israeli taxes withheld in respect of such dividend. Dividends paid by us will not
qualify for the dividends-received deduction applicable in certain cases to US
corporations.

The
amount of any distribution paid in NIS, including the amount of any Israeli withholding
tax thereon, will be included in the gross income of a US holder of ordinary shares in an
amount equal to the US dollar value of the NIS calculated by reference to the spot rate of
exchange in effect on the date the distribution is received by the US holder or, in the
case of ADSs, by the Depositary. If a US holder converts dividends paid in NIS into US
dollars on the day such dividends are received, the US holder generally should not be
required to recognize foreign currency gain or loss with respect to such conversion. If
the NIS received in the distribution is not converted into US dollars on the date of
receipt, any foreign currency gain or loss recognized upon a subsequent conversion or
other disposition of the NIS will be treated as US source ordinary income or loss. Special
rules govern the manner in which accrual method taxpayers are required (or may elect) to
determine the US dollar amount includible in income in the case of taxes withheld in a
foreign currency. Certain of these rules have changed effective January 1, 2005. Accrual
basis taxpayers therefore are urged to consult their own tax advisors regarding the
requirements and the elections applicable in this regard.

Any
dividends paid by us to a US holder on the ordinary shares or ADSs will be treated as
foreign source income and will be categorized as passive income or, in the
case of certain US holders, financial services income for US foreign tax
credit purposes. For taxable years beginning January 1, 2007, dividend income generally
will constitute passive category income or, in the case of certain US holders,
general category income. Subject to the limitations in the Code, as modified
by the US Treaty, a US holder may elect to claim a foreign tax credit against its US
federal income tax liability for Israeli income tax withheld from dividends received in
respect of ordinary shares or ADSs. US holders who do not elect to claim the foreign tax
credit may instead claim a deduction for Israeli income tax withheld, but only for a year
in which the US holder elects to do so with respect to all foreign income taxes. A
deduction does not reduce US tax on a dollar-for-dollar basis like a tax credit. The
deduction, however, is not subject to the limitations applicable to foreign tax credits.
The rules relating to the determination of the foreign tax credit are complex.
Accordingly, if you are a US holder of ordinary shares or ADSs, you should consult your
own tax advisor to determine whether and to what extent you would be entitled to the
credit.

Certain
US holders (including individuals) are eligible for reduced rates of US federal income tax
(at a maximum rate of 15%) in respect of qualified dividend income received in
taxable years beginning before January 1, 2009. For this purpose, qualified dividend
income generally includes dividends paid by a non-US corporation if, among other things,
the US holders meet certain minimum holding periods and the non-US corporation satisfies
certain requirements, including that either (i) the shares (or ADSs) with respect to which
the dividend has been paid are readily tradable on an established securities market in the
United States, or (ii) the non-US corporation is eligible for the benefits of a
comprehensive US income tax treaty (such as the US Treaty) which provides for the exchange
of information. We currently believe that dividends paid with respect to our ordinary
shares and ADSs, should constitute qualified dividend income for US federal income tax
purposes. We anticipate that our dividends will be reported as qualified dividends on
Forms 1099-DIV delivered to US holders. Each individual US holder of ordinary shares or
ADSs is urged to consult his own tax advisor regarding the availability to him of the
reduced dividend tax rate in light of his own particular situation and regarding the
computations of his foreign tax credit limitation with respect to any qualified dividend
income paid by us, as applicable.

The
US Treasury has expressed concerns that parties to whom ADSs are released may be taking
actions that are inconsistent with the claiming of foreign tax credits or reduced rates in
respect of qualified dividends by US holders of ADSs. Accordingly, the discussion above
regarding the creditability of Israeli withholding tax or the availability of qualified
dividend treatment could be affected by future actions that may be taken by the US
Treasury with respect to ADSs.

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Sale, Exchange or Other
Disposition

Upon
the sale, exchange or other disposition of ordinary shares or ADSs, a US holder generally
will recognize capital gain or loss equal to the difference between the US dollar value of
the amount realized on the sale, exchange or other disposition and the US holders
adjusted tax basis, determined in US dollars, in the ordinary shares or ADSs. Any gain or
loss recognized upon the sale, exchange or other disposition of the ordinary shares or
ADSs will be treated as long-term capital gain or loss if, at the time of the sale,
exchange or other disposition, the holding period of the ordinary shares or ADSs exceeds
one year. In the case of individual US holders, capital gains generally are subject to US
federal income tax at preferential rates if specified minimum holding periods are met. The
deductibility of capital losses by a US holder is subject to significant limitations. US
holders should consult their own tax advisors in this regard.

In
general, gain or loss recognized by a US holder on the sale, exchange or other disposition
of ordinary shares or ADSs will be US source income or loss for US foreign tax credit
purposes. Pursuant to the US Treaty, however, gain from the sale or other disposition of
ordinary shares or ADSs by a holder who is a US resident, for US Treaty purposes, and who
sells the ordinary shares or ADSs within Israel may be treated as foreign source income
for US foreign tax credit purposes.

US
holders who hold ordinary shares or ADSs through an Israeli stockbroker or other Israeli
intermediary may be subject to an Israeli withholding tax on any capital gains recognized
if the US holder does not obtain approval of an exemption from the Israeli Tax
Authorities. US holders are advised that any Israeli tax paid under circumstances in which
an exemption from such tax was available will not give rise to a deduction or credit for
foreign taxes paid for US federal income tax purposes. US holders are advised to consult
their Israeli stockbroker or intermediary regarding the procedures for obtaining an
exemption.

If
a US holder receives NIS upon the sale of ordinary shares, that US holder may recognize
ordinary income or loss as a result of currency fluctuations between the date of the sale
of the ordinary shares and the date the sales proceeds are converted into US dollars.

Passive Foreign
Investment Company Rules

A
non-US corporation will be classified as a Passive Foreign Investment Company (a
PFIC) for any taxable year if at least 75% of its gross income consists of
passive income (such as dividends, interest, rents, royalties (other than rents or
royalties derived in the active conduct of a trade or business and received from an
unrelated person), or gains on the disposition or certain minority interests), or at least
50% of the average value of its assets consist of assets that produce, or are held for the
production of, passive income. We currently believe that we were not a PFIC for the year
ended December 31, 2005. However, this conclusion is a factual determination that must be
made at the close of each year and is based on, among other things, a valuation of our
ordinary shares, ADSs and assets, which will likely change from time to time. If we were
characterized as a PFIC for any taxable year, a US holder would suffer adverse tax
consequences. These consequences may include having gains realized on the disposition of
ordinary shares or ADSs treated as ordinary income rather than capital gains and being
subject to punitive interest charges on certain dividends and on the proceeds of the sale
or other disposition of the ordinary shares or ADSs. Furthermore, dividends paid by a PFIC
are not eligible to be treated as qualified dividend income (as discussed
above).

Application
of the PFIC rules is complex. US holders should consult their own tax advisors regarding
the potential application of the PFIC rules to the ownership of our ordinary shares or
ADSs.

Information Reporting and
Backup Withholding

Dividend
payments with respect to ordinary shares or ADSs and proceeds from the sale, exchange or
other disposition of ordinary shares or ADSs may be subject to information reporting to
the Internal Revenue Service, (the IRS), and possible US backup withholding at
a current rate of 28%. Backup withholding will not apply, however, to a holder who
furnishes a correct taxpayer identification number or certificate of foreign status and
makes any other required certification or who is otherwise exempt from backup withholding.
US persons who are required to establish their exempt status generally must provide IRS
Form W-9 (Request for Taxpayer Identification Number and Certification). Non-US holders
generally will not be subject to US information reporting or backup withholding. However,
such holders may be required to provide certification of non-US status (generally on IRS
Form W-8BEN) in connection with payments received in the United States or through certain
US-related financial intermediaries.

Backup
withholding is not an additional tax. Amounts withheld as backup withholding may be
credited against a holders US federal income tax liability, and a holder may obtain
a refund of any excess amounts withheld by filing the appropriate claim for refund with
the IRS and furnishing any required information.

# 10F. Dividends and
Paying Agents

Not applicable.

# 10G. Statement By Experts

Not applicable.

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# 10H. Documents on Display

Reports
and other information of Partner filed electronically with the US Securities and Exchange
Commission may be found at www.sec.gov. They can also be inspected without charge and
copied at prescribed rates at the public reference facilities maintained by the SEC in
Room 1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549 and, as long as our notes are
listed on the Luxembourg Stock Exchange, at the office of the paying agent in Luxembourg.

# 10I. Subsidiary
Information

Not applicable.

# ITEM 11. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

We
are exposed to market risk, including movements in foreign currency exchange rates. Where
appropriate, we enter into derivative transactions to hedge underlying exposure foreign
currencies and inflation (CPI). As a matter of policy we do not enter into transactions of
a speculative or trading nature. Interest rate and foreign exchange exposures are
monitored by tracking actual and projected commitments and through the use of sensitivity
analysis.

We
have borrowings shekels linked to the Israeli CPI and unlinked shekels. The following
table provides information derived from the financial statements about these borrowings,
as of December 31, 2005.

# Non-Derivative
Instruments

|                                                             | Book Value (NIS equivalent in
millions, except percentages)
|------------------------------------------------------------ | -----------------------------------------------------------
|
|
|
|
|NIS linked to the Israeli CPI(1)                             |                                                            
|Long-term fixed Notes due 2012                               |                                                            
|NIS linked to the Israeli CPI(1)                             |                                                            
|Long-term - fixed bank debt                                  |                                                            
|Weighted average interest rate payable on fixed rate debt    |                                                            
|Unlinked NIS(1)                                              |                                                            
|Long-term--floating                                          |                                                            
|Weighted average interest rate payable on floating rate debt |                                                            
|Total                                                        |                                                            

|(1) | Book
value approximates fair value at December 31, 2005.
|--- | --------------------------------------------------------

Expected Maturity Dates:

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

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

|                  | Dollars in Millions
|----------------- | -------------------
|
|
|
|
|September 1, 2006 |                    
|September 1, 2007 |                    
|September 1, 2008 |                    
|September 1, 2009 |                    

|* | Including
approximately $18 million advance carried over from our previous facility.
|- | ------------------------------------------------------------------------------------

Foreign Exchange and
Inflation

Substantially
all of our revenues and a majority of our operating expenses are denominated in shekels.
However, through December 31, 2005, a material amount of our operating expenses were
linked to non-shekel currencies. These expenses related mainly to the acquisition of
handsets where the price paid by us is based on various foreign currencies. In addition,
most of our capital expenditures are incurred in, or linked to, non-shekel currencies.
Thus, devaluation of the shekel against the dollar (or other foreign currencies),
increases the shekel cost of our non-shekel denominated or linked expenses. Such an
increase may have an adverse impact on our results, which may be material. We hedge some
of our foreign currency commitments.

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Our
hedging strategy is to neutralize and mitigate our currency exposures by entering into
hedging transactions which convert into shekels the liabilities not denominated in
shekels. We do not hold or issue derivative financial instruments for trading purposes.

Our
bank credit facility borrowings and Notes due 2012 are currently in shekels, some of which
are linked to the Israeli consumer price index, or CPI. We may not be permitted to raised
our tariffs pursuant to our license in a manner that would fully compensate for any
increase in the Israeli CPI. Therefore, an increase in the rate of inflation may also have
a material adverse impact upon us by increasing our financial expenses without an
offsetting increase in revenue. We enter into derivative transactions in order to protect
ourselves from an increase in the CPI in respect of the principal of the CPI  linked
Notes.

The
transactions are mainly designated to hedge the cash flows related to payments in respect
of purchases of handsets and capital expenditures in foreign currency. However, these
contracts do not qualify for hedge accounting under FAS 133.

The
notional amount does not necessarily represent amounts exchanged by the parties and,
therefore, is not a direct measure of our exposure.

The
following table provides information derived from the financial statements about our
outstanding foreign exchange instruments.

# Derivative Instruments

|                                                          | As of
December
31, 2005 | Maturing in
2006 | Fair Value at
December 31,
2005
|--------------------------------------------------------- | ----------------------- | ---------------- | -------------------------------
|
|
|
|
|Forward transactions - for the exchange of: Dollars       |                         |                  |                                
|into NIS                                                  |                         |                  |                                
|Embedded derivatives - Dollars into NIS                   |                         |                  |                                
|Forward transactions - for the changes in the Israeli CPI |                         |                  |                                

# ITEM 12. DESCRIPTION OF
SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

# ITEM 13. DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES

None.

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

None.

# ITEM 15. CONTROLS AND
PROCEDURES

(a)
Disclosure Controls and Procedures. We carried out an evaluation under
          the supervision and with the participation of management, including our chief
          executive officer and chief financial officer, of the effectiveness of the
          design and operation of our disclosure controls and procedures as of December
          31, 2005. There are inherent limitations to the effectiveness of any system of
          disclosure controls and procedures, including the possibility of human error
and           the circumvention or overriding of the controls and procedures.
Accordingly,           even effective disclosure controls and procedures can only provide
reasonable           assurance of achieving their control objectives. Based upon our
evaluation, our           chief executive officer and chief financial officer concluded
that the           disclosure controls and procedures in place as of December 31, 2005
were           effective to provide reasonable assurance that information required to be
          disclosed in the reports we file and submit under the Securities Exchange Act
is           recorded, processed, summarized and reported as and when required.

(b)
Internal Control Over Financial Reporting. There were no changes in our
          internal control over financial reporting that occurred during the year ended
          December 31, 2005 that have materially affected, or are reasonably likely to
          materially affect, our internal control over financial reporting.

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We
are aware of the importance of maintaining controls and procedures and are continuing to
work towards improving our controls and procedures. Beginning with the fiscal year ending
December 31, 2006, Section 404 of the Sarbanes Oxley Act of 2002, or Section 404, will
require us to include an internal control report of management with our annual report on
form 20-F.

In
connection with this required Section 404 evaluation, we are currently performing the
system and process evaluation and testing required (and any necessary remediation) in an
effort to comply with such requirements by the effective date of compliance. Our efforts
to implement standardized internal control procedures and develop the internal tests
necessary to verify the proper application of the internal control procedures and their
effectiveness with be a key area of focus for our board of directors, our audit committee
and our senior management. This evaluation is expected to underlie the control report of
management and auditor attestation requirements of Section 404.

# ITEM 16A. AUDIT
COMMITTEE FINANCIAL EXPERT

The
Board of Directors has determined that Moshe Vidman is an audit committee financial
expert as defined in Item 16A of Form 20-F. All the members of the Audit Committee
are independent directors as defined in the Nasdaq listing standards
applicable to us.

# ITEM 16B. CODE OF ETHICS

We
have adopted a code of ethics that applies to our Chief Executive Officer, President,
Chief Financial Officer and Corporate Controller. We undertake to provide to any person
without charge, upon request, a copy of our code of ethics, which you may request from
Partners legal department, tel.: +972-54-4814191.

# ITEM 16C. PRINCIPAL
ACCOUNTANT FEES AND SERVICES

Kesselman
& Kesselman, independent certified public accountants in Israel and a member of
Pricewaterhouse Coopers International Limited (PwC) have served as our
independent public accountants for each of the fiscal years in the three-year period ended
December 31, 2005, for which audited financial statements appear in this annual report on
Form 20-F.

The
following table presents the aggregate fees for professional services rendered by PwC to
Partner in 2004 and 2005.

|                       | 2004 (NIS thousands) | 2005 (NIS thousands)
|---------------------- | -------------------- | --------------------
|
|
|
|
|Audit Fees (1)         |                      |                     
|Audit-related Fees (2) |                      |                     
|Tax Fees (3)           |                      |                     
|TOTAL                  |                      |                     

---

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

|(2) | Audit-related
Fees consist of fees billed for assurance and related services                that are
reasonably related to the performance of the audit or review of our
               financial statements or that are traditionally performed by the external
               auditor, and include consultations concerning financial accounting and
reporting                standards and internal control reviews. The audit-related fees
in 2004 include                also fees for due diligence in respect of the Matav
transaction which was                ultimately not consummated. The audited related fees
in 2005 include also fees                in respect of the issuance of the Notes and
expenses related to the Sarbanes                Oxley Act.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Audit Committee
Pre-approval Policies and Procedures

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

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

For
information on our share repurchase during 2005, see Item 7B. Related Party
Transactions  Repurchase of Shares from Founding Israeli Shareholders. Other
than this share repurchase, neither we nor any affiliated purchasers, as
defined in Rule 10b  18(a)(3) under the U.S. Securities Exchange Act of 1934,
purchased any of our shares during 2005.

- 81 -

---

---



# ITEM 17. FINANCIAL
STATEMENTS

The company has responded to
Item 18. Financial Statements in lieu of responding to this item.

# ITEM 18. FINANCIAL
STATEMENTS

The following financial statements
are filed as part of this annual report.

|                                                                                                    | Page
|--------------------------------------------------------------------------------------------------- | ----
|
|
|
|
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                             |     
|CONSOLIDATED FINANCIAL STATEMENTS:                                                                  |     
|Balance sheets as of December 31, 2004 and 2005                                                     |     
|Statements of operations for the years ended December 31, 2003, 2004 and 2005                       |     
|Statements of changes in shareholders' equity (capital deficiency) for the years ended December 31, |     
|2003, 2004 and 2005                                                                                 |     
|Statements of cash flows for the years ended December 31, 2003, 2004 and 2005                       |     
|Notes to financial statements                                                                       |     

- 82 -

---

---



# ITEM 19. EXHIBITS

Pursuant to the rules and regulations
of the Securities and Exchange Commission, we have filed certain agreements as exhibits to
this Annual Report on Form 20-F. These agreements may contain representations and
warranties by the parties. These representations and warranties have been made solely for
the benefit of the other party or parties to such agreements and (i) may have been
qualified by disclosures made to such other party or parties, (ii) were made only as of
the date of such agreements or such other date(s) as may be specified in such agreements
and are subject to more recent developments, which may not be fully reflected in our
public disclosure, (iii) may reflect the allocation of risk among the parties to such
agreements and (iv) may apply materiality standards different from what may be viewed as
material to investors. Accordingly, these representations and warranties may not describe
our actual state of affairs at the date hereof and should not be relied upon.

|Exhibit No. | Description
|----------- | -----------

|1.1 |  | Partner's
Articles of Association
|--- |  | ---------------------------------

|*1.2 |  | Partner's
Certificate of Incorporation
|---- |  | --------------------------------------

|*1.3 |  | Partner's
Memorandum of Association
|---- |  | -----------------------------------

|**2.(a).1 |  | Form
of Share Certificate
|--------- |  | -------------------------

|**2.(a).2 |  | Form
of Deposit Agreement including Form of ADR Certificate
|--------- |  | -----------------------------------------------------------

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

|^2.(b).2 |  | Form
of Indenture between Partner and the Trust Company of Union Bank Ltd.
|-------- |  | --------------------------------------------------------------------------

|^4.(a).1 |  | Restatement
of the Relationship Agreement dated April 20, 2005
|-------- |  | --------------------------------------------------------------

|**4.(a).2 |  | License
from the Israeli Ministry of Communications issued April 8, 1998
|--------- |  | ------------------------------------------------------------------------

|**4.(a).3 |  | Bank
Facility dated August 13, 1998
|--------- |  | -----------------------------------

|**4.(a).4 |  | License
Agreement for use of the Orange Brand in Israel dated September 14, 1998
|--------- |  | --------------------------------------------------------------------------------

|**4.(a).5 |  | Brand
Support/Technology Transfer Agreement dated July 18, 1999
|--------- |  | ---------------------------------------------------------------

|**4.(a).6 |  | Agreement
with Ericsson Radio Systems AB dated May 28, 1998
|--------- |  | -----------------------------------------------------------

|#++4.(a).7 |  | Agreement
with LM Ericsson Israel Ltd. dated November 25, 2002
|---------- |  | --------------------------------------------------------------

|^#4.(a).8 |  | Dealer
Agreement with Super-Pharm dated February 12, 2004
|--------- |  | ---------------------------------------------------------

|**4.(a).9 |  | Lease
Agreement with Mivnei Taasia dated July 2, 1998
|--------- |  | -----------------------------------------------------

|**4.(a).10 |  | Interconnect
Agreement with Cellcom dated February 15, 1999
|---------- |  | -----------------------------------------------------------

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

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

|#4.(a).13 |  | Asset
Purchase Agreement with Med-1 dated  as of January 22, 2006
|--------- |  | -----------------------------------------------------------------

|#***4.(a).14 |  | Amendment
No. 1 to License from the Israeli Ministry of Communications issued May 11, 1999
|------------ |  | ------------------------------------------------------------------------------------------

|***4.(a).15 |  | Amendment
No. 2 to License from the Israeli Ministry of Communications issued September 29, 1999
|----------- |  | ------------------------------------------------------------------------------------------------

|***4.(a).16 |  | Amendment
No. 3 to License from the Israeli Ministry of Communications issued October 3, 1999
|----------- |  | ---------------------------------------------------------------------------------------------

|***4.(a).17 |  | Amendment
No. 4 to License from the Israeli Ministry of Communications issued June 28, 2000
|----------- |  | -------------------------------------------------------------------------------------------

|***4.(a).18 |  | Amendment
No. 5 to License from the Israeli Ministry of Communications issued September 10, 2000
|----------- |  | ------------------------------------------------------------------------------------------------

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

|+4.(a).20 |  | Amendment
No. 7 to License from the Israeli Ministry of Communications issued September 23, 2001
|--------- |  | ------------------------------------------------------------------------------------------------

|+4.(a).21 |  | Amendment
No. 8 to License from the Israeli Ministry of Communications issued December 27, 2001
|--------- |  | -----------------------------------------------------------------------------------------------

|+4.(a).22 |  | Amendment
No. 9 to License from the Israeli Ministry of Communications issued March 13, 2002
|--------- |  | --------------------------------------------------------------------------------------------

|+4.(a).23 |  | Amendment
No. 10 to License from the Israeli Ministry of Communications issued April 14, 2002
|--------- |  | ---------------------------------------------------------------------------------------------

|+4.(a).24 |  | Amendment
No. 11 to License from the Israeli Ministry of Communications issued April 25, 2002
|--------- |  | ---------------------------------------------------------------------------------------------

|++4.(a).25 |  | Amendment
No. 12 to License from the Israeli Ministry of Communications issued June 26, 2002
|---------- |  | --------------------------------------------------------------------------------------------

|++4.(a).26 |  | Amendment
No. 13 to License from the Israeli Ministry of Communications issued June 30, 2002
|---------- |  | --------------------------------------------------------------------------------------------

|++4.(a).27 |  | Amendment
No. 14 to License from the Israeli Ministry of Communications issued September 11, 2002
|---------- |  | -------------------------------------------------------------------------------------------------

|++4.(a).28 |  | Amendment
No. 15 to License from the Israeli Ministry of Communications issued October 24, 2002
|---------- |  | -----------------------------------------------------------------------------------------------

|++4.(a).29 |  | Amendment
No. 16 to License from the Israeli Ministry of Communications issued November 26, 2002
|---------- |  | ------------------------------------------------------------------------------------------------

|++4.(a).30 |  | Amendment
No. 17 to License from the Israeli Ministry of Communications issued February 2, 2003
|---------- |  | -----------------------------------------------------------------------------------------------

|+++4.(a).31 |  | Amendment
No. 18 to License from the Israeli Ministry of Communications issued May 29, 2003
|----------- |  | -------------------------------------------------------------------------------------------

|+++4.(a).32 |  | Amendment
No. 19 to License from the Israeli Ministry of Communications issued July 31, 2003
|----------- |  | --------------------------------------------------------------------------------------------

|+++4.(a).33 |  | Amendment
No. 20 to License from the Israeli Ministry of Communications issued October 8, 2003
|----------- |  | ----------------------------------------------------------------------------------------------

|+++4.(a).34 |  | Amendment
No. 21 to License from the Israeli Ministry of Communications issued October 9, 2003
|----------- |  | ----------------------------------------------------------------------------------------------

|+++4.(a).35 |  | Amendment
No. 22 to License from the Israeli Ministry of Communications issued March 16, 2004
|----------- |  | ---------------------------------------------------------------------------------------------

|+++4.(a).36 |  | Amendment
No. 23 to License from the Israeli Ministry of Communications issued March 21, 2004
|----------- |  | ---------------------------------------------------------------------------------------------

|^4.(a).37 |  | Amendment
No. 24 to License from the Israeli Ministry of Communications issued May 9, 2004
|--------- |  | ------------------------------------------------------------------------------------------

|^4.(a).38 |  | Amendment
No. 25 to License from the Israeli Ministry of Communications issued July 4, 2004
|--------- |  | -------------------------------------------------------------------------------------------

|^4.(a).39 |  | Amendment
No. 26 to License from the Israeli Ministry of Communications issued July 11, 2004
|--------- |  | --------------------------------------------------------------------------------------------

|^4.(a).40 |  | Amendment
No. 27 to License from the Israeli Ministry of Communications issued August 8, 2004
|--------- |  | ---------------------------------------------------------------------------------------------

|^4.(a).41 |  | Amendment
No. 28 to License from the Israeli Ministry of Communications issued November 30, 2004
|--------- |  | ------------------------------------------------------------------------------------------------

- 83 -

---

---



|^4.(a).42 |  | Amendment
No. 29 to License from the Israeli Ministry of Communications issued December 16, 2004
|--------- |  | ------------------------------------------------------------------------------------------------

|^4.(a).43 |  | Amendment
No. 30 to License from the Israeli Ministry of Communications issued December 23, 2004
|--------- |  | ------------------------------------------------------------------------------------------------

|^4.(a).44 |  | Amendment
No. 31 to License from the Israeli Ministry of Communications issued March 9, 2005.
|--------- |  | ---------------------------------------------------------------------------------------------

|4.(a).45 |  | Amendment No. 32 to License from the Israeli Ministry of Communications issued
May 10,2005.
|-------- |  | -------------------------------------------------------------------------------------------

|4.(a).46 |  | Amendment No. 33 to License from the Israeli Ministry of Communications issued
July 14, 2005.
|-------- |  | ---------------------------------------------------------------------------------------------

|4.(1).47 |  | Amendment No. 34 to License from the Israeli Ministry of Communications issued
March 2, 2006
|-------- |  | --------------------------------------------------------------------------------------------

|+4.(a).48 |  | Amending
Agreement to the Facility Agreement dated January 8, 2002
|--------- |  | ------------------------------------------------------------------

|+4.(a).49 |  | Amending
Agreement to the Facility Agreement dated January 30, 2002
|--------- |  | -------------------------------------------------------------------

|+4.(a).50 |  | Amending
Agreement to the Facility Agreement dated February 6, 2002
|--------- |  | -------------------------------------------------------------------

|+4.(a).51 |  | Amending
Agreement to the Facility Agreement dated February 28, 2002
|--------- |  | --------------------------------------------------------------------

|+4.(a).52 |  | Amending
Agreement to the Facility Agreement dated March 14, 2002
|--------- |  | -----------------------------------------------------------------

|+4.(a).53 |  | Amending
Agreement to the Facility Agreement dated March 24, 2002
|--------- |  | -----------------------------------------------------------------

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

|+4.(a).55 |  | Amending
Agreement to the Facility Agreement dated April 24, 2002
|--------- |  | -----------------------------------------------------------------

|++4.(a).56 |  | Amending
Agreement to the Facility Agreement dated December 31, 2002
|---------- |  | --------------------------------------------------------------------

|^4.(a).57 |  | Facility
Agreement dated April 14, 2005
|--------- |  | ---------------------------------------

|#+++4.(a).58 |  | Purchase
Agreement with Nortel Networks ISRAEL (Sales and Marketing) Ltd. Dated November 12, 2003.
|------------ |  | --------------------------------------------------------------------------------------------------

|^4.(a).59 |  | Share
Buy Back Agreement dated February 7, 2005
|--------- |  | -----------------------------------------------

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

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

|12.(a).1 |  | Certification
by CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934, as                   adopted pursuant to Section 302 of the Sarbanes Oxley Act of
2002.
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.(a).2 |  | Certification
by CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934, as                   adopted pursuant to Section 302 of the Sarbanes Oxley Act of
2002.
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

---

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

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

|*** | Incorporated
by reference to our annual report on Form 20-F for the fiscal year ended December 31,
2000.
|--- | --------------------------------------------------------------------------------------------------------

|+ | Incorporated
by reference to our annual report on Form 20-F for the fiscal year ended December 31,
2001.
|- | --------------------------------------------------------------------------------------------------------

|++ | Incorporated
by reference to our annual report on Form 20-F for the fiscal year ended December 31,
2002.
|-- | --------------------------------------------------------------------------------------------------------

|+++ | Incorporated
by reference to our annual report on Form 20-F for the fiscal year ended December 31,
2003.
|--- | --------------------------------------------------------------------------------------------------------

|^ | Incorporated
by reference to our annual report on Form 20-F for the fiscal year ended December 31,
2004.
|- | --------------------------------------------------------------------------------------------------------

|# | Confidential
treatment requested. Confidential material has been
redacted and has been separately filed with the Securities and Exchange Commission.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------

- 84 -

---

---



# GLOSSARY OF SELECTED
TELECOMMUNICATIONS TERMS

The
following explanations are not intended as technical definitions, but to assist the reader
in understanding certain terms as used in this annual report.

|AMPS | Advanced Mobile Phone System; the analogue cellular telephone technology adopted in the
United States. Also N-AMPS (Narrowband AMPS), a more frequency-efficient variant of
AMPS.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Analog Technology | A technology in which some property of an electrical signal is varied proportionally to
the input signal being transmitted, stored or processed. Fixed transmitter/receiver
equipment in each cell of a mobile
|----------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Base Transceiver Station ("BTS") | telecommunications network that communicates by radio with all mobile telephones in
that cell.
|-------------------------------- | ----------------------------------------------------------------------------------------------

|Base Station Controller ("BSC") | Monitors and controls one or more base stations in order to exchange messages, handover
mobile units from cell to cell and perform other system administrative tasks.
|------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Blocked call | Where a mobile phone call fails because no channels are available in the cell in which
the user is located.
|------------ | -----------------------------------------------------------------------------------------------------------

|CDMA | Code Division Multiple Access; a method by which many users sharing the same radio
channel can be distinguished by unique code numbers.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------

|Cell | In a cellular telephone system, the coverage area of a single base transceiver station
or one sector therein.
|---- | -------------------------------------------------------------------------------------------------------------

|Channel | A frequency or time slot in a telecommunications system over which distinct messages
can be conveyed.
|------- | -----------------------------------------------------------------------------------------------------

|Churn | The number of customers who are disconnected from a network, either involuntarily, due
to payment delinquency or suspected fraudulent use, or voluntarily, as customers switch
to competing networks, relocate outside the network's service area, or cease using
mobile telephones permanently or temporarily.
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

|GSM | The Global System for Mobile Communications, a comprehensive digital standard for the
operation of all elements of a cellular telephone system. GSM originated in Europe, but
is now the most popular digital mobile telephone standard worldwide.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|GSM 900 | GSM operation in the 900 MHz frequency band; the original frequency band allocated to
GSM, later extended by 10 MHz (EGSM).
|------- | ---------------------------------------------------------------------------------------------------------------------------

|GSM 1800 | GSM operation in the 1800 MHz frequency band; formerly known as DCS 1800 or PCN, first
allocated for the expansion of mobile network competition in Europe, now used for the
same purpose in many other areas.
|-------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|GSM 1900 | GSM operation in the 1900 MHz band; primarily used in North and South America
|-------- | -----------------------------------------------------------------------------

|GSM Association | Formerly known as the GSM Memorandum of Understanding Association (GSM MoU), an
organization of operators, government administrations, and equipment and service
suppliers that promotes the development and promulgation of the GSM standard and
relations between GSM operators.
|--------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 85 -

---

---



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

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

|Mobile Switching Center ("MSC") | A large, computer-based device used to connect calls within a mobile network and as the
interface of the cellular network to other networks.
|------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------

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

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

|Virtual Private Network ("VPN") | A private network provided by means of the facilities of a public telephone network but
which operates by logic as a closed user group thereby providing the convenience of a
private network with the economy of scale of a public network.
|------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|WAP | Wireless Application Protocol, a language specifically developed for mobile telephones
that facilitates internet usage.
|--- | -----------------------------------------------------------------------------------------------------------------------

- 86 -

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.
(An Israeli Corporation)

2005 ANNUAL REPORT



---

---



PARTNER COMMUNICATIONS COMPANY
LTD.
(An Israeli Corporation)

2005 ANNUAL REPORT

TABLE OF CONTENTS

|                                                                                       | Page    
|-------------------------------------------------------------------------------------- | --------
|
|
|
|
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                | F-2     
|CONSOLIDATED FINANCIAL STATEMENTS:                                                    
|Balance sheets as of December 31, 2004 and 2005                                        | F-3-F-4 
|Statements of operations for the years ended December 31, 2003, 2004 and 2005          | F-5     
|Statements of changes in shareholders' equity (capital deficiency) for the years ended
|December 31, 2003, 2004 and 2005                                                       | F-6     
|Statements of cash flows for the years ended December 31, 2003, 2004 and 2005          | F-7-F-8 
|Notes to financial statements                                                          | F-9-F-40

The
amounts are stated in New Israeli Shekels (NIS) in thousands.



---

---



|
|
|

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of

# PARTNER COMMUNICATIONS
COMPANY LTD.

We have audited the consolidated
balance sheets of Partner Communications Company Ltd. and its subsidiary (collectively
the Company) as of December 31, 2004 and 2005 and the related
consolidated statements of operations, of changes in shareholders equity (capital
deficiency) and of cash flows for each of the three years in the period ended
December 31, 2005. These financial statements are the responsibility of the
Companys Board of Directors and management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States), and
with auditing standards generally accepted in Israel, including those prescribed by the
Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above, present fairly, in all material respects, the
consolidated financial position of the Company as of December 31, 2004 and 2005 and
the consolidated results of its operations, changes in shareholders equity (capital
deficiency) and its cash flows for each of the three years in the period ended
December 31, 2005, in conformity with accounting principles generally accepted in the
United States.

|Tel-Aviv, Israel 
    March 7, 2006 |  | /s/ Kesselman & Kesselman
Certified Public Accountants (Israel)
|----------------------------------- |  | ---------------------------------------------------------------

F - 2

---

---



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

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

Date
of approval of the financial statements: March 7, 2006

|
Amikam CohenChief Executive Officer | 
Alan GelmanChief Financial Officer | 
Moshe VidmanDirector
|-------------------------------------------------- | ------------------------------------------------- | -----------------------------------

F - 3

---

---



|                                                           | December 31
|---------------------------------------------------------- | -----------
|
|
|
|
|Liabilities and shareholders' equity                       |            
|CURRENT LIABILITIES:                                       |            
|Current maturities of long-term liabilities (notes 5, 13d) |            
|Accounts payable and accruals:                             |            
|Trade                                                      |            
|Other (note 13)                                            |            
|Related party - trade                                      |            
|Dividend payable                                           |            
|                                                           |            
|T o t a l    current liabilities                           |            
|                                                           |            
|LONG-TERM LIABILITIES:                                     |            
|Bank loans, net of current maturities (note 5)             |            
|Notes payable (note 6)                                     |            
|Liability for employee rights upon retirement (note 7)     |            
|Other liabilities (note 13d)                               |            
|                                                           |            
|T o t a l    long-term liabilities                         |            
|                                                           |            
|COMMITMENTS AND CONTINGENT LIABILITIES(note 8)             |            
|T o t a l    liabilities                                   |            
|                                                           |            
|SHAREHOLDERS' EQUITY(note 9):                              |            
|Share capital - ordinary shares of NIS 0.01 par            |            
|value: authorized - December 31, 2004 and 2005 -           |            
|235,000,000 shares; issued and outstanding -               |            
|December 31, 2004 - 184,037,221 shares and                 |            
|December 31, 2005 - 152,528,288 shares issued              |            
|Less - receivables in respect of shares                    |            
|Capital surplus                                            |            
|Deferred compensation                                      |            
|Accumulated deficit                                        |            
|                                                           |            
|T o t a l    shareholders' equity                          |            
|                                                           |            
|                                                           |            
|                                                           |            

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

F - 4

---

---



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

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

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

F - 5

---

---



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

|                                                                                                                                                                                     | Share capital |  |  |             |   | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------- |  |  | ----------- | - | 
|
|
|
|
|New Israeli Shekels:                                                                                                                                                                 |               |  |  |             |   | 
|BALANCE AT DECEMBER 31, 2002                                                                                                                                                         |               |  |  | 181,595,222 |   | 
|CHANGES DURING THE YEAR ENDED         DECEMBER 31, 2003:                                                                                                                             |               | 
|Exercise of options granted to employees                                                                                                                                             |               |  |  | 1,100,352   |   | 
|Income tax benefit in respect of exercise                                                                                                                                            |               | 
|of options granted to employees                                                                                                                                                      |               |  |  |             |   | 
|Deferred compensation related to employee            stock option grants                                                                                                             |               |  |  |             |   | 
|Amortization of deferred compensation related                                                                                                                                        |               | 
|to employee stock option grants net of deferred                                                                                                                                      |               | 
|compensation with respect to stock options 
           forfeited                                                                                                                     |               |  |  |             |   | 
|Net income                                                                                                                                                                           |               |  |  |             |   | 
|                                                                                                                                                                                     |               |  |  |             |   | 
|BALANCE AT DECEMBER 31, 2003                                                                                                                                                         |               |  |  | 182,695,574 |   | 
|CHANGES DURING THE YEAR ENDED         DECEMBER 31, 2004:                                                                                                                             |               | 
|Exercise of options granted to employees                                                                                                                                             |               |  |  | 1,341,647   |   | 
|Income tax benefit in respect of exercise of options                                                                                                                                 |               | 
|granted to employees                                                                                                                                                                 |               |  |  |             |   | 
|Deferred compensation related to employee stock            option grants                                                                                                             |               |  |  |             |   | 
|Amortization of deferred compensation related to                                                                                                                                     |               | 
|employee stock option grants net of deferred                                                                                                                                         |               | 
|compensation with respect to stock options            forfeited                                                                                                                      |               |  |  |             |   | 
|Net income                                                                                                                                                                           |               |  |  |             |   | 
|                                                                                                                                                                                     |               |  |  |             |   | 
|BALANCE AT DECEMBER 31, 2004                                                                                                                                                         |               |  |  | 184,037,221 |   | 
|CHANGES DURING THE YEAR         ENDED DECEMBER 31, 2005:                                                                                                                             |               | 
|Repurchase of Company's shares (including                                                                                                                                            |               | 
|purchase cost of NIS 17,591,000)                                                                                                                                                     |               |  |  | (33,317,933 | ) | 
|Exercise of options granted to employees                                                                                                                                             |               |  |  | 1,809,000   |   | 
|Income tax benefit in respect of exercise of options                                                                                                                                 |               | 
|granted to employees                                                                                                                                                                 |               |  |  |             |   | 
|Deferred compensation related to employee stock            option grants                                                                                                             |               |  |  |             |   | 
|Amortization of deferred compensation related to                                                                                                                                     |               | 
|employee stock option grants net of deferred                                                                                                                                         |               | 
|compensation with respect to stock options            forfeited                                                                                                                      |               |  |  |             |   | 
|Dividend                                                                                                                                                                             |               |  |  |             |   | 
|Net income                                                                                                                                                                           |               |  |  |             |   | 
|                                                                                                                                                                                     |               |  |  |             |   | 
|BALANCE AT DECEMBER 31, 2005                                                                                                                                                         |               |  |  | 152,528,288 |   | 
|Convenience translation into u.s. dollars(note 1a):                                                                                                                                  |               | 
|BALANCE AT JANUARY 1, 2005                                                                                                                                                           |               |  |  | 184,037,221 |   | 
|CHANGES DURING THE YEAR ENDED         DECEMBER 31, 2005:                                                                                                                             |               | 
|Repurchase of Company's shares (including                                                                                                                                            |               | 
|purchase cost of $3,900,000)                                                                                                                                                         |               |  |  | (33,317,933 | ) | 
|Exercise of options granted to employees                                                                                                                                             |               |  |  | 1,809,000   |   | 
|Income tax benefit in respect of exercise of                                                                                                                                         |               | 
|options granted to employees                                                                                                                                                         |               |  |  |             |   | 
|Deferred compensation related to employee stock            option grants                                                                                                             |               |  |  |             |   | 
|Amortization of deferred compensation related to            employee stock option grants net of 
           deferred compensation with respect to stock            options forfeited |               |  |  |             |   | 
|Dividend                                                                                                                                                                             |               |  |  |             |   | 
|Net income                                                                                                                                                                           |               |  |  |             |   | 
|                                                                                                                                                                                     |               |  |  |             |   | 
|BALANCE AT DECEMBER 31, 2005                                                                                                                                                         |               |  |  | 152,528,288 |   | 
|                                                                                                                                                                                     |               |  |  |             |   | 

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

F - 6

---

---



(Continued)  1

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

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

F - 7

---

---



(Concluded)  2

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

|                                                     | Year ended December 31
|---------------------------------------------------- | ----------------------
|
|
|
|
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                       
|Repayment of capital lease                           |                       
|Repurchase of company's shares (including purchase   |                       
|cost of NIS 17,591,000 ($ 3,900,000))                |                       
|Issuance of notes payable under a prospectus, net of |                       
|issuance costs                                       |                       
|Redemption of notes payable                          |                       
|Proceeds from exercise of stock options granted to   |                       
|employees                                            |                       
|Dividend paid                                        |                       
|Long-term bank loans received                        |                       
|Repayment of long-term bank loans                    |                       
|                                                     |                       
|Net cash used in financing activities                |                       
|                                                     |                       
|INCREASE (DECREASE) IN CASH AND CASH                 |                       
|EQUIVALENTS                                          |                       
|CASH AND CASH EQUIVALENTS AT                         |                       
|BEGINNING OF YEAR                                    |                       
|                                                     |                       
|CASH AND CASH EQUIVALENTS AT                         |                       
|END OF YEAR                                          |                       
|                                                     |                       
|                                                     |                       
|SUPPLEMENTARY DISCLOSURE OF CASH                     |                       
|FLOW INFORMATION- cash paid during the year:         |                       
|Interest                                             |                       
|                                                     |                       
|Advances to income tax authorities                   |                       
|                                                     |                       

Supplementary information on
investing and financing activities not involving cash flows

At December 31, 2003, 2004 and 2005,
trade payables include NIS 65.7 million, NIS 103.8 million and NIS 90.3 million ($
19.6 million), respectively, in respect of acquisition of fixed assets. In addition, at
December 31, 2004 and 2005 trade payables include NIS 13.8 million and NIS 27.7 million
($6.0 million) in respect of acquisition of additional spectrum, respectively.

At December 31, 2005, dividend
payable of approximately NIS 45 million ($9.8 million) is outstanding. These balances are
recognized in the cash flow statements upon payment.

During 2005, the Company has
undertaken a capital lease with respect to fixed assets in the amount of NIS15.8 million
($ 3.4 million)

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

F - 8

---

---



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

|NOTE 1 |  | SIGNIFICANT ACCOUNTING POLICIES:
|------ | - | --------------------------------

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

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

| | 1) | Partner
Communications Company Ltd. (the Company) operates a mobile
          telecommunications network in Israel. The Company launched its 3G network on
          December 1, 2004. As of April 20, 2005, the Company is a subsidiary of
Hutchison           Telecommunications International Limited (HTIL).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | The
Company was incorporated on September 29, 1997, and operates under a
          license granted by the Ministry of Communications to operate a cellular
          telephone network for a period of 10 years beginning April 7, 1998. The
          Company commenced full commercial operations on January 1, 1999.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company paid a one-time license fee of approximately new Israeli shekels (NIS) 1.6
billion which is presented under license and deferred charges. The Company is
entitled to request an extension of the license for an additional period of six years and
then renewal for one or more additional six year periods. Should the license not be
renewed, the new license-holder is obliged to purchase the communications network and all
the rights and obligations of the subscribers for a fair price, as agreed between the
parties or as determined by an arbitrator.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2001, the Company was awarded additional spectrum (2G band (1800MHz) and third
generation (3G) UMTS band (1900MHz and 2100MHz)). Following the award of the above
spectrum, the Companys license was amended and extended through 2022.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
consideration for the above additional spectrum the Company paid NIS 180 million ($ 39
million) for the 2G spectrum, and is committed to pay NIS 220 million ($ 48 million) for
the 3G spectrum in six installments through 2006, of which approximately NIS 198 million
(approximately $43 million) was paid as of December 31, 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the terms of the amended license, the Company provided a guarantee in NIS equivalent of $ 10
million to the State of Israel to secure the Companys adherence to the terms of the
license.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Use
of estimates in the preparation of financial statements
| | -----------------------------------------------------------

| | The
preparation of financial statements in conformity with generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the dates of the financial statements and the reported amounts
of revenues and expenses during the reporting years. Actual results could differ from
those estimates.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---



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

|NOTE 1 |  | SIGNIFICANT
ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

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

| | Functional
currency and reporting currency
| | ------------------------------------------

| | The
functional currency of the Company and its subsidiary is the local currency New Israeli
Shekels  NIS. The consolidated financial statements have been drawn up on the basis
of the historical cost of Israeli currency and are presented in NIS.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Convenience
translation into U.S. dollars (dollars or $)
| | ------------------------------------------------------------

| | The
NIS figures at December 31, 2005 and for the year then ended have been translated into
dollars using the representative exchange rate of the dollar at December 31, 2005 ($1 =
NIS 4.603). The translation was made solely for convenience. The translated dollar
figures should not be construed as a representation that the Israeli currency amounts
actually represent, or could be converted into, dollars.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accounting
principles
| | ---------------------

| | The
consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (U.S. GAAP).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | 2) | Intercompany
balances between the Company and its subsidiary have been           eliminated.
| | -- | --------------------------------------------------------------------------------------------

| | c. | Inventories
| | -- | -----------

| | Inventories
of cellular telephones (handsets) and accessories are stated at the lower of cost or
estimated net realizable value. Cost is determined on the first-in, first-outbasis.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company determines its allowance for inventory obsolescence and slow moving inventory,
based upon expected inventory turnover, inventory aging and current and future
expectations with respect to product offerings.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Non-marketable
securities
| | -- | -------------------------

| | These
investments are stated at cost, less provision for impairment losses, see note 2.
| | ---------------------------------------------------------------------------------------

F - 10

---

---



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

|NOTE 1 |  | SIGNIFICANT
ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

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

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

| | 2) | Direct
consultation and supervision costs and other direct costs relating to
               setting up the Companys communications network and information
systems for                recording and billing calls are capitalized to cost of the
assets.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | 3) | Interest
costs in respect of loans and credit which served to finance the
               construction or acquisition of fixed assets  incurred until
installations                of the fixed assets are completed  are capitalized to
cost of such assets.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | Assets
are depreciated by the straight-line method, on basis of their estimated           useful
life.
| | -- | ------------------------------------------------------------------------------------------------------

| | Annual
rates of depreciation are as follows:
| | --------------------------------------------

| |                                      | %
| | ------------------------------------ | -
|
|
|
|
| | Communications network               |  
| |                                      |  
| | Computers, hardware and software for |  
| | information systems                  |  
| | Vehicles                             |  
| | Office furniture and equipment       |  

| | 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 of the
improvements, whichever is shorter.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5) | Fixed
assets leased by the Company under capital leases are classified as the           Companys
assets and are recorded, at the inception of the lease, at the           lower of the
assets fair value or the present value of the minimum lease           payments.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6) | Computer
Software Costs
| | -- | -----------------------

| | The
cost of internal-use software is capitalized in accordance with Statement of Position
(SOP) No. 98-1,  Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Subsequent additions, modifications or upgrades to
internal-use software are capitalized only to the extent that they allow the software to
perform a task it previously did not perform. Software maintenance and training costs are
expensed in the period in which they are incurred. Capitalized computer software costs
are amortized using the straight-line method over a period of 5 to 7 years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 11

---

---



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

|NOTE 1 |  | SIGNIFICANT
ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

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

| | 1) | License:
| | -- | --------

| | The
license (see also 1a(2) above) is stated at cost and is amortized by the straight-line
method over the utilization period of the license starting January 1, 1999.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Following
the extensions of the license (as described in note 1a(2) above) the unamortized balance
of the Companys existing license as well as the cost of the additional spectrum put
into service are amortized on a straight-line basis  over the period ending in 2022.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
costs relating to the 3G band are amortized as of December 1, 2004, by the straight-line
method over the period ending in 2022.
| | -----------------------------------------------------------------------------------------------------------------------------------

| | Interest
expenses which served to finance the license fee  incurred until the commencement
of utilization of the license  were capitalized to cost of the license. During the
years 2003 and 2004  NIS 10 million and NIS 8 million interest costs were
capitalized to the cost of the license, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | g. | Impairment
of long-lived assets
| | -- | -------------------------------

| | The
Company has adopted Statement of Financial Accounting Standards No. 144 (FAS 144), Accounting
for the Impairment or Disposal of Long-Lived Assets. FAS 144 requires that
long-lived assets, including certain intangible assets, to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. Under FAS 144, if the sum of
the expected future cash flows (undiscounted and without interest charges) of the
long-lived assets is less than the carrying amount of such assets, an impairment loss
would be recognized, and the assets written down to their estimated fair values.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h. | Cash
equivalents
| | -- | ----------------

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

| | i. | Comprehensive
income
| | -- | --------------------

| | The
Company has no comprehensive income components other than net income.
| | -------------------------------------------------------------------------

F - 12

---

---



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

|NOTE 1 |  | SIGNIFICANT
ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | j. | Revenue
recognition
| | -- | -------------------

| | Revenues
from services primarily consist of charges for airtime, roaming and value added services
provided to the Companys customers, are recognized upon performance of the
services, net of credits and adjustments for services discounts. Revenues from pre-paid
calling cards are recognized upon customers usage of the cards. Revenues from sale
of handsets and accessories are recognized upon delivery and the transfer of ownership to
the subscriber.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Emerging
Issues Task Force (EITF) Issue 00-21, Revenue Arrangements with
Multiple Deliverables addresses the accounting, by a vendor, for contractual
arrangements in which multiple revenue-generating activities will be performed by the
vendor. It is effective prospectively for all arrangements entered into in fiscal periods
beginning after June 15, 2003. EITF Issue 00-21 addresses when and, if so, how an
arrangement involving multiple deliverables should be divided into separate units of
accounting. The Company adopted EITF Issue 00-21 in the year ended December 31, 2003. The
adoption had no impact on its financial position and results of operations. Based on EITF
00-21, the Company determined that the sale of handsets with accompanying services
constitutes a revenue arrangement with multiple deliverables. Accordingly consideration
received for handsets, up to their fair value, that is not contingent upon the delivery
of additional items (such as the services), is recognized as equipment revenues, when
revenue recognition criteria for the equipment as stated above are met. Consideration for
services is recognized as services revenues, when earned.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | k. | Concentration
of credit risks  allowance for doubtful accounts
| | -- | ---------------------------------------------------------------

| | The
Companys revenues are derived from a large number of customers. Accordingly, the
Companys trade balances do not represent a substantial concentration of credit
risk. An appropriate provision for doubtful accounts is included in the accounts of the
Company. The allowance charged to expenses (including bad debts), determined as a
percentage of specific debts doubtful of collection, based upon historical experience,
for the years ended December 31, 2003, 2004 and 2005 totaled NIS 15,601,000, NIS 21,256,000
and NIS 28,739,000 ($ 6,244,000) (see note 13a), respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
cash and cash equivalents as of December 31, 2005 are deposited mainly with leading
Israeli banks. Therefore, in the opinion of the Company, the credit risk inherent in
these balances is remote.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2003 and 2004, the Company factored most of its long-term trade receivables resulting
from sales of handsets. The factoring was made through clearing companies, on a
non-recourse basis. The sale of accounts receivable was recorded by the Company as a
sales transaction under the provisions of Statement of Financial Accounting Standards
No.140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
resulting costs were charged to financial expenses-net, as incurred. During
the years ended December 31, 2003, 2004 and 2005, the Company factored NIS
295,827,000, NIS 331,611,000 and NIS 7,834,000 ($1,702,000), respectively, from
long-term trade receivables.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 13

---

---



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

|NOTE 1 |  | SIGNIFICANT
ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

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

| | The
provision for handsets warranty obligations is calculated at the rate of 1.5%-3.5% of the
cost of the handsets sold, see note 13c. The Company has entered into several agreements
under which the supplier does not provide any warranty but rather provides additional
handsets to satisfy its warranty obligation. In these cases, the Company provides for
warranty costs at the same time as the revenues are recognized.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Advertising
expenses are charged to the statement of operations as incurred. Advertising expenses for
the years ended December 31, 2003, 2004 and 2005 totaled NIS 99,061,000, NIS
115,909,000 and NIS 97,651,000 ($ 21,215,000), respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n. | Deferred
income taxes
| | -- | ---------------------

| | Deferred
taxes are determined utilizing the asset and liability method, based on the differences
between the amounts presented in these financial statements and those taken into account
for tax purposes, in accordance with the applicable tax laws. Valuation allowances are
provided if, based upon the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized (see note 10d).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred
tax assets and liabilities are presented as current or long-term items in accordance with
the nature of assets or liabilities to which they relate. Deferred tax assets in respect
of carryforward tax losses are presented as current or long-term assets, according to
their expected utilization date.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o. | Foreign
currency transactions and balances
| | -- | ------------------------------------------

| | Balances
in, or linked to, foreign currency are stated on the basis of the exchange rates
prevailing at balance sheet dates. For foreign currency transactions included in the
statements of operations, the exchange rates at transaction dates are used. Transaction
gains or losses arising from changes in the exchange rates used in the translation of
such balances are carried to financial income or expenses.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | p. | Derivative
financial instruments (derivatives)
| | -- | ------------------------------------------------

| | The
Company has adopted FAS 133, as amended, which establishes accounting and reporting
standards for derivatives, including certain derivatives embedded in other contracts, and
for hedging activities. Under FAS 133, all derivatives are recognized on the balance
sheet at their fair value. On the date that the Company enters into a derivative
contract, it designates the derivative, for accounting purposes, as: (1) hedging
instrument, or (2) non-hedging instrument. Any changes in fair value are to be reflected
as current gains or losses or other comprehensive gains or losses, depending upon whether
the derivative is designated as a hedge and what type of hedging relationship exists.
Changes in fair value of non-hedging instruments are carried to financial
expenses-net on a current basis. To date, the Company did not have any contracts
that qualify for hedge accounting under FAS 133.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company occasionally enters into commercial (foreign currency) contracts in which a
derivative instrument is embedded. This embedded derivative is separated from
the host contract and carried at fair value when (1) the embedded derivative possesses
economic characteristics that are not clearly and closely related to the economic
characteristics of the host contract and (2) a separate, stand-alone instrument with the
same terms would qualify as a derivative instrument (see note 12).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 14

---

---



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

|NOTE 1 |  | SIGNIFICANT
ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

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

| | Basic
EPS is computed by dividing net income by the weighted average number of shares
outstanding during the years.
| | -------------------------------------------------------------------------------------------------------------------

| | Diluted
EPS reflects the increase in the weighted average number of shares outstanding that would
result from the assumed exercise of employee stock options, calculated using the
treasury-stock-method.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Company accounts for employee stock based compensation under the intrinsic value model in
accordance with Accounting Principles Board Opinion No. 25 Accounting for Stock
Issued to Employees (APB 25) and related interpretations. In accordance
with FAS 123  Accounting for Stock-Based Compensation (FAS 123),
the Company discloses pro forma data assuming the group had accounted for employee stock
option grants using the fair value-based method defined in FAS 123. As to the Recently
issued revised FAS 123, see t. below. Compensation cost for employee stock option plans
is charged to shareholders equity, on the date of grant of the options, under deferred
compensation costs and is then amortized over the vesting period using the
accelerated method of amortization.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
weighted average fair value of options granted using the Black & Scholes
option-pricing model during 2003, 2004 and 2005 is NIS 26.96, NIS 18.98 and NIS 21.36
($4.64), respectively. The fair value of each option granted is estimated on the date of
grant based on the following weighted average assumptions: weighted average dividend
yield of 0%; expected volatility of 62%, 55% and 58%, respectively; risk-free interest
rate: 2003  4.5%, 2004  4%, 2005  3.5%; weighted expected life: 2003
 9 years; 2004 and 2005  5 years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---



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

|NOTE 1 |  | SIGNIFICANT
ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | The
following table illustrates the effect on net income and EPS assuming the Company had
applied the fair value recognition provisions of FAS 123 to its stock based employee
compensation:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | The
Company has adopted as of January 1, 2003 FAS 143 Accounting for Asset Retirement
Obligations (FAS 143). FAS 143 requires that an asset retirement
obligation (ARO) associated with the retirement of a tangible long lived asset be
recognized as a liability in the period in which it is incurred and becomes determinable
(as defined by the standard), with an offsetting increase in the carrying amount of the
associated asset. The cost of the tangible asset, including the initially recognized ARO,
is depreciated such that the cost of the ARO is recognized over the useful life of the
asset. The ARO is recorded at fair value, and the accretion expense will be recognized
over time as the discounted liability is accreted to its expected settlement value. The
fair value of the ARO is measured using expected future cash out flows discounted at the
Companys credit-adjusted risk-free interest rate.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is subject to asset retirement obligations associated with its cell sites
operating leases. These lease agreements contain clauses requiring restoration of the
leased site at the end of the lease term, creating asset retirement obligations, see also
note 13d.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 16

---

---



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

|NOTE 1 |  | SIGNIFICANT
ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

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

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

| | In
December 2004, the Financial Accounting Standards Board (FASB) issued the
revised Statement of Financial Accounting Standards (FAS) No. 123,
Share-Based Payment (FAS 123R), which addresses the accounting for share-based
payment transactions in which the company obtains employee services in exchange for (a)
equity instruments of the company or (b) liabilities that are based on the fair value of
the companys equity instruments or that may be settled by the issuance of such
equity instruments .In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107)
regarding the SECs interpretation of FAS 123R.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FAS
123R eliminates the ability to account for employee share-based payment transactions
using APB Opinion No. 25  Accounting for Stock Issued to Employees, and
requires instead that such transactions be accounted for using the grant-date fair value
based method. This Statement will be effective for public companies at the beginning of
their next fiscal year that begins after June 15, 2005 (first quarter of 2006 for the
Company). Early adoption of FAS 123R is encouraged. This Statement applies to all awards
granted or modified after the Statements effective date. In addition, compensation
cost for the unvested portion of previously granted awards that remain outstanding on the
Statements effective date shall be recognized on or after the effective date, as
the related services are rendered, based on the awards grant-date fair value as
previously calculated for the pro-forma disclosure under FAS 123.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company expects that upon the adoption of FAS 123R, as of January 1, 2006, the Company
will apply the modified prospective application transition method, as permitted by the
Statement. Under such transition method, upon the adoption of FAS 123R, the Companys
financial statements for periods prior to the effective date of the Statement will not be
restated.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Compensation
expense for outstanding awards for which the requisite service had not been rendered as
of the effective date will be recognized over the remaining service period using the
compensation cost calculated for pro-forma disclosure purposes under FAS 123. At December
31, 2005, unamortized compensation expenses related to outstanding unvested options, as
determined under FAS 123, that the Company expect to record during 2006 was approximately
NIS 20 million (net of forfeited rate).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17

---

---



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

|NOTE 1 |  | SIGNIFICANT
ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | t. | Recently
issued accounting pronouncements(continued):
| | -- | -----------------------------------------------------

| | 2) | FAS
154 Accounting Changes and Error Corrections  a replacement of
               Accounting Principles Board Opinion (APB) No. 20 and FASB
Statement                No. 3.  In June 2005, the Financial Accounting Standards Board issued FAS No. 154,
"Accounting
Changes and Error Corrections - a replacement of APB                       Opinion No. 20
and
FASB Statement No. 3". This Statement generally requires retrospective application
to prior periods financial statements of changes in accounting principle.
Previously, Opinion No. 20 required that most voluntary changes in accounting principle
were recognized by including the cumulative effect of changing to the new accounting
principle in net income of the period of the change.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FAS
154 applies to all voluntary changes in accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. This Statement shall be
effective for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005 (Year 2006 for the company). The Company does not expect the
adoption of this statement will have a material impact on the Companys results of
operations, financial position or cash flows.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 2 |  | INVESTMENTS
IN NON-MARKETABLE SECURITIES
|------ | - | ----------------------------------------

| | The
Company and its subsidiary had entered into agreements with a number of technological
companies in the early stages of development of cellular products (hereafter  the
start-up companies). Under the agreements, the Group supplied infrastructure and support
services which the start-up companies need to develop their products, in consideration of
options and shares in those companies.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Based
on the financial position of the companies, management is of the opinion that the fair
value of the securities granted to the Group, on the grant date and as of December 31,
2005 is not material.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | During
2003, the Company recorded an impairment loss of approximately NIS 3.5 million, in
respect of the above investments. As of December 31, 2004 and 2005, the balance of these
investments was fully impaired.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 18

---

---



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

|NOTE 3 |  | FIXED
ASSETS:
|------ | - | -------------

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

| |                                                  | December 31
| | ------------------------------------------------ | -----------
|
|
|
|
| | Communications network                           |            
| | Computers, hardware and software for             |            
| | information systems                              |            
| | Office furniture and equipment                   |            
| | Vehicles                                         |            
| | Leasehold improvements                           |            
| | Cellular telephones - base stock                 |            
| |                                                  |            
| |                                                  |            
| | Less - accumulated depreciation and amortization |            
| |                                                  |            
| |                                                  |            
| |                                                  |            

| | Depreciation
and amortization in respect of fixed assets totaled NIS 469,205,000, NIS 482,390,000 and
NIS 575,606,000 ($125,050,000) for the years ended December 31, 2003, 2004 and 2005,
respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Fixed assets include interest expenses, direct consultation and supervision
               costs and other direct costs of establishing the cellular communications network
               and information systems, which were capitalized (before commencing full
               commercial operations or utilization of the related fixed assets) in respect of:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                        | December 31
| | -------------------------------------- | -----------
|
|
|
|
| | Communications network                 |            
| | Computers, hardware and software for   |            
| | information systems                    |            
| |                                        |            
| |                                        |            
| | L e s s   -   accumulated depreciation |            
| |                                        |            
| | Depreciated balance                    |            
| |                                        |            

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

F - 19

---

---



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

|NOTE 4 |  | LICENSE
AND DEFERRED CHARGES:
|------ | - | -----------------------------

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

| | License
amortization expenses for the years ended December 31, 2003, 2004 and 2005 totaled NIS
58,408,000, NIS 63,931,000 and NIS 79,255,000 ($17,218,000), respectively. Amortization
expenses on deferred charges for the years ended December 31, 2003, 2004 and 2005 totaled
NIS 9,258,000 NIS 11,901,000 and NIS 28,642,000 ($ 6,222,000), respectively  2005
 includes NIS 11,064,000 ($2,404,000) in respect of the redemption of the Notes,
see also note 6b.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

F - 20

---

---



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

|NOTE 5 |  | LONG-TERM
BANK LOANS
|------ | - | --------------------

| | On
April 14, 2005 the Company entered into a new $550 million bank credit facility. The
facility is divided into two tranches: a six year $450 million term loan facility (Facility
A) and a six year $100 million revolving loan facility (Facility B),
and is secured by a first ranking floating charge on the Companys assets. Bank
Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel Discount Bank Ltd. are providing the
facility, in which United Mizrahi Bank Ltd. is also participating. The new credit
facility replaced the Companys previous facility.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | With
effect May 1, 2005, the Company exercised an option to reduce Facility A to $150 million
(in addition to an advance of approximately $25 million carried over from the Companys
previous facility, which on balance sheet date, was reduced to $18 million), and to
change the final maturity date of both facilities to September 1, 2009. As a result, the
total maximum availability under the new credit facility is approximately $268 million.
The amount drawn from Facility A is to be repaid in yearly installments with a final
maturity of September 1, 2009. Facility B may be drawn and repaid until September 1,
2009. The credit facility is a dollar denominated facility, and advances may be drawn in
different currencies, see c. below.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | Status
of the credit facility at December 31, 2005 is as follows:
| | -- | -----------------------------------------------------------------

| |            | Total
availability | Amounts
drawn | Amounts
available for
drawing
| | ---------- | ------------------ | ------------- | -----------------------------
|
|
|
|
| | Facility A |                    |               |                              
| | Facility B |                    |               |                              
| |            |                    |               |                              
| |            |                    |               |                              
| |            |                    |               |                              

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

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

| | (1) | Linkage
terms apply both to principal and interest.
| | --- | ---------------------------------------------------

| | (2) | The
loans bear interest at the on-call rate (a varying inter-bank           rate
in Israel), prime rate or fixed unlinked rate.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

|* | The
difference between the amounts displayed is the difference in exchange rates between the
date the amounts were drawn and that at the balance sheet date.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 21

---

---



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

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

| | c. | Facilities A and B, may be drawn in NIS or US dollars, provided that the amount
               of principal outstanding in US dollars under the credit facility with respect to
               each participating lender shall not exceed 10% of that lenders total
               commitment unless otherwise agreed in advance.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | There
is a range of options as to how interest is calculated on borrowings           under the
credit facility. These options include fixed and variable rates, based           upon the
lending rates of each participating banks with a margin of 0.85%.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |              |  | US Dollars in millions
| | ------------ |  | ----------------------
|
|
|
|
| | December     |  |                       
| |              |  |                       
| |              |  |                       
| | September 1, |  |                       

| | f. | Under
the credit facility the Company is required, inter alia, to fulfill           certain
operational conditions and to maintain certain financial ratios. If the           Company
defaults on the covenants, the banks are entitled to demand early           repayment of
the credit facility  in whole or in part. Under the credit           facility, the
Company has undertaken not to make distributions to its           shareholders, including
dividends, unless it complies with certain financial           ratios specified in the
Agreement or as otherwise agreed by the banks. The           Company believes that it is
in compliance with all covenants stipulated in the           credit facility.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|NOTE 6 |  | NOTES
PAYABLE:
|------ | - | --------------

| | a. | On
March 31, 2005, the Company completed an offering of NIS 2,000 million of
          unsecured notes, which were issued at their NIS par value. The notes have been
          registered in Israel and are traded on the Tel-Aviv stock exchange (TASE). Of
          these notes approximately NIS 36.5 million were purchased by Partner Future
          Communications 2000 Ltd., (PFC) a wholly owned subsidiary of the
          Company.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
net proceeds from the offering were approximately NIS 1,929 million (approximately $419
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 until March 31, 2012. The Notes bear NIS interest at the rate of 4.25% per
annum, linked to the Israeli Consumer Price Index, which is payable quarterly on the last
day of each quarter, commencing June 30, 2005.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 22

---

---



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

|NOTE 6 |  | NOTES
PAYABLE(continued)
|------ | - | ------------------------

| | On
December 31, 2005, the Notes closing price was 101.63 points par value.
| | --------------------------------------------------------------------------

| | Commission
fees and offering expenses in respect of the offering of the Notes totaled approximately
NIS 34 million. These expenses are presented as deferred charges and the
amortization in respect thereof is included in financial expenses, net.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | On
August 10, 2000, the Company completed an offering of $ 175 million of
          unsecured 13% Senior Subordinated Notes due 2010, which were issued at their
          dollar par value. The notes were registered under the U.S. Securities Act of
          1933.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 15, 2005, the Company exercised it right to redeem the notes at a redemption price
of 106.5% of their dollar par value  according to the option stipulated in the
Notes document. As a result of the redemption of the Notes the Company has recognized as
financial expenses an amount of approximately NIS 63 million (approximately $ 14), which
after tax resulted in a decrease of the Companys net income of NIS 42 million.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 7 |  | LIABILITY
FOR EMPLOYEE RIGHTS UPON RETIREMENT:
|------ | - | ----------------------------------------------

| | a. | Israeli
labor laws and agreements require payment of severance pay upon           dismissal of an
employee or upon termination of employment in certain other           circumstances. The
Companys severance pay liability to its employees,           mainly based upon
length of service and the latest monthly salary (one           months salary for
each year worked), is reflected by the balance sheet           accrual under the liability
for employee rights upon retirement. The           Company records the liability as
if it was payable at each balance sheet date on           an undiscounted basis. The
liability is partly funded by purchase of insurance           policies and the amounts
funded are included in the balance sheet under           investments and long-term
receivables, as funds in respect of employee           rights upon retirement.
The policies are the Companys assets and           under labor agreements, subject
to certain limitations, they may be transferred           to the ownership of the
beneficiary employees.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | The severance pay expenses for the years ended December 31, 2003, 2004 and
          2005 were approximately NIS 20 million, NIS 27 million and NIS 24 million
          (approximately $ 5 million), respectively.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | 1. | The
Company expects to contribute NIS 21 million ($ 4.6 million) in respect of
               severance pay in 2006.
| | -- | --------------------------------------------------------------------------------------------------------------------

| | 2. | Due
to the relatively young age of the Companys employees, benefit
               payments to employees reaching retirement age in the next 10 years, are
not                material. The amounts were determined based on the employees current
               salary rates and the number of service years that will accumulate upon
their                retirement date. These amounts do not include amounts that might be
paid to                employees who will cease working for the Company before their
normal retirement                age.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 23

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---



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

|NOTE 8 |  | COMMITMENTS AND CONTINGENCIES:
|------ | - | ------------------------------

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

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

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

| | On
June 18, 2001, the Knessets Finance Committee approved the Telecommunications
(Royalties) Regulations, 2001 (hereafter  the Regulations). The principal
change to the old regulations was the reduction of the percentage of royalties payable by
mobile phone companies from 8% to 5% in 2001, 4.5% in 2002 , 4% in 2003 and 3.5% in 2004
and thereafter. In addition, the basis in respect of which the royalties are paid has
been expanded (as described above). During 2004, a further redaction was approved;
accordingly, the rate of royalty payments paid by cellular operators will be reduced
annually by 0.5%, starting January 1st 2006, to a level of 1%.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
royalty expenses for the years ended December 31, 2003, 2004 and 2005 were approximately
NIS 119,387,000, NIS 120,131,000 and NIS 122,599,000 ($ 26,635,000), respectively,
and are included under cost of services revenues.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | Under
the Telegraph Regulations the Company is committed to pay an annual fixed
               fee for each frequency used. The Company paid a total amount of
approximately                NIS 31 million, NIS 31 million and NIS 47 million, for the
year 2003, 2004 and                2005, respectively. Under the above Regulations should
the Company choose to                return a frequency such payment is no longer due.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | Operating
leases
| | -- | ----------------

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

| | a) | Lease
agreements for its headquarters facility in Rosh Haayin for a
          fifteen-year period (until 2018). The Company has an option to shorten the
lease           periods by 3.5 to 8.5 years. The rental payments are linked to the
Israeli CPI.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

F - 24

---

---



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

|NOTE 8 |  | COMMITMENTS
AND CONTINGENCIES (continued):
|------ | - | ------------------------------------------

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

| | e) | The
minimum projected rental payments (including the payments in the periods of           the
reasonably assured option terms) for the next five years, at rates in effect           at
December 31, 2005, are as follows:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | NIS | Conveniencetranslationinto dollars
| |  | --- | ----------------------------------
|
|
|
|
| |  |     | Year ended December 31:           
| |  |     | 2006                              
| |  |     | 2007                              
| |  |     | 2008                              
| |  |     | 2009                              
| |  |     | 2010                              
| |  |     | 2011 and thereafter               
| |  |     |                                   
| |  |     |                                   
| |  |     |                                   

| | f) | The
rental expenses for the years ended December 31, 2003, 2004 and 2005 were
          approximately NIS 163 million, NIS 176 million, and NIS 185 million ($ 40
          million), respectively.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | At
December 31, 2005, the Company is committed to acquire fixed assets, for
          approximately NIS 114 million (approximately $ 25 million).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | 5) | At
December 31, 2005, the Company is committed to acquire handsets for
          approximately NIS 160 million (approximately $ 35 million).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------

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

| | 7) | The
Company has signed on January 22, 2006, an agreement with MED I.C.- 1           (1999)
Ltd (Med 1) to purchase the transmission business activity of           MED
1, for a consideration of approximately $15 million, subject to certain
          adjustments. The transaction is subject to fulfillment of the closing
          conditions.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Contingent
Liabilities:
| | -- | -----------------------

| | 1) | On
April 8, 2002, a claim was filed against the Company, together with a motion           to
certify this claim as a class action, alleging a variety of consumer
          complaints. The amount of the claim against the Company is estimated at
          approximately NIS 545 million plus additional significant amounts relating to
          other alleged damages. Only preliminary hearings have taken place. The Company
          submitted its response to the amended motion to certify the claim as a class
          action on August 1, 2005. A hearing is scheduled to May 16, 2006.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 25

---

---



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

|NOTE 8 |  | COMMITMENTS
AND CONTINGENCIES(continued):
|------ | - | -----------------------------------------

| | At
this stage, and until the claim is recognized as a class action, the Company and its
legal council are unable to evaluate the probability of success of such claim, and
therefore no provision has been made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition the Company and its legal council are of the opinion that even if the request to
recognize this claim as a class action is granted, and even if the plaintiffs
arguments are accepted, the outcome of the claim will be significantly lower than the
abovementioned amount.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | On
April 13, 2003, a claim was filed against the Company and other cellular
          telecommunication companies, together with a request to recognize this claim as
          a class action, for alleged violation of antitrust law, alleging that no fee
          should have been collected for incoming SMS messages or alternatively, that the
          fee collected is excessive and that it is a result of illegal co-operation
          between the defendants. The amount of the claim against all the defendants is
          estimated at approximately NIS 90 million (or according to the claimants
          response  NIS 100 million per year until 1.3.2005). The Company filed its
          response on October 1, 2003. The claimants have filed their response to the
          Companys response on July 12, 2005. A hearing is scheduled for April 26,
          2006.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, no hearings have taken place and unless and until the claim is recognized as
a class action, the Company and its legal council are unable to evaluate the probability
of success of such claim, and therefore no provision has been made.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | The
Company does not have building permits for many of its cell sites and as a
          result is involved in numerous legal actions (including criminal proceedings
          against officers and directors) relating to this issue.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Most
of these proceedings have been settled under plea bargain arrangements, whereby the
Company has paid fines of insignificant amounts.
| | -----------------------------------------------------------------------------------------------------------------------------------------

| | Management,
based upon current experience and the opinion of legal counsel, does not believe that
these legal actions will result in significant costs to the Company. The accounts do not
include a provision in respect thereof.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | 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. On January 3, 2006, the           National
Council for Planning and Building published an interim decision           conditioning
the issuance of cell site permits by local planning and building           councils upon
indemnification, by the cellular operators, against reduction in           property
value. The Company provided to local authorities 24 letters of           undertaking to
provide such indemnifications for the benefit of the local           authority within 30
days from the enactment of a law or a final court decision           requiring such
indemnifications. Management, based on the opinion of legal           counsel, cannot at
this date, determine the effect, if any, of the above letters           of undertaking on
the financial results and financial position of the Company.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5) | The
Company is a party to various claims arising in the ordinary course of its
          operations. Management, based upon the opinion of its legal counsel, is of the
          opinion that the ultimate resolution of these claims will not have a material
          effect on the financial position of the Company, its result of operations and
          cash flows. The accounts do not include a provision in respect thereof.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 26

---

---



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

|NOTE 9 |  | SHAREHOLDERS EQUITY:
|------ | - | ---------------------

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

| | The
Companys shares are traded on the Tel-Aviv stock exchange (TASE), on the London
Stock Exchange (LSE) and, in the form of American Depository Receipts (ADRs),
each represent one ordinary share, on the NASDAQ National Market (Nasdaq  NM).
During 2001, the Company listed its shares in the TASE according to the dual listing
regulations. On December 31, 2005, the closing price per ADR on the Nasdaq  NM was
$8.41; the Companys shares were quoted on that date on the TASE at NIS 38.73
($8.20).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | On
December 26, 2001, the Company filed a shelf registration statement on Form F-3 with the
United States Securities and Exchange Commission for future offerings of its securities.
Under the shelf registration, the Company can raise up to $400 million from the issue of
ordinary shares and debt securities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
April 20, 2005, the Company repurchased approximately 33.3 million of its shares pursuant
to an offer received from its founding Israeli Shareholders in February 2005. These
shareholders held together approximately 22.5% of the Companys outstanding shares
at the time of the offer. As a result of the repurchase, the collective shareholdings of
the founding Israeli shareholders was reduced to approximately 5.4% of the Companys
issued and outstanding share capital. The price per share at which these shares were
acquired was NIS 32.2216 per share. The shares were cancelled pursuant to the
repurchase. The excess of cost over its par value was charged to accumulated deficit.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Employee stock option plans:
| | -- | ----------------------------

| | 1) | a. | On
March 3, 1999, the Companys Board of Directors approved           an employee
stock option plan (hereafter  the 1998 Plan),           pursuant to
which 5,833,333 ordinary shares were reserved for issuance upon the           exercise of
5,833,333 options to be granted to key employees without           consideration, of
which 729,166 options were later cancelled. Through December           31, 2005  5,505,557
options have been granted pursuant to the 1998 Plan,           of which 4,475,942 options
have been exercised and 597,141 options have been           forfeited (options forfeited
were available for subsequent grants).
| | -- | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
options vest in five equal annual batches over a period of five years from the beginning
of employment of each employee, unless otherwise provided in the grant instrument,
provided the employee is still in the Companys employ. An option not exercised
within 8 years from the date of its allotment shall expire. The exercise price per share
of the options granted through December 31, 2000, which is denominated in dollars, is $
0.343. During 2002, the Company granted options under the 1998 Plan in accordance with
the terms of the 2000 plan, including the exercise price, vesting schedule and expiration
date (see b. below).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2005  195,751 options of the 1998 Plan remain ungranted.
| | ----------------------------------------------------------------------------

F - 27

---

---



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

|NOTE 9 |  | SHAREHOLDERSEQUITY(continued):
|------ | - | -------------------------------

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

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

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

| | Through
December 31, 2005  5,317,555 options were granted pursuant to the 2000 Plan, of
which 2,223,891 options have been exercised, 1,407,833 options were forfeited and 102,250
expired (options forfeited and expired were available for subsequent grants). As of
December 31, 2005  244,820 options of the 2000 Plan remain ungranted.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | On
November 13, 2003, the Companys Board of Directors approved an           amendment
to the terms and provision of the 2000 Plan, in order to adjust the           terms of
the 2000 Plan to comply with new tax legislation that came into force           in
January 2003. On December 2003, the Company offered the employees, who           received
options under the 2000 plan, to exchange their unvested options, with           the same
amount of identical options, under the amended plan and to benefit from           the
capital gains tax route pursuant to Section 102(b)(2) of the           Israeli
Income Tax Ordinance. Employees holding options to purchase 962,104           ordinary
shares accepted this offer.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 30, 2003, the Companys Board of Directors approved the grant of 195,000
options (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. As of December 31, 2005  224,930 options of
the 2003 amended Plan remain ungranted.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | In
July 2004, the Companys Board of Directors approved a stock option           plan
(hereafter  the 2004 Plan), pursuant to which 5,775,000
          ordinary shares were reserved for issuance upon the exercise of 5,775,000
          options to be granted without consideration. The options will be granted to
          employees under the provisions of the capital gains tax route provided
for           in Section 102 of the Israeli Income Tax Ordinance. The options vest in
four           equal annual batches, provided the employee is still in the Companys
          employ. The option holder may exercise all or part of his options at any time
          after the date of vesting but no later than the expiration of the exercise
          period, which will fixed by the Employee Stock Option Committee and will not
          exceed ten years from the date of option grant.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 28

---

---



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

|NOTE 9 |  | SHAREHOLDERSEQUITY (continued):
|------ | - | --------------------------------

| | Through
December 31, 2005  5,614,000 options have been granted to Companys employees
pursuant to the 2004 Plan, of which 257,500 options have been exercised and 500,750
options were forfeited.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2005  661,750 options of the 2004 Plan remain ungranted.
| | ----------------------------------------------------------------------------

| | The
NIS denominated exercise price per share of the options, is equal to the average market
price of the Companys shares for the 30 trading days preceding the day on which the
options are granted, less 15%.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | The
ordinary shares derived from the exercise of the options confer the same           rights
as the other ordinary shares of the Company.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------

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

| | Through
December 31, 2003, the amount that the Company will be allowed to claim as an
expense for tax purposes will be the amount of the benefit taxable in the hands of the
employee.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | From
January 1, 2004, the amount that the Company will be allowed to claim as an expense
for tax purposes, will be the amount of the benefit taxable as work income in the hands
of the employee, while that part of the benefit that is taxable as capital gains in the
hands of the employee shall not be allowable. All the above is subject to the
restrictions specified in Section 102 of the Income Tax Ordinance.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | In
December 2002, the Company signed an agreement with the tax authorities concerning the
tax liabilities of its employees regarding the benefit arising from the options granted
to them. According to the agreement, the individual tax rate on the taxable income
received by the employees in connection with the benefit arising from the options will be
reduced; in 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
agreement applies only to employees who have agreed to participate in the arrangement,
and relates to (1) options that were exercised by December 31, 2002; and/or (2) options
that vest by December 31, 2003 and are exercised by March 31, 2004. In each case, the
Section 102 trustee must have held the options for a period of 24 months from the
date on which they were granted.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 29

---

---



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

|NOTE 9 |  | SHAREHOLDERSEQUITY(continued):
|------ | - | -------------------------------

| | 2) | Following
is a summary of the status of the plans as of December 31, 2003, 2004           and 2005
and the changes therein during the years ended on those dates:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | Year ended December 31
|---------------------------------- | ----------------------
|
|
|
|
|Balance outstanding at beginning   |                       
|of year                            |                       
|Changes during the year:           |                       
|Granted**                          |                       
|Exercised                          |                       
|Forfeited                          |                       
|Expired                            |                       
|                                   |                       
|Balance outstanding at end of year |                       
|                                   |                       
|Options exercisable at end of year |                       
|                                   |                       

| | * | Includes
options under the 1998 Plan, the exercise price of which is weighted based on the
applicable dates NIS  dollar exchange rate.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | ** | Below
market price.
| | -- | -------------------

The following table summarizes
information about options outstanding at December 31, 2005:

|Options outstanding | Options exercisable
|------------------- | -------------------
|
|
|
|
|1.58                |                    
|17.25-22.23         |                    
|26.74               |                    
|27.35               |                    
|30.73-33.72         |                    
|                    |                    
|                    |                    
|                    |                    

F - 30

---

---



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

|NOTE 9 |  | SHAREHOLDERSEQUITY(continued):
|------ | - | -------------------------------

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

| | On
September 13, 2005, the Companys shareholders approved the distribution of a cash
dividend in the amount of NIS 0.57 per share (approximately NIS 86.8 million ($ 18.9
million)) to shareholders on record as of September 26, 2005. On February 1, 2006, the
Companys Board of Directors resolved and recommended the distribution of a cash
dividend in the amount of NIS 0.65 per share (approximately NIS 100 million ($ 22
million)) to shareholders on record as of April 10, 2006. The Dividend payment is subject
to the approval of the Companys shareholders. A cash dividend is paid in Israeli
currency. As to restrictions with respect to cash dividend distributions, see note 5f.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 10 |  | TAXES ON INCOME:
|------- | - | ----------------

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

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

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

| | The
income of the company and its Israeli subsidiaries (other than income from approved
enterprises, see c. below) 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 2004 and thereafter are as follows: 2004  35%, 2005 34%, 2006  31%,
2007  29%, 2008  27%, 2009  26% and for 2010 and thereafter  25%.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
a result of the changes in the tax rates, the company adjusted  in each of the
years 2004 and 2005  at the time the aforementioned amendments were made, its
deferred tax balances, in accordance with the tax rates expected to be in effect in the
coming years; the effect of the change has been carried to income on a current basis.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | At
December 31, 2005, the Group had carryforward losses of approximately NIS 111
million (approximately $ 24 million). The carryforward tax losses are linked to the
Israeli CPI and can be utilized indefinitely.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 31

---

---



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

|NOTE 10 |  | TAXES ON INCOME(continued):
|------- | - | ---------------------------

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

| | The
major components of the net deferred tax asset, current and non-current, in respect of
the balances of temporary differences and the related valuation allowance as of December
31, 2004 and 2005, are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | December 31
| |  | -----------
|
|
|
|
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            

| | The
changes in the valuation allowance for the years ended December 31, 2003, 2004, and 2005,
are as follows:
| | -------------------------------------------------------------------------------------------------------------

| |  | 2003 | 2004                         | 2005 | 2005
| |  | ---- | ---------------------------- | ---- | ----
|
|
|
|
| |  |      | Balance at beginning of year |      |     
| |  |      | Utilization during the year  |      |     
| |  |      | Change during the year       |      |     
| |  |      |                              |      |     
| |  |      | Balance at end of year       |      |     
| |  |      |                              |      |     

| | During
2004 and 2005, the Company utilized approximately NIS 700 million and approximately NIS
549 million ($ 119 million) of its carryforward tax losses, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2005, the Company would require approximately NIS 98 million of future
taxable income in order to fully realize the carryforward tax losses assets.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
full valuation allowance was provided in respect of the wholly owned subsidiary, as it is
more likely than not that its deferred tax assets will not be realized.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 32

---

---



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

|NOTE 10 |  | TAXES ON INCOME(continued):
|------- | - | ---------------------------

| | e. | Following
is a reconciliation of the theoretical tax expense, assuming all           income is
taxed at the regular tax rates applicable to companies in Israel (see           b.
above), and the actual tax expense:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Year ended December 31
| |  | ----------------------
|
|
|
|
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       

| | f. | Tax
assessments:
| | -- | ----------------

| | 1) | The
Company has received final assessment through the year ended           December 31,
2001.
| | -- | ---------------------------------------------------------------------------------------------

| | 2) | The
subsidiary has not been assessed for tax purposes since incorporation.
| | -- | --------------------------------------------------------------------------

|NOTE 11 |  | LIABILITIES SECURED BY PLEDGES AND RESTRICTIONS PLACED IN RESPECT OF LIABILITIES
|------- | - | --------------------------------------------------------------------------------

| | At
December 31, 2005, balances of liabilities of the Company in the amount of NIS 696
million ($ 151 million) under the Companys credit facility are pledged as a
collateral by a first ranking floating charge on all of the Companys current or
future business, property, rights and assets, other than the its license. The Company has
also undertaken under the credit facility not to create or permit to subsist any further
charges on its assets, with certain limited exceptions.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 33

---

---



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

|NOTE 12 |  | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
|------- | - | ------------------------------------------

| | a. | Linkage of monetary balances:
| | -- | -----------------------------

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

| |  | December 31, 2005
| |  | -----------------
|
|
|
|
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  

| | 2) | Data
regarding the dollar exchange rate and the Israeli CPI:
| | -- | ------------------------------------------------------------

| |  | Exchangerate of onedollar | IsraeliCPI*                         
| |  | ------------------------- | ------------------------------------
|
|
|
|
| |  |                           | At December 31:                     
| |  |                           | 2005                                
| |  |                           | 2004                                
| |  |                           | 2003                                
| |  |                           | 2002                                
| |  |                           | Increase (decrease) during the year:
| |  |                           | 2005                                
| |  |                           | 2004                                
| |  |                           | 2003                                

| | * | Based
on the index for the month ending on each balance sheet date, on the basis of 1993
average = 100.
| | - | -------------------------------------------------------------------------------------------------------

F - 34

---

---



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

|NOTE 12 |  | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT(continued):
|------- | - | -----------------------------------------------------

| | b. | Derivative
financial instrument  foreign exchange risk management
| | -- | ------------------------------------------------------------------

| | The
Company enters into foreign currency derivative transactions in order to protect itself
against the risk that the eventual dollar cash flows resulting from the anticipated
payments in respect of purchases of handsets and capital expenditures in foreign currency
will be affected by changes in exchange rates. In addition the Company enters into
derivative transactions in order to protect itself against the increase in the CPI in
respect of the principal of the CPI-linked Notes payable. However, these contracts do not
qualify for hedge accounting under FAS 133.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | As
the counterparties to the derivatives are Israeli banks, the Company considers the
inherent credit risks remote.
| | -------------------------------------------------------------------------------------------------------------------

| | The
notional amounts of foreign currency derivatives as of December 31, 2004 and 2005 are as
follows:
| | -----------------------------------------------------------------------------------------------------

| |  | December 31
| |  | -----------
|
|
|
|
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            

| | * | On
August 2004, the Company entered into a forward transaction that hedged the Notes payable
principal ($ 175 million) until August 2005.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | The
derivative financial instruments are for a period of up to one year. As of December 31,
2005, the remaining contractual lives are for periods up to one year.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 35

---

---



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

|NOTE 12 |  | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT(continued):
|------- | - | -----------------------------------------------------

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

| | The
financial instruments of the Company as of December 31, 2005 consist mainly of
non-derivative assets and liabilities (items included in working capital and long-term
liabilities); the Company also has some derivatives, which are presented at their fair
value.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
view of their nature, the fair value of the financial instruments included in working
capital is usually identical or close to their carrying value. The fair value of
long-term loans approximates the carrying value, since they bear interest at rates close
to the prevailing market rates. Regarding the fair value of Notes payable see note 6.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of derivatives as of December 31, 2005, is a liability of approximately NIS 7
million (approximately $1.5 million) and an asset of approximately NIS 5.1 million
(approximately $1.1 million) (December 31, 2004  a liability of approximately NIS
55.3 million).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 13 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
|------- | - | ----------------------------------------------

| | a. | Accounts
receivable:
| | -- | --------------------

| |  | December 31
| |  | -----------
|
|
|
|
| |  |            
| |  |            
| |  |            
| |  |            

| | * | Long-term
trade receivables (including current maturities) as of December 31, 2004 and 2005 in the
amount of NIS 184,706,000 and NIS 406,072,000 ($ 88,219,000), respectively, bear no
interest. These balances are in respect of handsets sold in installments (mostly 36
monthly payments).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income
in respect of deferred interest is the difference between the original and the present
value of the trade receivable. The current amount is computed on the basis of the
interest rate relevant to the date of the transaction (5%  5.4%) (2004  5%
5.9%).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Allowance
for doubtful accounts. The changes in the allowance for the years           ended
December 31, 2003, 2004, and 2005, are as follows:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------

| |  | 2003 | 2004                         | 2005 | 2005
| |  | ---- | ---------------------------- | ---- | ----
|
|
|
|
| |  |      | Balance at beginning of year |      |     
| |  |      | Utilization during the year  |      |     
| |  |      | Change during the year       |      |     
| |  |      |                              |      |     
| |  |      | Balance at end of year       |      |     
| |  |      |                              |      |     

F - 36

---

---



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

|NOTE 13 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION(continued):
|------- | - | ---------------------------------------------------------

| | 2) | Other:
| | -- | ------

| |  | December 31
| |  | -----------
|
|
|
|
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            

| | b. | Accounts
payable and accruals  other:
| | -- | --------------------------------------

| |  | December 31
| |  | -----------
|
|
|
|
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            

| | c. | Provision
for warranty  the changes in the provision for warranty for the           years
ended December 31, 2003, 2004, and 2005, are as follows:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 2003 | 2004                          | 2005 | 2005
| |  | ---- | ----------------------------- | ---- | ----
|
|
|
|
| |  |      | Balance at beginning of year  |      |     
| |  |      | Product warranties issued for |      |     
| |  |      | new sales                     |      |     
| |  |      | Utilization during the year   |      |     
| |  |      |                               |      |     
| |  |      | Balance at end of year        |      |     
| |  |      |                               |      |     

F - 37

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

|NOTE 13 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION(continued):
|------- | - | ---------------------------------------------------------

| | d. | Other
liabilities:
| | -- | ------------------

| | 1. | Asset
retirement obligations  the changes in the asset retirement           obligations
for the years ended December 31, 2003, 2004 and 2005, are as           follows:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 2003 | 2004                      | 2005 | 2005
| |  | ---- | ------------------------- | ---- | ----
|
|
|
|
| |  |      | Balance at January 1,     |      |     
| |  |      | Liability incurred        |      |     
| |  |      | during the year           |      |     
| |  |      | Liability settled during  |      |     
| |  |      | the year                  |      |     
| |  |      | Accretion expenses        |      |     
| |  |      | Revision in the estimates |      |     
| |  |      | during the year           |      |     
| |  |      |                           |      |     
| |  |      | Balance at December 31,   |      |     
| |  |      |                           |      |     

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

| |  | December 31, 2005
| |  | -----------------
|
|
|
|
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  
| |  |                  

| | The
lease is linked to the US dollar and bears interest at the rate of 5.75%. The lease (net
of current maturities) mature in the following years after the balance sheet dates:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | December 31
| |  | -----------
|
|
|
|
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            

F - 38

---

---



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

|NOTE 13 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION(continued):
|------- | - | ---------------------------------------------------------

| | e. | Financial
expenses, net:
| | -- | ------------------------

| |  | Year ended December 31
| |  | ----------------------
|
|
|
|
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       

| | f. | Diluted
EPS
| | -- | -----------

| | Following
are data relating to the net income and the weighted average number of shares that were
taken into account in computing the basic and diluted EPS:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | Year ended December 31
|----------------------------------------- | ----------------------
|
|
|
|
|Net income used for the computation of    |                       
|basic and diluted EPS  (in thousands)     |                       
|                                          |                       
|Weighted average number of shares used    |                       
|in computation of basic EPS               |                       
|Add - net additional shares from assumed  |                       
|exercise of employee stock options        |                       
|                                          |                       
|Weighted average number of shares used in |                       
|computation of diluted EPS                |                       
|                                          |                       

F - 39

---

---



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

|NOTE 14 |  | TRANSACTIONS AND BALANCES WITH RELATED PARTIES:
|------- | - | -----------------------------------------------

| | a. | Transactions
with related parties:
| | -- | ----------------------------------

| |  | Year ended December 31
| |  | ----------------------
|
|
|
|
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       
| |  |                       

| | As
to the repurchase of Companys share, see note 9a. The transactions are carried out
in the ordinary course of business. Management believes that such transactions were
carried out under normal market conditions.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Balances
with related parties:
| | -- | ------------------------------

| |  | December 31
| |  | -----------
|
|
|
|
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            
| |  |            

| | c. | Cost
sharing agreement
| | -- | ----------------------

| | The
Company entered, on August 15, 2002, into a Cost Sharing Agreement (the Agreement)
with Hutchison Telecommunications Limited, or HTL, and certain of its subsidiaries
(hereafter -the Hutchison group). The principal purpose of the Agreement is
to regulate the sharing of costs associated with various joint procurement and
development activities relating to the roll out and operation of a 3G Business.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Agreement sets out the basis upon which expenses and liabilities are paid or discharged
by the Hutchison group companies in connection with the joint procurement or development
activities. Under the Agreement, the Company has the right to decide, and give notice of,
which of the joint projects it wishes to participate in. As of December 31, 2005, the
Company had given notice of its participation in 7 projects. The Companys expected
share in these projects in financial terms (including its share of joint expenses and
liabilities) is not material.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 15 |  | UNAUDITED SUBSEQUENT EVENT:
|------- | - | ---------------------------

On April 4, 2006, a claim was filed
against the Company, together with a motion requesting certification as a class action,
alleging a variety of customer complaints relating primarily to alleged breach of one of
the Companys tariff plan and the termination of such plan as well as the amendment of
the terms of other tariff plans. The amount of the claim, should the claim is certified
as a class action, is approximately NIS 18.9 million for all customers subscribed to six
tariff plans which Partner allegedly changed during the last seven years. The Company is
currently preparing their response to this motion.

At this stage,  no hearings  have
taken place,  and unless and until the claim is  recognized  as a class action, the
 Company  and its legal  counsel  are unable to  evaluate  the  probability  of success
 of such  claim,  and therefore no provision has been made.

F - 40

---

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# SIGNATURES

The
Company hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.

| |  | Partner Communications Company Ltd.BY: /S/ Alan Gelman
Alan GelmanChief Financial Officer
May 18, 2006
| |  | --------------------------------------------------------------------------------------------------------------------

| |  | BY: /S/ Amikam Cohen
Amikam CohenChief Executive Officer
May 18, 2006
| |  | -----------------------------------------------------------------------------------



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