---

---



As
filed with the Securities and Exchange Commission on May 6, 2008

# UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

# FORM 20-F

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

OR

|x | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2007
|- | --------------------------------------------------------------------------------------------------------------------------------

OR

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

OR

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

# PARTNER COMMUNICATIONS
COMPANY LTD.

(Exact Name of Registrant as Specified in its Charter)

ISRAEL

(Jurisdiction of
Incorporation or Organization)

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

(Address of Principal
Executive Offices)

Roly Klinger

ExecutiveOffices@orange.co.il

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

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

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

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



---

---

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

NONE

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

NONE

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

|                                 |            
|-------------------------------- | -----------
|
|
|
|
|ORDINARY SHARES OF NIS 0.01 EACH | 157,320,770
|                                 |            

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

YES x NO o

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

YES o NO 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 x NO o

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

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

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

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

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

ITEM 17 o ITEM 18 x

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

YES o NO x

2

---

---

# TABLE OF CONTENTS

|                                                                                      |   
|------------------------------------------------------------------------------------- | --
|
|
|
|
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                         | 5 
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                       | 5 
|ITEM 3. KEY INFORMATION                                                               | 5 
|ITEM 4. INFORMATION ON THE COMPANY                                                    | 22
|ITEM 4A. UNRESOLVED STAFF COMMENTS                                                    | 46
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  | 46
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    | 58
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             | 73
|ITEM 8. FINANCIAL INFORMATION                                                         | 76
|ITEM 9. THE OFFER AND LISTING                                                         | 77
|ITEM 10. ADDITIONAL INFORMATION                                                       | 79
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 88
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 89
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 90
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 90
|ITEM 15. CONTROLS AND PROCEDURES                                                      | 90
|ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            | 91
|ITEM 16B. CODE OF ETHICS                                                              | 91
|ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      | 91
|ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  | 92
|ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      | 92
|ITEM 17. FINANCIAL STATEMENTS                                                         | 92
|ITEM 18. FINANCIAL STATEMENTS                                                         | 92
|ITEM 19. EXHIBITS                                                                     | 93
|GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS                                         | 95
|                                                                                      |   

3

---

---

# INTRODUCTION

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

In
this document, references to $, US$, US dollars and
dollars are to United States dollars and references to NIS and
shekels are to New Israeli Shekels. This annual report contains translations
of NIS amounts into US dollars at specified rates solely for the convenience of the
reader. No representation is made that the amounts referred to in this annual report as
convenience translations could have been or could be converted from NIS into US dollars at
these rates, at any particular rate or at all. The translations of NIS amounts into US
dollars appearing throughout this annual report have been made at the representative
exchange rate on December 31, 2007 of NIS 3.846 = US$1.00 as published by the Bank of
Israel, unless otherwise specified. In particular, the convenience
translations of the nominal New Israel Shekel (NIS) figures into US Dollars in the
discussion under Item 5D. Trend Information  First quarter of 2008 were
made at the rate of exchange on March 31, 2008, of US $1.00 = NIS 3.553. See Item 3A. Key Information  Selected
Financial Data  Exchange Rate Data.

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

# FORWARD-LOOKING
STATEMENTS

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

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

4

---

---

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

Not
applicable.

# ITEM 2. OFFER STATISTICS
AND EXPECTED TIMETABLE

Not
applicable.

# ITEM 3. KEY INFORMATION

# 3A. Selected Financial
Data

The
following table sets forth our selected financial data as at and for each of the years in
the five-year period ended December 31, 2007 prepared in accordance with US GAAP. The
selected financial data for each of the years in the three-year period ended December 31,
2007, and at December 31, 2007 and 2006, 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, 2004 and 2003 and at December 31, 2005, 2004 and 2003 are
derived from our audited financial statements not appearing in this annual report. The
selected financial data set forth below should be read in conjunction with Item 5.
Operating and Financial Review and Prospects and the financial statements and notes
thereto included elsewhere in this annual report.

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

5

---

---

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

6

---

---

|(1) | The
translations of NIS amounts into US dollars appearing throughout this annual
               report have been made at the representative exchange rate on December 31,
2007                of NIS 3.846 = US$1.00 as published by the Bank of Israel, unless
otherwise                specified. See Item 3A. Key Information  Selected
Financial Data                 Exchange Rate Data.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

|(1) | The
translations of NIS amounts into US dollars appearing throughout this annual
               report have been made at the representative exchange rate on December 31,
2007                of NIS 3.846 = US$1.00 as published by the Bank of Israel, unless
otherwise                specified. See Item 3A. Key Information  Selected
Financial Data                 Exchange Rate Data.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(**) | Excluding
provision for tax expenses
|---- | ------------------------------------

7

---

---

|                                                                    | 2005 | 2006 | 2007
|------------------------------------------------------------------- | ---- | ---- | ----
|
|
|
|
|Industry Data                                                       |      |      |     
|                                                                    |      |     
|Estimated population of Israel (in thousands) (1)                   |      |      |     
|Estimated Israeli cellular telephone subscribers (in thousands) (2) |      |      |     
|Estimated Israeli cellular telephone penetration (3)                |      |      |     
|                                                                    |      |      |     

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

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

|(2) | We
have estimated the total number of Israeli cellular telephone subscribers
               from information contained in published reports issued by, and public
statements                made by, Pelephone Communications Ltd., or Pelephone,
and Cellcom Israel                Ltd., or Cellcom, or by their shareholders and from
Partner subscriber data at                December 31, 2005, 2006 and 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(4) | In
accordance with general practice in the cellular telephone industry, we use
               the term subscriber, unless the context otherwise requires, to
               indicate a telephone or a data or video device, rather than either a
bill-paying                network customer, who may have a number of telephones
connected to the network,                or a cellular telephone user who may share a
single telephone with a number of                other users. Subscriber includes
our pre-paid customers. As of                January 2008, a prepaid subscriber has been,
and will continue to be, recognized                as such only following the actual use
of his prepaid SIM card. References to the                number of subscribers are
stated net of subscribers who leave or are                disconnected from the network,
or who have not generated revenue for the Company                for a period of over six
consecutive months ending at a reporting date.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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. This includes
subscribers who have                generated minute revenues only from incoming
calls directed to their voice                mail.  Involuntary churn includes
disconnections due to non-payment of                bills or suspected fraudulent use,
and voluntary churn includes disconnections                due to subscribers terminating
their use of our services.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

---

---

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

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

Exchange Rate Data

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

| |               | 2003 | 2004 | 2005 | 2006  | 2007
| | ------------- | ---- | ---- | ---- | ----- | ----
|
|
|
|
| | Average(1)    |      |      |      | 4.512 |     
| | High          |      |      |      | 4.924 |     
| | Low           |      |      |      | 4.283 |     
| | End of period |      |      |      | 4.379 |     

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

| |      | November
2007 | December
2007 | January
2008 | February
2008 | March
2008 | April
2008
| | ---- | ------------- | ------------- | ------------ | ------------- | ---------- | ----------
|
|
|
|
| | High |               |               |              | 3.969         |            |           
| | Low  |               |               |              | 3.830         |            |           

On May 2, 2008, the exchange rate
was NIS 3.4500 per US$1.00 as published by the Bank of Israel. Changes in the exchange
rate between the shekel and the US dollar could materially affect our financial results.

# 3B. Capitalization and
Indebtedness

Not
applicable.

3C.
          Reasons for the Offer and Use of Proceeds

Not
applicable.

# 3D. Risk Factors

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

# RISKS RELATING TO THE
REGULATION OF OUR INDUSTRY

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

We
are subject to government regulation regarding a broad range of issues in the
telecommunications industry, such as interconnect tariffs, roaming charges and other
billing and customer service matters; the construction and maintenance of antennas and
other network infrastructure; providing infrastructure access to existing or new
telecommunications services providers; frequency allocation; limitations or other
constraints on the services and products that we may sell; the terms and conditions of our
subscriber agreements; and obligations under our operating license. As further described
below, these regulations impose substantial limitations on our flexibility in managing our
business, and may increase our costs, decrease our revenues and reduce our ability to
expand our business. As a result, industry regulation has had in the past, and may in the
future have, a material adverse effect on our business and results of operations. In
addition, new laws, regulations or government policies, or changes in current regulations,
may be adopted or implemented in a manner which damages our business and operating
results, and announcements by the government, telecommunications operators or others of
changes or other developments in applicable regulations may have a negative impact on the
market value of our shares. For information regarding the principal regulations and
regulatory developments affecting our business, see Item 4B. Business Overview
 Regulation.

9

---

---

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

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

The
Ministry of Communications has reduced mandated call interconnect tariffs from NIS 0.50
per minute in the beginning of 2003 to NIS 0.22 per minute as of the date of this Annual
Report, and SMS interconnect tariffs from NIS 0.38 in May 2004 to NIS 0.025 as of the date
of this Annual Report. These tariffs, which exclude value added tax (VAT), were adjusted
by the Ministry of Communications each March to reflect changes in the Israeli Consumer
Price Index (CPI). Although we have implemented cost-cutting measures as well
as price increases and repackaging of our tariff plans in response to these tariff
reductions, the regulatory changes imposing tariff reductions negatively impacted our
revenues and profits.

Interconnect
tariffs  further possible regulatory developments.The Ministry of
Communications may further examine interconnect tariffs and as a result may further reduce
these tariffs, which may adversely affect our revenues and profits. A publicly appointed
commission (the Grunau Committee) recommended the further examination of this issue, and,
in addition, the Ministry of Communications has indicated that it intends to start
implementing a process to unify rates for calls terminating both on and off an
operators network, which may limit or eliminate our ability to pass on to our
customers the charges we bear when our customers calls must be transmitted into the
network of another telecommunications services provider in order to reach the intended
party. Preliminary hearings with cellular operators in Israel on this matter commenced in
August 2005, but have been suspended and are expected to be resumed in 2008. This change
in regulations, if implemented, could adversely affect our revenues and profits.

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

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

The
Ministry of Communications has declared its intention to evaluate roaming charges. As a
result of this evaluation, new regulations may be implemented that would limit fees
charged by Israeli cellular companies for calls made by foreign network operators
subscribers while in Israel using our network as well as for calls made by our own
subscribers using their handsets abroad.

Following
European regulation of roaming tariffs, which reduced tariffs for calls made by members of
the European Union (EU) among themselves, a few of the EU member operators have raised
roaming tariffs for calls to and from non-EU member operators, resulting in higher roaming
tariffs for our subscribers. In addition, a recommendation published in March 2008 by a
public commission (the Grunau Committee) appointed by the Ministry of Communications
recommends that the government negotiate a reduction of inbound and outbound roaming
tariffs with the EU and/or members of the EU or countries frequently visited by
Israelis.

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

We
rely on agreements to provide roaming capability to our subscribers in many areas outside
Israel. However, we cannot control the quality of the service that they provide and it may
be inferior to the quality of service that we provide. Equally, our subscribers may not be
able to use some of the advanced features that they enjoy when making calls on our
network. Some of our competitors may be able to obtain lower roaming rates than we do
because they may have larger call volumes or because of their affiliations with other
international cellular operators. If our competitors providers can deliver a higher
quality or a more cost effective roaming service, then subscribers may migrate to those
competitors and our results of operations could be adversely affected. Further, we may not
be able to compel providers to participate in our technology migration and enhancement
strategies. As a result, our ability to implement technological innovations could be
adversely affected if these overseas providers are unable or unwilling to cooperate with
the further development of our network or if they cease to provide services comparable to
those we offer on our network.

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

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

For
the reasons described in further detail below, we have had difficulties obtaining some of
the building and environmental permits required for the erection and operation of our
network sites. As of December 31, 2007, approximately 10% of our network sites were
operating without local building permits or applicable exemptions, although a substantial
portion of these sites are microsites whose removal or repositioning would involve
relatively low costs and little change in our network capacity.

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

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

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

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Uncertainties
regarding the validity of exemptions for wireless access devices.In addition, Partner
set up several hundred small communications devices, called wireless access devices,
pursuant to a provision in the Communications Law (Telecommunications and
Broadcasting), 1982, which exempts such devices from the need to obtain a
building permit. Recently, a claim was raised that the exemption does not apply to
cellular communications devices and the matter reached first instance courts a number
of times, resulting in conflicting decisions. A pending appeal is yet to be decided.
Should a definitive judgment hold that the exemption does not apply to cellular devices,
Partner may be required to remove the existing devices and would not be able to install
new ones on the basis of the exemption. This claim is included in an application to
certify a class action claim filed against the three principal cellular telephone
operators.

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

Uncertainties
regarding requirements for repeaters and other small devices.We, like the other
cellular telephone operators in Israel, provide repeaters, also known as bi-directional
amplifiers, to subscribers seeking an interim solution to weak signal reception within
specific indoor locations. As part of our transmission network, we also deploy and operate
a small number of microwave links. In light of the lack of a clear policy of the local
planning and building authorities, and in light of the practice of the other cellular
telephone operators, we have not requested permits under the Planning and Building Law for
the repeaters. We have received an approval to connect the repeaters to our communications
network, however, from the Ministry of Communications. 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 levels of emission comparable to those of 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.

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

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

In
addition, a current draft of regulations under the Non-Ionizing Radiation Law, 2006 that
has not yet become effective, includes provisions according to which the exemption for
wireless access devices is to be cancelled. If these proposed regulations become
effective, then we, like our competitors, will no longer be able to rely on the exemption
for wireless access devices and will need to obtain building permits for wireless access
devices, as is currently required for network sites. We therefore will experience the same
difficulties as we currently face when applying for building permits.

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

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

Between
January 2006 and March 31, 2008, we have provided local authorities with 265
indemnification undertakings. These indemnifications expose us to risks which are
difficult to quantify or mitigate and which may have a material adverse effect on our
financial conditions and results of operations, if we are required to make substantial
payments in connection therewith.

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

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

There
have been a number of attempts by local planning committees to join cellular telephone
operators as defendants in claims against such committees for the depreciation in value of
nearby properties as a result of the erection of network sites. If the local planning
committees succeed in including cellular phone operators in these actions, it may expose
us to significant liability and have a material adverse effect on our financial condition
and results of operation. In two such actions, we were included as defendants, however we
do not believe that these actions expose us to significant liability. For more
information, see Item 8. Financial Information  Legal and Administrative
Proceedings.

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

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

Under both the Communications Law (Telecommunications and Broadcasting), 1982, and our
operating license, the Ministry of Communications has the power to require us, like the
other telephone operators in Israel, to offer access to our network infrastructure to
other operators. The Grunau Committee, a public commission that was formed by the Ministry
of Communications and published its recommendations in March 2008, recommended
accelerating the regulatory process required for the entry of MVNOs into the mobile
telecommunications market. See Item 4B: Business Overview  Regulation 
Regulatory Developments.

We
believe providing access to our network would require additional statutory and regulatory
action to establish inter-operator relationships, including with respect to rates.
However, if such action is taken, access to our network 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 set those tariffs. If the Ministry of Communications sets those tariffs
too low, this may adversely affect our financial condition. 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 and/or causing price
erosion and adversely affecting our financial results and condition.

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

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

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

In
addition, there are demands from different third parties to rearrange the current spectrum
allocation in Israel and the Palestinian Administered Areas, particularly of the 900 Mhz
frequencies, and also to allocate additional frequencies for the use of other mobile
operators in the Palestinian Administered Areas, as well as additional frequencies for
mobile operators, including WiMAX operators, which we may need for our next generation GSM
technology such as LTE.

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If
such a frequency rearrangement takes place, then the spectrum that we may need for our
next generation GSM technology may not be available for us, or the spectrum that has been
allocated to us for use on an exclusive basis may also be allocated to another operator in
the Palestinian Administered Areas, or we may be required to terminate the use of part of
our existing spectrum, which might be replaced by an allocation of a new band of spectrum
that may be of inferior quality.

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

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

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

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. As
indicated above difficulties in connection with obtaining building and other permits
required for our network infrastructure may prevent us from achieving or maintaining the
network coverage and quality requirements contained in our license. We have provided a
bank guarantee to the Ministry of Communications in the amount of US$10 million to
guarantee our performance under our license. If we are found to be in material breach of
our license, the guarantee may be forfeited and our license may be revoked. In addition,
the Ministry of Communications is authorized to levy significant fines on us for breaches
of our licenses which could have a material adverse effect on our financial condition or
results of operations.

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

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

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

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

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

InMarch 2005, the Telecommunications Law was amended to require the Minister
of Communications to implement a mobile number portability plan by September 2006. The
number portability plan permits subscribers in Israel to change their service provider to
another service provider while retaining the same telephone number. The mandated number
portability plan was launched by all telecommunications operators in December 2007.

We
expect that number portability will increase churn rates and may increase subscriber
acquisition and retention costs and tariff erosion. However, we cannot be sure how
implementation of number portability will affect the overall functioning of our network
and billing systems. These developments may have a material adverse effect on our business
and on the overall functioning of our network and IT system.

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

# RISKS RELATING TO OUR
BUSINESS OPERATIONS

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

A
number of studies have been conducted to examine the health effects of wireless phone use
and network sites, and some of these studies have been construed as indicating that
radiation from wireless phone use causes adverse health effects. Media reports
have suggested that radio frequency emissions from network sites, wireless handsets and
other mobile telecommunication devices may raise various health concerns 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 manufacturers of these handsets and do not perform
independent inspections of the SAR levels of these handsets. As the manufacturers
approvals refer to a prototype handset, we have no information as to the actual level of
SAR of the handsets along the lifecycle of the handsets, including in the case of handset
repair.

Several
lawsuits have been filed outside of Israel against operators and other participants in the
wireless industry alleging adverse health effects and other claims relating to radio
frequency transmissions to and from 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. The
perception of increased health risks related to network sites may cause us increased
difficulty in obtaining leases for new network site locations or renewing leases for
existing locations. If it is ever determined 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
and reduced usage per subscriber.

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

Competition
with existing cellular service providers.We compete primarily with Cellcom, Pelephone
and MIRS, the other cellular telephone network operators in Israel. In 2006, Cellcom
expanded its UMTS/ High Speed Downlink Packet Technology (HSDPA) and in 2008
launched its HSUPA service, and Pelephone, which currently uses CDMA-1x real time
technology (RTT) as well as Evolution Data Optimized (EVDO), began
in 2007 to roll out a UMTS/HSXPA network. Introduction of additional UMTS/HSXPA technology
might decrease our competitive advantage and might adversely affect our financial results
and conditions.

Cellcom
is an Israeli corporation that is part of the IDB group, a large Israeli conglomerate with
holdings in subsidiary companies that operate in many different markets in Israel including the Israeli communications
market providing high speed internet, international telephone services and wireline and
land line communications services. In May 2008, the IDB group acquired through one of
these subsidiaries a 15% holding in HOT Cable Communications System Ltd (HOT), a cable pay
television operator. This transaction is still subject to certain conditions and approvals
including the approval of the antitrust commissioner. Due to the IDB
groups strong position in Israel, we believe that in some cases we have experienced
and may further experience the loss of business subscribers who are affiliates of the IDB
group or do business with the IDB group, and who transfer their cellular business to
Cellcom.

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Because
of the ease of switching between mobile operators, we have already faced and may continue
to face an increase in our churn rate and may be required to increase our customer
retention costs, including subsidies towards upgrades of subscribers handsets, in
order to retain our subscribers. In addition, the introduction of mobile number
portability at the end of 2007 has further facilitated the switching of subscribers
between mobile operators and has increased and may further increase our churn rate and
customer acquisition and retention costs and cause tariff erosion. These developments may
adversely affect our market share, financial condition and results of operations.

Land-line
competition. To the extent that land-line telephones are used instead of mobile
telephones, we also compete with Bezeq, the incumbent land-line operator in Israel, HOT,
the cable television operator in Israel, and other land-line operators. In 2004, Bezeq
completed its acquisition of 100% of the shares of Pelephone, which may enable Pelephone
and Bezeq to offer bundled services of land-line, mobile telephone and other
telecommunication services, subject to regulatory approval. In the future other holders of
licenses to provide land-line telephone services may enter the mobile telecommunications
services market and increase the level of competition we face.

In
January 2007, we received a license for the provision of domestic land-line services which
enables us to offer land-line services to subscribers. We may, however, be at a
competitive disadvantage relative to operators who may be able to offer bundled services
of land-line, mobile telephone and other communications services, using their wholly or
partially owned infrastructure.

We
may also face competition from additional land-line operators, if additional land-line
licenses are granted. As part of our land-line telephony license, the Ministry of
Communications granted us the right to offer Voice Over Broadband (VOB)
services using the infrastructure of Bezeq and HOT to access customers and to provide them
with land-line telephony service without any payment to the infrastructure owner. However,
we do not know how successful we will be in competing against currently established or
potential future land-line service providers that, in addition to telecommunications
services provided through their wholly or partially owned land-line infrastructure, will
also offer mobile telecommunications services. As a result of these developments in the
competitive environment, we may experience increased costs to attract and retain
subscribers, further downward pressure on tariffs and loss of market share.

Ministry
studies to introduce new competitors and enhance competition.In 2007, the Ministry of
Communications engaged NERA, an international consulting firm, to review the level of
competition in Israels mobile market and to review whether to allow the entry of new
operators including MVNO operators in the Israeli telecommunications market. Based on the
findings of their review, of which only some portions have been made public, the Ministry
of Communications may decide to grant licenses to MVNOs, who may be entitled to use
Partners or other mobile operators infrastructure to offer mobile telephone
services.

In
2006, the Ministry of Communications appointed a public commission, the Grunau Committee,
to review various issues in the Israeli communications market. The commission published
its recommendations in March 2008, and its recommendations included: to accelerate the
procedures necessary to allow the entry of MVNOs and additional infrastructure based
operators to the mobile market; to publish a WiMAX frequencies tender for mobile use; to
examine interconnect fees and further revise them accordingly, during 2009; to regulate
charges for cellular-originated international calls and subject to such regulation, to
allow cellular operators to enter the international long distance market; and to
prohibit a linkage between a cellular services transaction and a handset purchase
transaction. The commission further recommended the unbundling of Bezeqs network to
be followed by reducing some of the restrictions with respect to offering integrated
packages of services currently imposed on Bezeq and its subsidiaries.

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

WiMAX
licenses.During 2007 the Ministry of Communications published a draft policy with
regard to Worldwide Interoperability for Microwave Access (WiMAX) spectrum
licenses for the provision of cellular and land-line services to existing and future
communication service providers. The Ministry of Communications also stated that it
intended to promote competition in the cellular market by potentially granting preferences
to existing telecommunication service providers in this regard. Cellular WiMAX is a
competitive technology to HSDPA and Long Term Evolution (LTE), which are the
next generation of GSM technologies. Granting WiMAX licenses to new operators or to any of
our competitors and not to us might offer them a competitive advantage and adversely
affect our business. Furthermore, if the Ministry of Communications allocates to new WiMAX
operators frequencies which we may need for our next GSM generation technology, this may
impair our ability to compete.

Telecommunications
industry consolidation.There are two major groups in the Israeli
telecommunications market that currently operate a wide range of telecommunications
services, including mobile, fixed-line, data transmission and internet.  One of the
groups also offers multichannel pay-TV services and therefore already possesses a full
range of telecommunications businesses within the group. Subject to legal restrictions,
the group can offer full packages of bundled services. The other telecommunications group
may further develop its telecommunications portfolio by acquisitions of additional
businesses in order to also be able to offer a complete range of telecommunications
services. Such developments could substantially affect our position in the Israeli
telecommunications market, in particular, by attracting a broad range of
telecommunications subscribers to one or two full-service telecommunications groups, as
well as by permitting such a group or groups to apply substantial pressure on market
prices for selected sectors.  If such developments were to occur, our business and
results of operations could be materially adversely affected.

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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 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 2007 was approximately 7.2 million. According to a recent report
issued by a research company, at December 31, 2007, Israels mobile telephone market
penetration is estimated to be approximately 125%. 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. While in the past our revenue growth has
largely resulted from growth in the overall market, our future revenues will depend
significantly on our ability to retain existing subscribers and to attract subscribers
from the other mobile telephone network operators as well as on our ability to generate
higher revenues from existing subscribers.

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

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

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

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

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

In
addition to a number of legal and administrative proceedings arising in the ordinary
course of our business, we have been named as defendants in a number of civil and criminal
proceedings related to our network infrastructure, which may result in civil liabilities
or criminal penalties against us or our officers and directors, and consumer claims
regarding, for example, our tariff plans and billing methods, which may result in
significant monetary damages and civil penalties. See Item 8. Financial Information
 Legal and Administrative Proceedings. Plaintiffs in some of these proceedings
are seeking certification as class actions. Unless and until any of these claims is
recognized as a class action, we and our legal counsel are unable to evaluate the
probability of success of such claim, or the range of potential loss, with any degree of
certainty, and therefore no provision has been made.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We
hedge a portion of our foreign currency commitments. As of December 31, 2007, the notional
amounts of our foreign currency derivatives were approximately US$93 million. Our
derivative transactions are mainly designed to hedge short term cash flows related to
anticipated payments in respect of purchases of handsets and capital expenditures in
foreign currency.

Our
bank credit facility borrowings and Notes due 2012 are currently in shekels, most of which
are linked to the consumer price index (CPI). We may not be permitted to raise
our tariffs pursuant to our license in a manner that would fully compensate for any
increase in the CPI. Therefore, an increase in the rate of inflation may also have a
material adverse impact upon us by increasing our financial expenses without an offsetting
increase in revenue. We enter into derivative transactions in order to protect ourselves
from an increase in the CPI. As of December 31, 2007, the notional amounts of our CPI
derivatives were approximately NIS 1,000 million (or approximately 46% of our CPI
exposure).

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

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

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

Our
efforts to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002
relating to the evaluation of our internal control over financial reporting have resulted
in increased general and administrative expenses and required substantial management time
and attention. We expect these efforts to require the continued commitment of resources.
If we fail to maintain the adequacy of our internal controls, we may not be able to
conclude on an ongoing basis that we have effective internal control over financial
reporting. Although our management has concluded that our internal control over financial
reporting was effective as of December 31, 2007, we may identify material weaknesses or
other disclosable conditions in our future control over financial reporting. Failure to
maintain effective internal control over financial reporting could result in investigation
or sanctions by regulatory authorities and significant effort and expense, and could have
a material adverse effect on our operating results and on the market price of our ordinary
shares.

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

The
political and military conditions in Israel directly influence us. Since the establishment
of the State of Israel in 1948, a number of armed conflicts have taken place between
Israel and its Arab neighbors. Hostilities involving Israel, the interruption or
curtailment of trade between Israel and its trading partners and political instability
within Israel or its neighboring countries are likely to cause our revenues to fall and
harm our business. The establishment in 2006 of a government in the Palestinian Authority
by representatives of the Hamas militant group has created additional unrest and
uncertainty in the region and during 2007 engaged in many attacks including missile
strikes against Israel. Ongoing violence between Israel and its Arab neighbors and
Palestinians may have a material adverse effect on the Israeli economy, in general, and on
our business, financial condition or results of operations. In particular, in recent
conflicts, missile attacks have occurred on civilian areas, which could cause substantial
damage to our infrastructure network, reducing our ability to continue serving our
customers as well as our overall network capacity.

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

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

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

We
first distributed dividends in 2005, and we have distributed dividends in each subsequent
year. For 2007, we distributed cash dividends in the aggregate amount of approximately NIS
752 million, representing approximately 80% of annual net income for 2007, or NIS 4.79 per
share. Under Israeli law, the payment of dividends may be made only from accumulated
retained earnings or, for a company such as Partner Communications with negative net
capital surplus, retained earnings accrued over a period of eight quarters (after
deducting prior dividends to the extent not already deducted from retained earnings), and
in either case, provided there is no reasonable concern that the dividend will prevent the
company from satisfying current or foreseeable obligations as they come due. Accordingly,
there is no assurance that we will be able to continue paying dividends or increase our
payment of dividends in the future, nor is there any assurance that our Board of Directors
will not change our dividend policy in the future.

In
November 2006, a decision of the Israeli Supreme Court limited, subject to several
exceptions, the ability of a company to deduct for tax purposes interest expense incurred
on debt in circumstances where the proceeds from the debt are determined to have been used
to pay dividends. If this decision were found to be applicable to us, we could lose the
ability to recognize, for tax purposes, interest expenses on borrowing used for
distributing dividends or share buyback. As a result, we could suffer a reduction in our
retained earnings and, in turn, a decrease in the amount available to us in the future for
distribution of dividends.

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# RISKS RELATED TO OUR
CONTROLLING SHAREHOLDER

# Our company is
controlled by a single shareholder.

As
of April 30, 2008, our controlling shareholder, Hutchison Telecommunications International
Limited (Hutchison Telecom), who has been a major shareholder since we were
created, held approximately 50.13% of our shares representing 50.33% of total voting
rights. Hutchison Telecom has the ability to influence our business through its ability to
control all actions that require majority approval by the shareholders and through its
representatives on our Board of Directors. Hutchison Telecom is not obligated, however, to
provide us with financial support or to exercise its rights as a shareholder in our best
interests or in the best interests of our minority shareholders and noteholders, and it
may engage in activities that conflict with such interests. If the interests of our
controlling shareholder conflict with the interests of our other shareholders and
noteholders, those shareholders and noteholders could be disadvantaged by the actions that
this controlling shareholder chooses to pursue. In addition, our controlling shareholder
may cause our business to pursue strategic objectives that may conflict with the interests
of our other shareholders and noteholders.

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

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

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# ITEM 4. INFORMATION ON
THE COMPANY

# 4A. History and
Development of the Company

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

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

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

| | In
January 1999, we launched full commercial operations with approximately 88% population
coverage and established a nationwide distribution.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

| | In
December 2004, we commercially launched our 3G network, 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 notes due 2012.
|- | ----------------------------------------------------------------------------------------------------------------------

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

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

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

| | In
July 2006, we purchased Med-1 I.C.1 (1999) Ltd.s fiber-optic transmission
business for approximately NIS 71 million (US$16.8 million), in order to enable us to
reduce our transmission costs as well as to provide our business customers with bundled
services of transmission of data and voice and land-line services.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2007, we were granted a domestic fixed license by the Ministry of Communications,
and in February 2007 we were granted a network termination point license.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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# 4B. Business Overview

In
accordance with general practice in the cellular telephone industry, we use the term
subscriber, unless the context otherwise requires, to indicate a telephone or
a data or video device, rather than either a bill-paying network customer, who may have a
number of telephones connected to the network, or a cellular telephone user who may share
a single telephone with a number of other users. Subscriber includes our
pre-paid customers. As of January 2008, a prepaid subscriber has been, and will continue
to be, recognized as such only following the actual use of his prepaid SIM card.
References to the number of subscribers are stated net of subscribers who leave or are
disconnected from the network, or who have not generated revenue for the Company for a
period of over six consecutive months ending at a reporting date.

We
were the first GSM mobile telephone network operator in Israel. We received our mobile
telephone license in April 1998, commenced full commercial operations of our digital GSM
cellular telephone network in January 1999 and on December 1, 2004 we commercially
launched our third generation, or GSM, service. Since then, we have expanded rapidly, and
on December 31, 2007, we had approximately 2.86 million subscribers, representing an
estimated 32% of total Israeli cellular telephone subscribers at that date. During the
twelve months ended December 31, 2007, we increased our customer base by approximately
7.2%, with approximately 192,000 net active new subscribers joining the Company in 2007,
compared to 139,000 net new subscribers in 2006. At December 31, 2007, approximately 47.7%
of our customer base (approximately 1,365,000 subscribers) was represented by private
subscribers who subscribe to post-paid tariff plans, 24.6% (703,000 subscribers) by
subscribers who subscribe to business tariff plans, and 27.7% (792,000 subscribers) by
subscribers who subscribe to pre-paid tariff plans. As of December 31, 2007, we also had
more than 633,000 3G customers (included in the subscriber data above), all of whom are
post-paid subscribers.

We
market our services by capitalizing on the strong international Orange brand and the
experience of our controlling shareholder, Hutchison Telecom. The Orange brand, which is
licensed to us, has been used successfully in other markets around the world to promote
cellular telephone services. Market surveys show that we have achieved strong brand
awareness in Israel. We have also received awards recognizing our high standards of
customer service. In 2007, we were named by Globes, a leading Israeli business daily
newspaper, as the number-one communications brand in Israel for the fifth consecutive
year.

Our
GSM/UMTS network covered approximately 97% of the Israeli population at year-end 2007. We
currently operate our GSM network in the 900 MHz and 1800 MHz bands. Our GSM services
include standard and enhanced GSM services, as well as value-added services and products
such as roaming, voice mail, voice messaging, color picture messaging, ringtone and game
downloads, information services, and General Packet Radio Services (GPRS),
which enables the packet transfer of data.

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

In
March 2006, we launched services based on the High Speed Downlink Packet Access
(HSDPA) technology. HSDPA is a technological enhancement to our 3G services
that offers subscribers the ability to access our 3G services at higher speeds.

Special characteristics
of the Cellular Telecommunications Industry in Israel

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

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

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

| | High
Cellular Telephone Penetration. Since 1994, the market has sustained a rapid annual
rate of growth from a 2.6% penetration rate at year-end 1994 to an estimated penetration
rate in Israel at December 31, 2007 of 125%, representing approximately 9.0 million
subscribers out of an estimated population of approximately 7.2 million. The total number
of estimated cellular telephone subscribers includes dormant subscribers and subscribers
to multiple networks as well as other subscribers who are not included in the Israeli
population figures, such as Palestinians, visitors, and foreign workers.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Multiple
Different Cellular Telephone Technologies. The four cellular telephone licensees in
Israel have systems based on multiple technologies. We are currently one of two Israeli
network operators using GSM and UMTS systems. However, a third operator has begun rolling
out its UMTS/HSXPA network. GSM is an advanced, internationally accepted technology, and
according to an industry source, was used by approximately two and a half billion people
worldwide as of December 31, 2007. Other technologies currently used by Israeli cellular
telephone licensees include the N-AMPS analog, CDMA and CDMA1x RTT, EVDO, D-AMPS, EDGE,
UMTS/HSDPA, HSXPA, HSUPA and iDEN systems.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

Our Strategy

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

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

| | Broaden
Our Portfolio of Products and Services.We believe that a growth opportunity exists
by broadening our portfolio of products and services beyond the pure cellular service to
include land-line telephony, transmission services, Internet Service Provider (ISP)
services and other accompanying telecom services. In order to reach customers, we will
use our own fiber optic transmission network, leased access and transmission lines, or,
with respect to Voice Over Broadband (VOB)services, the existing
infrastructure of Bezeq, the incumbent land-line operator in Israel, and HOT, the cable
television operator in Israel. Our licenses to operate in various telecommunications
areas enable us to provide a wide range of services that will be used to create a bundle
of telecom and other adjacent services which we believe will favorably affect our ability
to limit cellular churn rates, increase customer loyalty, and generate additional streams
of revenues. In the foreseeable future, we believe that revenues from these services will
not be material compared to our total cellular revenues.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Competitive Strengths

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

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

| | 3G
Services.As of December 31, 2007, we had an Israeli nationwide UMTS network, which
offers high speed data, advanced video content and video telephony, and in most populated
areas also offers the features of HSDPA. We believe we are positioned as leaders in our
3G offering, both in terms of network quality as well as in terms of available content.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

24

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

| | Strong
Financial Performance and Financial Position. Our net cash provided by operating
activities less net cash used in investing activities has improved significantly and has
grown from negative NIS 1,163.0 million in the year ended December 31, 2000 to positive
NIS 774.8 million and NIS 916.2 million for the years ended December 31, 2006 and 2007,
respectively.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Marketing and Brand

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

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 2007, we achieved the
primary objective of our marketing strategy, which was to increase our 3G subscriber base
and 3G usage by our customers as well as to enhance our long-term relationship with our
customers through innovative retention activities.

We
commercially launched our UMTS network on December 1, 2004. As of December 31, 2007 we had
more than 633,000 3G subscribers. As of the end of 2007, our UMTS network covered
approximately 97% of the population of Israel. Our 3G network offers a wide range of new
services, such as video calls; a new portal of content services including a rich selection
of video-based and MP3 based services under the obox live brand, and the
transmission of data at speeds of up to 3.6 Mbps. We have concluded content agreements
with a variety of content providers and suppliers in the Israeli television and
entertainment industry.

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 2007, our main advertising
activities focused on promoting the subscribership and usage of 3G and HSDPA services, as
well as increasing loyalty among our customers. Our marketing strategy focuses on
promoting our services to various segments of the Israeli population, and we have extended
this to our 3G services. We advertise our services in several languages. In addition to
traditional media, we promote our brand and services by sponsoring and initiating cultural
and community programs, such as the sponsoring of the Mamma Mia musical in Israel, a
series of international music concerts held in the Tel-Aviv harbor and the International
Film Festival, a major cultural event in Israel that takes place every year in Jerusalem
and attracts international attention. We use the distinctive Orange Brand logo in all our
promotional activities and advertising. See Item 4B. Business
OverviewIntellectual Property.

Services and Products

Our
principal business is the provision of cellular 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, and we are continually developing tailored value-added
services to meet the special needs of our subscribers and to enhance our long-term
relationship with our subscribers.

Our
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 cellular
portal, data and fax transmission and other services. Our use of HSCSD, GSM, 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.

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We
received and maintain the accreditation of the ISO 9001:2000 Standard from the Quality and
Control Institute (ICQ), a quality system certification and registration body
authorized by Bureau Veritas Quality International. ISO 9001:2000 is a quality management
system specification whose requirements are aimed primarily at achieving customer
satisfaction by preserving standardization at all stages, and throughout company
processes.

Tariff Plans

Since
the beginning of our full commercial operations in 1999, we have introduced tariff plans
aimed at bringing innovation to the Israeli cellular communications market. At December
31, 2007, approximately 24.6% of our subscribers were subscribed to business segment
tariff plans (which are all post-paid), compared to approximately 23% at year-end 2006,
approximately 47.7% of our subscribers were subscribed to post-paid private tariff plans,
and approximately 27.7% were subscribed to pre-paid tariff plans.

Our
businesstariff 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 cellular 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.

The
elements of our tariff plans for private customers are packaged and marketed in various
ways to create tariff packages attractive to target markets, including families, soldiers,
Orthodox Jews, Arab and Russian communities, teens and students. Our tariff plans for
private customers feature a certain number of free minutes for calls made between family
members and special discounts on tariffs for calls among a limited number of family
members or friends, and offer limited handset subsidies. Some of the tariff plans include
minimum subscription periods of up to 36 months.

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

International Roaming

Israelis
are frequent travelers. According to the Israel Central Bureau of Statistics, in 2007,
more than 4.1 million overseas departures of Israelis were recorded, and almost 2.3
million people visited Israel during 2007. 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 4B.
Business Overview  Regulation.

At
December 31, 2007, we had open commercial roaming relationships with 368 operators in 172
countries or jurisdictions. We also have agreements with satellite operators, providing
global coverage, requiring the use of unique handsets. Creating roaming relationships with
multiple operators in each country increases potential incoming roaming revenue for us and
gives our subscribers more choice in coverage, services and prices in that country.

On
December 31, 2007, we had 48 3G roaming agreements in 32 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, 3G networks around the world are becoming gradually available to our 3G
subscribers. See also Item 3D. Risk Factors  Risks Relating to the Regulation
of Our Industry for risks relating to the regulation of roaming tariffs.

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Value-Added Services

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

Our
main focus throughout 2007 was to continue to expand our 3G and HSDPA business in Israel
and to enhance our relationship with our customers through active retention activities. To
meet these goals, we have expanded our 3G handset portfolio to cater to several specific
market segments, we have enhanced our content portal offering and we have launched several
innovative retention activities. The main value-added services we currently offer include
the following:

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

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

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

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

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

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

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

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

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

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

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

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

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

| | PC
to Mobile Video Calling. This service allows 3G subscribers to speak with any other
party using an internet camera. 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.
|- | -------------------------------------------------------------------------------------------------------------

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| | 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) with the ability to watch video clips and to listen to full music tracks
without downloading them to their handset. These services offer a wide range of
information and entertainment clips to view and listen to, and enable the customer to
watch live television broadcasts.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Handsets

We
provide handsets to our subscribers at discounts of up to 100% when they first become
subscribers or when upgrading their handsets. 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 in 2100 MHz (3G) as well. Not all handsets support all band ranges.
We evaluate the technical features of every new cellular handset and, if we decide to make
it available to subscribers, we obtain a type approval from the Ministry of Communications
for such handset. We advise our sales representatives and dealers on compatibility and
technical issues. All our handsets are EFR compatible to provide high voice quality. All
of our handset models have Hebrew language displays. We have begun selling some innovative
handsets with enhanced applications, including large screens with high resolution
displays, high quality music performance, high quality cameras, video capabilities,
embedded GPS, E-Mail massaging, open operating systems (Symbian), T.V. client and music
library. Following the launch of our HSDPA network, we sell handsets that enable customers
to use content services with high-speed rates of data transmission and lap tops with HSDPA
data cards.

Land-line Services

In
addition to our cellular services, we provide, through our subsidiary Partner Landline
Telecommunication Solutions, L.P., land-line transmission and data capacity services,
using the transmission network we purchased from Med-1 1.C.1 (1999) Ltd. and have since
then continued to expand. Our land-line capacity also includes capacity which we lease
from other land-line telecommunications service providers. The services we offer includes,
primarily, connectivity services by which we provide high quality, dedicated
point-to-point connection for business customers and telecommunications providers, as well
as land-line services to business customers.

Customer Division

Our
Customer Division incorporates all service, sales and distribution channels, and on
December 31, 2007, had approximately 2,635 full-time employees, or nearly two thirds of
our total work force, 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.

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Walk-in
Centers.We currently operate 31 Partner owned service and sales centers across
Israel. These centers provide a face-to-face, uniformly designed, contact channel and
offer all services that we provide to customers: sales, handset upgrade, handset
maintenance and other services (such as finance, rate-plan changes and subscription to new
services). Several centers are focused on sales to both private and small business
customers. These centersare 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. See also Note 7a(3) to our consolidated financial
statements.

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

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

Sales and Distribution

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

We
distribute our services and products primarily through:

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

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

Direct Sales Channels

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

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

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

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

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

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

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

Indirect Sales Channels

Traditional
Dealer Networks. On December 31, 2007, we had agreements with 30 traditional dealers
providing 45 points of sale, selling a range of our products. The private dealer network
is an important distribution channel because of its ability to attract existing cellular
users to our network. Our dealer network focuses primarily on sales to individual
customers and, to a lesser extent, small business customers. Most of our dealers
specialize in sales for post-paid customers, and others specialize on sales for pre-paid
customers and distribution of pre-paid handsets to sub-dealers. In addition, we have
specific dealers that target different segments of the Israeli population with the
appropriate style, language and locations. We provide regular training to employees of our
dealers to update them on our products and services. Our dealer managers visit dealers on
a regular basis to provide information and training, answer questions and solve any
problems that may arise. We pay our dealers competitive commissions and provide handset
subsidies. However, dealers are not entitled to commissions for any customers that
terminate their service within 60 days of activation.

Non-Traditional
Dealer Networks. Non-traditional dealers consist of generalist retailers or
specialized stores that sell related products. We have contracted with
Super-Pharm, the largest drugstore chain in Israel, to sell our network
services. At December 31, 2007 our services were sold in Super-Pharm and Super-Link stores
nationwide in a variety of formats, including Partner shop-in-shops, kiosks, wall-unit
displays and at front counters. In 2007, approximately 16% of our new subscribers were
recruited through sales by Super-Pharm. Super-Pharm sells our network services in their
stores, and in a chain of stores called Super-Link that is dedicated to
selling communications services and equipment. The agreement between the parties, which
was amended in July 2007 with retroactive effect as of June 2006, will be renewed
automatically at the beginning of each calendar year unless either of the parties notifies
the other party in advance of their intention not to renew the agreement.

29

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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. We provide regular training to the employees
of our non-traditional dealers to update them on our products and services.

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

Customer Contracts and
Credit Policy

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 who 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 are charged directly to
their credit card or to their monthly bill. If the customer opts to pay for the
installment via his monthly bill, the outstanding installment payments are not secured.
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 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 ten 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.

Our Network

We
have built an extensive, resilient and advanced cellular network system in Israel,
allowing us to offer our services with extensive coverage and consistent high quality.
During the years ended December 31, 2005, 2006 and 2007, we have made net capital
expenditures of NIS 369 million, NIS 363 million and NIS 417 million ($108 million),
respectively, in our network infrastructure, including optic fibers.

Overview

Third
generation wireless communication, which offers full interactive multimedia capabilities
at data rates of up to 384 Kbps, is bringing wire-free networks significantly closer to
the capabilities of land-line networks. Improvements in coding and data compression
technology will provide better voice quality and more reliable data transmission. UMTS is
the global standard adopted for the implementation of third generation wireless
telecommunications capable of data rates of 3.6 Mbps and is the 3G technology we use.
HSDPA is a technological enhancement to our 3G services that offers subscribers the
ability to access our 3G services at higher speeds.

Infrastructure

As
of December 31, 2007, our GSM network consisted of 1,738 macrobase transceiver stations
and 232 microbase transceiver stations, all linked to 30 base station controllers. The
base station subsystem is controlled by 11 cellular switching centers. Base transceiver
stations, cellular switching centers and base station controllers are interconnected by
approximately 5,750 transmission links. Ericsson and Nokia supply our base station
controller and base transceiver station sites for our GSM and GPRS network.

As
of December 31, 2007, our UMTS network consisted of 1,539 macrobase transceiver base
stations and 198 microbase and indoor transceiver stations, all linked to 10 radio network
controllers. The base station subsystem is controlled by three mobile switching centers
and six media gateways. The base transceiver stations, the mobile switching centers and
the radio network controllers are interconnected by approximately 1,450 transmission
links. Alcatel Lucent and Ericsson supply our 3G UTRAN and Ericsson supplies our core
network equipment. As of January 2008, Ericsson is our sole 3G UTRAN supplier.

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

Our
transmission network is made up of leased lines from Bezeq and Cellcom and our own
microwave links and fiber optic infrastructure. Currently most of our transmission network
consists of leased lines. In
2006, we purchased from Med I.C.1 (1999) Ltd, its fiber-optic transmission business
in order to enable us to reduce our transmission costs as well as to provide our business
customers with bundled services of data and voice transmission and land-line services.

Our
GSM and UMTS network covered approximately 97% of the Israeli population at year-end 2007.
We are continuing to expand and improve the coverage, capacity and quality of our
UMTS network.

Network Design

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

With
these quality parameters in mind, we rolled out our UMTS/HSDPA network starting in 2004,
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/HSDPA 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 which operates in the West Bank and the Gaza Strip. We also have an agreement
to use an additional 2x2.4 MHz of spectrum in the 900 MHz frequency band on a shared basis
with Paltel. Under this agreement, which has been endorsed by the Ministry of
Communications, we are permitted to use this additional spectrum in Israel so long as we
do not cause interference in areas where Paltel operates. See Item 3C. Risk
Factors for a discussion of the risks associated with developments in spectrum
allocation.

We
were also allocated two additional bands of spectrum: 2 x 10 MHz of GSM 1800 spectrum and
2 x 10 MHz and 1 x 5 MHz of UMTS/HSDPA third generation spectrum. During 2002, we deployed
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.

Enabling Systems

In
December 2004 we commercially launched our UMTS network with advanced applications and
services including, among others, a UMTS content portal offering a variety of services
such as live TV channels, JAVA games, maps and directions application, wide range of music
(MP3) services. We have installed a video gateway and a streaming server, enabling us to
offer our customers a range of video services on UMTS handsets.

Site Procurement

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

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

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

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

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

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

Suppliers

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

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

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

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

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

Interconnection

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

We
are currently operating without any formal interconnect agreements with Bezeq. Day-to-day
arrangements with Bezeq substantially conform to a draft interconnect agreement negotiated
with Bezeq. 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 all Israeli cellular and land-line companies. The
interconnect tariffs are set forth in the Interconnection Regulations (Telecommunications
and Broadcasts) (Fees for Interconnections) 2000 that imposes a uniform call interconnect
tariff for all cellular telephone operators.

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

In
recent years, the Ministry of Communications has reduced the call interconnect tariffs
from NIS 0.50 per minute in the beginning of 2003 to NIS 0.22 per minute as of the date of
this Annual Report, and SMS interconnect tariffs from NIS 0.38 in May 2004 to NIS 0.025 as
of the date of this Annual Report. In response to the tariff reductions described above,
we implemented cost-cutting measures as well as price increases and repackaging of our
tariff plans. Depending on the effectiveness of such steps, and other factors such as
general market conditions, these regulatory changes may negatively impact our revenues and
profits. The Grunau Committee, whose recommendations were published in March 2008,
recommended further review of interconnect tariffs. See - Regulation 
Telecommunications Law below.

We
have written interconnect agreements or operating arrangements with all of the
international service providers. The regulated interconnect tariff for incoming
international calls was reduced to NIS 0.22 per minute, in line with the reduction in
interconnect tariffs for incoming domestic calls, effective March 1, 2008. This tariff,
adjusted to conform to changes in the consumer price index (CPI), amounts to
NIS 0.2327 per minute.

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

Competition

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

The
table below sets forth an estimate of each operators share of total subscribers in
the Israeli cellular market at December 31, 2003, 2004, 2005 and 2006 and 2007.

|Market Share* | 2003 | 2004 | 2005 | 2006 | 2007
|------------- | ---- | ---- | ---- | ---- | ----
|
|
|
|
|Partner       |      |      |      | 31   | %   
|Cellcom       |      |      |      | 35   | %   
|Pelephone     |      |      |      | 30   | %   
|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.

Cellcom
is an Israeli corporation whose major beneficial shareholder is Discount Investment
Corporation Ltd, (DIC). DIC is a majority-owned subsidiary of
IDB Development Corporation, which in turn is a majority-owned subsidiary of IDB Holding
Corporation Ltd (IDB).  The IDB group is one of the largest
business groups in Israel, whose indirect subsidiaries also operate in the Israeli
communications market providing high speed internet, international telephone services and
wireline and land line communications services.  In May 2008, the IDB group acquired
through one of these subsidiaries a 15% holding in HOT Cable Communications System Ltd
(HOT), a cable pay television operator. This transaction is still subject to certain
conditions and approvals including the approval of the antitrust commissioner.        Cellcom
operates nationwide cellular telephone networks based on GSM 1800 MHz/GPRS, D-AMPS, EDGE
and UMTS/HSDPA HSUPA technologies. Cellcom commercially launched its UMTS service and
handsets in July 2006.

Pelephone
is an Israeli corporation wholly owned by Bezeq, the primary land-line operator in Israel
that is controlled by S.C.G. Group (Haim Saban), the Apax Fund, and Arkin Communications
(Mori Arkin). Pelephone, which currently uses the N-AMPS analog and the CDMA, CDMA-1x RTT,
as well as the EVDO technology, began in 2007 to roll out a UMTS/HSXPA network, which
would strengthen its ability to compete in the provision of inbound and outbound roaming
services as well as improve its competitive position in the market.

MIRS,
an Enhanced Specialized Mobile Radio, or trunking network, was granted a
general license to operate as a mobile telephone operator in 2001.MIRS is an
Israeli corporation whose major shareholder is Motorola Communications (Israel) Ltd. MIRS
operates using an Enhanced Specialized Mobile Radio, or trunking iDEN network
and has expressed its intention to roll out a WiMAX network subject to receiving a
license.

In
addition, the Palestine Telecommunication Co. Ltd. (Paltel) operates a GSM
mobile telephone network under the name Jawwal in the Palestinian Administered
Areas, as well as a land-line network. Paltels GSM network competes with our network
in some border coverage overlap areas. In addition, a second Palestinian operator is
expected to roll out its GSM network during 2008-2009.

To
the extent that land-line telephones are used instead of mobile telephones, we also
compete with Bezeq, the incumbent land-line operator in Israel, HOT, the cable television
operator in Israel, and other land-line operators who start to provide land-line
telecommunications services. In 2004, Bezeq completed its acquisition of 100% of the
shares of Pelephone, which may enable Pelephone and Bezeq and other affiliates of Bezeq to
offer bundled services of land-line, mobile telephone and other telecommunication
services, subject to regulatory approval. In the future other holders of licenses to
provide land-line telephone services may enter the mobile telecommunications services
market via MVNO and increase the level of competition we face.

For
a discussion of the risks created by our competitive environment, see Item 3D. Risk
Factors.

Information Technology

We
depend upon a wide range of information technology systems to support network management,
subscriber registration and billing, customer service and marketing and management
functions. These systems execute critical tasks for our business, from rating and billing
of calls, to monitoring our points of sale and network sites, to managing highly segmented
marketing campaigns. As our subscriber base has grown, we have devoted significant
resources to expanding and enhancing our information technology systems, adopting and
implementing new systems, including Customer Relations Management (CRM)
systems, which have contributed to our customers satisfaction with our service, as
well as updating our financial management and accounting system. We believe these systems
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. Our Vantive CRM system is
in the process of being replaced through a contract with IBM to implement a new CRM system
based upon Siebel software. The migration to the new CRM system is in
progress.

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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. If the parties do not agree on the amount of royalty payments, the determination
of royalty payments is referred to an arbitrator. Under this license agreement, we are
required to comply with the Orange Brand guidelines established by Orange International.
We have the right to use the Orange Brand as long as we are able and legally eligible
under the laws of Israel to offer telecommunications services to the public in Israel.
However, the license agreement may be terminated by mutual agreement, or at our
discretion, or by Orange International if a court determines that we have materially
misused the brand and we continue to materially misuse the brand after such determination
of material misuse.

We
have also entered into a brand support/technology transfer agreement with Orange Personal
Communications Services Limited. Under this agreement, Orange Personal will provide us
with information and expertise to support the Orange Brand in Israel at an agreed cost.
See Item 3D. Risk FactorsOur marketing strategy is based, in part, 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 and other telecommunication services in Israel, and sets the terms by which such
services are provided. The regulatory framework under which we operate consists also of
the Planning and Building Law, 1965, the Consumer Protection Law, 1981, and the
Non-Ionizing Radiation Law, 2006. Additional areas of Israeli law may be relevant to our
operations, including antitrust law, specifically the Restrictive Trade Practices Law,
1988, the Class Actions Law, 2006, and administrative law.

Telecommunications Law

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

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

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

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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
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.

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

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

Fair Competition and
Antitrust Law

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

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

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

Regulatory Developments

In
2003, the Ministry of Communications decided to open the international call market to new
competitors. However, the Ministry announced that it will not allow cellular operators to
enter the international call market, at this stage. This policy might be changed following
the Grunau Committee recommendations of March 2008 according to which the Ministry of
Communications should allow the cellular operators to offer international call
services.

In
2004, the Ministry of Communications began authorizing the issuance of licenses to provide
domestic land-line (wireline and wireless) services to customers, competing with Bezeq, 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. In
January 2007, we were granted this license.

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The
Ministry of Communications has promulgated regulations that, coupled with a change
effected in the cellular telephone operators licenses, impose a uniform call and SMS
interconnect tariff. In November 2004, the Ministry of Communications announced regulatory
changes significantly reducing call interconnect tariffs and SMS interconnect tariffs,
effective March 1, 2005, with additional reductions mandated for the coming years. 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, but have been suspended and are expected to be resumed in
2008. See Item 4B. Information on the CompanyBusiness
OverviewInterconnection.

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

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

The
Ministry of Communications is evaluating the cost of roaming and may introduce new
regulations that would limit fees charged by Israeli cellular companies for calls made by
the customers of foreign network operators while they are in Israel and using our network,
as well for calls made by our own customers using their handsets abroad. Because we
consider roaming charges to be a significant source of revenue, such regulatory limits
could adversely affect our revenues.

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

In
August 2007, our license was amended, prohibiting as of September 2007, the ability to
offer tariff plans that are based on one-minute billing units and other billing units
longer than twelve seconds. In addition, as of January 2009, all of our tariff plans will
be based on one second billing units. Such regulation may adversely affect our business
and operating results.

In
August 2007, the Parliaments economic committee appointed a sub-committee for the
advancement of competition in the mobile market, to consider issues regarding the
transparency of customer bills and the ability to compare prices between operators, the
examination of the cost of one minute calls, binding agreements, fines for leaving
cellular companies, the abundance of tariff plans and the number portability reform. The
committee has not yet published its findings or recommendations.

In
October 2007, the Ministry of Communications renewed a hearing process to consider
prohibiting the cellular operators from linking the sale of handsets to the provision of
various benefits regarding cellular services, including air time.

In
March 2008, our license was amended shortening the commitment period in the standard
subscriber agreements with customers from 36 months to 18 months, for non-business
customers.

Entry of MVNO Operators

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

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In
March 2007, the Ministry of Communications initiated a review whether to allow the entry
of MVNO operators in the Israeli telecommunications market. In August 2007,
recommendations were submitted to the Ministry of Communications to allow the entry of
MVNOs into the Israeli mobile market by granting them licenses, at the first stage by
encouraging negotiations between potential virtual operators and the existing mobile
operators without the Ministry of Communications intervention. In August 2007, the
Israeli government instructed the Ministry of Communications to take all measures
necessary to allow any MVNO wishing to provide cellular services to the public using the
network of a cellular operator to do so as of December 31, 2007. In March 2008, the public
commission headed by Prof. Grunau recommended acceleration of the regulatory process
required for the entry of MVNOs into the mobile market and of the WiMAX tender. In
addition, a private bill was introduced in parliament to facilitate the process of MVNO
entry into the Israeli market. The Ministry of Communications has not yet published its
recommendations.

Number Portability

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

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

WiMAX Bandwidth

The
Ministry of Communications is in the process of conducting hearings regarding the
allocation of bandwidth in the Worldwide Interoperability for Microwave Access
(WiMAX) spectrum. WiMAX is a technology that aims to provide wireless data
over long distances, in a variety of different methods, from point to point links to full
mobile type access. Following the hearings, the Ministry of Communications may elect to
adopt regulations that result in Partner not receiving an allocation of bandwidth from the
WiMAX spectrum while other existing telecommunications operators as well as new ones may
receive such an allocation. If the Ministry of Communications elects to adopt such
regulations, it could harm our ability to compete with telecommunications providers using
the WiMAX spectrum.

Liberalization of Handset
Market

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

Our Mobile Telephone
License

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

We
were also allocated two additional bands of spectrum: 2 x 10 MHz of GSM 1800 spectrum and
2 x 10 MHz and 1 x 5 MHz of UMTS 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
the award of this spectrum, the Minister of Communications amended and extended our mobile
telephone license through 2022.

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

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In
2004, our license was amended to regulate access to adult voice services through all
mobile 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
to the international operators. The Ministry of Communications will hold the operators
liable and accountable for any infractions of this amendment. Additional amendments during
2006 extended the regulation of access for adult voice services described above to 3G
technologies as well, including non-voice and internet services provided (directly and
indirectly) either through phone calls to numbers allocated by us or through our internet
portal. In April 2007, an additional amendment set forth rules to verify the identity of a
customer requesting removal of the bar, as an adult, including a written request with a
copy of an official I.D. that identifies the subscriber as an adult or by presenting such
an I.D. to the operator, in person.

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

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

| | 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 individuals who are
citizens and residents of Israel, provided that indirect control is only through entities
formed in Israel, unless otherwise approved by the Israeli Prime Minister or Minister of
Communications.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

In
November 2006, our license was again amended. The principal elements of this amendment
were as follows:

| | We
are required to operate a telephone information service which provides telephone listings
for our subscribers. We are also obligated to share our telephone subscriber listing
information with other operators to be used in their telephone information systems.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
telephone calls transferred to our subscribers voicemail, we are required to allow
the calling party an opportunity to disconnect the call within the first few seconds
without incurring a charge.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

Conversely,
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 prior to the activation
of any service on a specified list of services.

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

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

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

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

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

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

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

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| | 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.

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

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

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

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

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

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

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

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

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

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

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

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

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| | 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;
|- | ---------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

| | 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.

Other Licenses

Domestic
Land-line License. In January, 2007, the Ministry of Communications granted Partner
Fixed Communication Solutions Limited Partnership a license for the provision of domestic
land-line telecommunications services. The license expires in twenty years but may be
extended by the Ministry of Communications for successive periods of ten years provided
that the licensee has complied with the terms of the license and has acted consistently
for the enhancement of telecom services and their enhancement. The licensee deposited a
bank guarantee in the amount of NIS 10 million with the Ministry of Communications upon
receiving the license which shall be used to secure the licensees obligations under
the License. The general conditions of the mobile telephone license described above,
generally apply to this license, subject to certain modifications. In addition to any 10%
share transfer requiring the prior approval of the Ministry of Communications, the license
additionally requires approval prior to a third party acquiring the ability to exercise
significant influence over us. In this context, holding 25% of our means of control is
presumed to confer significant influence. The license was amended in February 2007 to
grant us the right to offer Voice Over Broadband (VOB) services using the
infrastructure of Bezeq and HOT to access customers and to provide them with land-line
telephony service without any payment to the infrastructure owner. The License was further
amended in July 2007 to incorporate the provision of transmission and data communications
services that were previously provided for under a transmission license that was granted
in July 2006.

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

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

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

Network Site Permits

Permits of the
Ministry of the Environment

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

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

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

Local Building
Permits

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

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

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

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

National Building
Plan No. 36

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

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

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

Other Approvals

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

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

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

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

44

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

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

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

# 4C. Organizational
Structure

We
currently have three wholly-owned subsidiaries, Partner Future Communications 2000 Ltd.,
an Israeli corporation, Partner Land-Line Communications Solutions LLP, an Israeli limited
partnership, and Partner Business Communications Solutions, LLP, an Israeli limited
partnership. Partner Future Communications 2000 Ltd. serves as the general partner and the
Company serves as the limited partner of each of the limited partnerships. We are an
indirect subsidiary of Hutchison Telecom, which as of March 31, 2008, held approximately
50.13% of our shares, representing 50.33% of our total voting rights. Hutchison Telecom is
an international provider of mobile and land-line telecommunications services with
operations in eight markets.

# 4D. Property, Plant 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 terminate the lease on May 31,                2012 or May 31, 2018.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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, as well
as an additional 500 square meters. The lease agreements are for 3 year periods commencing
in May 2005 and March 2007, respectively. We have the option to extend the leases period
for 6 years. We also lease a call center in Jerusalem, a building of 797 square meters.
The lease agreement is for a two year period commencing in March 2007.

45

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Network

We
lease most of the sites where our mobile telecommunications network equipment is installed
throughout Israel. At December 31, 2007, we had 2,388 network sites (including
micro-sites) The lease agreements relating to our network sites are generally for periods
of two to three years. We have the option to extend the lease periods up to ten years
(including the original lease period).

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

Land-lines.In addition to our cellular network, we possess, through our subsidiary
          Partner Landline Telecommunication Solutions, L.P., land-line transmission and
          data capacity, using the advanced transmission network we purchased from Med-1
          1.C.1 (1999) Ltd. and have since then continued to expand. Our land-line
          capacity also includes capacity which we lease from other land-line
          telecommunications service providers.

Service Centers and
Points of Sale

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

# ITEM 4A. UNRESOLVED
STAFF COMMENTS

Not
applicable.

# ITEM 5. OPERATING AND
FINANCIAL REVIEW AND PROSPECTS

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

# 5A. Operating Results

# Overview

Business Developments in
2007

In
2007, approximately 192,000 net active subscribers joined the Company, most of whom were
high-quality post-paid customers, compared with approximately 139,000 in 2006. The
business sector accounted for approximately 51% of annual net new active subscribers, and
post-paid private subscribers for approximately 43% of annual net new active subscribers.
At the end of December 2007, the Companys active subscriber base, including both 2G
and 3G subscribers, was approximately 2,860,000, including approximately 703,000 business
subscribers or 24.6% of the base, approximately 1,365,000 post-paid private subscribers,
or 47.7% of the base, and approximately 792,000 prepaid subscribers, or 27.7% of the base.
2007 year-end market share is estimated be unchanged from 2006 at around 32%.

Our
leadership in 3G continues to strengthen, and approximately 30% of our post-paid
subscriber base was benefiting from the wide range of 3G services and advanced handsets we
offered by year-end, enabling us to generate more than NIS 425 million revenues from data
and content services in 2007,compared to NIS 316 million in 2006 (excluding SMS
messages).The Company added approximately 357,000 subscribers to its 3G network in
2007, and its 3G subscriber base reached approximately 633,000 by year-end.

46

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On
December 20, 2007 we entered into an agreement with LM Ericsson Israel Ltd., for the
replacement of third party vendors of the Companys existing 3G equipment and the
expansion of the 3G network, and for the support and maintenance of the Ericsson elements
in the Companys network for a period of three years. The major driver for the
agreement is the expected decrease of the network maintenance and expansion costs. As a
result of the agreement, Ericsson will become the sole vendor for the Companys 3G
network. The Company allocated the purchase price of US$ 65 million to the above
deliverables based on their relative fair values. Of this amount, US$ 6.6 million related
to support and maintenance of the Network for three years. The purchase price is after
deduction of commercial discounts, some of which are contingent upon future negotiations
for further purchases of services that are probable.

Following the agreement, in accordance with Financial Accounting Standards No. 144
(FAS 144), Accounting for the Impairment or Disposal of Long Lived Assets, the
Company, on December 20, 2007, reviewed the communication network for impairment, in order
to assure that the carrying amount of the fixed assets is recoverable. No impairment loss
was required. Following the impairment test, the Company accelerated the estimated useful
life of the equipment to be replaced (in the depreciated amount of approximately NIS 136
million) to the period it is anticipating that the actual replacement will take place. The
transaction will result in depreciation acceleration of the replaced equipment, throughout
the replacement period which will end at the latest by the third quarter of 2011. Most of
the accelerated depreciation is expected to be recorded during 2008.

The major event in Israels mobile industry in 2007 was the introduction in
December 2007 of number portability. The introduction of number portability required us to
invest additional resources in order to reach out to new subscribers and to ensure the
continued satisfaction of Partners existing subscribers. As of March 31, 2008, more
than 10,000 post-paid subscribers net had joined the Companys customer base since
December 1, 2007, bringing their number from their original operator.

The
annual churn rate in 2007 was 15.0%, a decrease from 15.6% in 2006, despite an increase in
churn in the prepaid sector. For a definition of churn rate, see footnote 8
under Item 3A. Selected Financial Data.

2007
average monthly usage per subscriber (MOU) was 336 minutes, an increase of 8%
compared with 311 minutes in 2006. 2007 annual average monthly revenue per subscriber
(ARPU) was NIS 158 (US$ 41), unchanged from 2006.

The
table below sets forth a summary of selected financial and operating data for each of the
years ended December 31, 2007, 2006 and 2005:

|                                                  | 2005 | 2006 | 2007
|------------------------------------------------- | ---- | ---- | ----
|
|
|
|
|Revenues (NIS million)                            |      |      |     
|Operating profit (NIS million)                    |      |      |     
|Income before taxes (NIS million)                 |      |      |     
|Net income (NIS million)                          |      |      |     
|Capital expenditures, net (NIS million)           |      |      |     
|Cash flow provided by operating activities        |      |     
|net of investment activities (NIS million)        |      |      |     
|Subscribers (thousands)                           |      |      |     
|Annual churn rate (%)                             |      |      |     
|Average monthly usage per subscriber (in minutes) |      |      |     
|Average monthly revenue per subscriber (NIS)      |      |      |     
|                                                  |      |      |     

Other developments

In
August 2007, our license was amended, prohibiting as of September 2007, the ability to
offer tariff plans that are based on one-minute billing units and other billing units
longer than twelve seconds. In addition, as of January 2009, all of our tariff plans will
be based on one second billing units. Such regulation may adversely affect our business
and revenues.

Beginning
in January 2008 the Company adopted a more conservative and rigorous policy for
recognizing prepaid subscribers. The aim of the new policy is to ensure that purchased
prepaid SIM cards are only recognized in the subscriber base after the prepaid SIM cards
are actually used by the prepaid subscribers. The change reduces the reported prepaid
subscriber base by approximately 60,000 subscribers from January 2008.

A
further approximate 14% reduction in interconnect tariffs went into effect on March 1,
2008. This will dilute the average tariff per minute (including incoming calls) for 2008
compared with 2007.

47

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Revenues

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

Our
principal source of revenues is from the sale of cellular network services, primarily
network airtime usage fees, and is denominated primarily in shekels. In 2007, as in each
of 2006 and 2005, approximately one half of network airtime usage fees were derived from
outgoing calls and tariff rate plan fees with the remainder generated from interconnect
fees from other operators, roaming and data and content services. Data and content
revenues excluding SMS messages accounted for 8.0% of service revenues in 2007, and
revenues from SMS message services accounted for 4.8% of service revenues in 2007. Other
service revenues include revenues from the sale of handset warranties and of land-line and
transmission services.

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

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

Cost of Revenues

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

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

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

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

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

Selling and Marketing
Expenses

Our
principal components of selling and marketing expenses are:

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

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

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

General and
Administrative Expenses

Our
principal components of general and administrative expenses are:

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

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

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

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

| |  | insurance.
| | - | ----------

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Financial Expenses

Our principal
components of financial expenses, net are:

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

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

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

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"); and
| | - | ------------------------------------------------------------

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

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.

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

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

Revenue Recognition

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

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

49

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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 124 million and had the percentage of depreciation increased by 5%, our operating
profit would decrease by approximately NIS 112 million. We amortize our license by the
straight-line method over the utilization period of the license, which is based upon the
license period. During 2002, our license was extended by 14 years to 2022.
Consequently, the 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
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 an allowance for doubtful accounts for estimated losses resulting from the
inability of our subscribers to make required payments. We base our allowance on the
likelihood of recoverability of accounts receivable based on the age of the balances, our
historical write-off experience net of recoveries, changes in the credit worthiness of our
customers, and collection trends. The allowance is periodically reviewed. The allowance
charged to expenses is determined in respect of specific debts doubtful of collection,
calculated as a specified percentage of the outstanding balance in each debt age group,
with the percentage of the allowance increasing as the age of the debt increases. For
example, a debt that is between 1 to 1.5 years overdue is reserved for at the rate of
80.9%. If we decreased our percentage of the allowance for all aging debts by 15%, our
operating profit would increase by NIS 23 million. If we increased such percentage by 15%,
our operating profit would decrease by NIS 18 million. Actual customer collections could
differ from our estimates. For example, if the financial condition or our customers were
to deteriorate, additional allowances may be required. Our bad debt expenses as a
percentage of revenues were 0.6%, 0.5% and 0.7% for the years ended December 31, 2005,
2006 and 2007, respectively.

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

Revenues.In 2007 the Company achieved total net revenues of NIS 6,113.6 million (US$
          1,589.6 million), an increase of 9.0% from NIS 5,606.7 million in 2006.

Revenues
from services.Annual service revenues totaled NIS 5,328.7 million (US$ 1,385.5
million) in 2007, representing an increase of 6.0% from NIS 5,027.3 million in 2006. The
increase was driven primarily by subscriber base growth, an increase in the weight of
post-paid subscribers in our subscriber base, higher average minutes of use, as well as an
increase in content and data revenues, partially offset by a decrease in average revenue
per minute.

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

Data
and content revenues, excluding SMS messages, totaled NIS 425.3 million (US$ 110.6
million) in 2007, accounting for 8.0% of service revenues, up from NIS 316.1 million,
representing 6.3% of service revenues, in 2006. Revenues from SMS message services totaled
NIS 253.7 million (US$ 66.0 million) in 2007, accounting for 4.8% of service revenues, up
from NIS 192.5 million, representing 3.8% of service revenues, in 2006.

Revenues
from equipment.Equipment revenues in 2007 totaled NIS 784.9 million (US$ 204.1
million), representing an increase of 35.5% from NIS 579.4 million in 2006. The increase
was caused by increases both in the average revenue per sale, reflecting the higher
proportion of more advanced and higher cost 3G handset sales to new and upgrading
subscribers, as well as in the total number of handset sales to new and upgrading
subscribers.

Gross
profit.Gross profit in 2007 was NIS 2,010.6 million (US$ 522.8 million),
representing a 17.6% increase from gross profit in 2006 of NIS 1,709.4 million.

Gross
profit from services.Annual gross profit from services in 2007 was NIS 2,227.2
million (US$ 579.1 million), an increase of 14.7% from NIS 1,941.8 million in 2006. The
increase reflects the higher service revenues, partially offset by a 0.5% increase in the
cost of service revenues from NIS 3,085.5 million in 2006 to NIS 3,101.6 million (US$
806.4 million) in 2007. The increase was primarily driven by higher variable airtime and
content costs resulting from the growth in airtime and content usage, partially offset by
lower costs resulting from efficiency measures taken by the Company, lower depreciation
expenses, the decrease in the rate of royalties paid to the Israeli state, as provided for
in our operating license, and the lower interconnect tariff subsequent to government
regulation in this area.

50

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Gross loss on equipment.Gross loss on equipment decreased in 2007 by 6.8% from NIS
232.4 million to NIS 216.6 million (US$ 56.3 million). The decrease is explained by
handset revenues (including carkits) increasing more than the increase in the cost of
handset sales. The cost of handset sales increased due to the higher proportion of 3G
handset sales, as well as the higher total number of sales, while the cost per individual
handset declined due to the decrease in the value of the U.S. dollar against the Shekel in
2007.

Selling,
marketing and general and administrative expenses.Selling, marketing,
general and administration (SG&A) expenses totaled NIS 606.0 million (US$ 157.6
million) in 2007, an increase of 23.4% from NIS 491.1 million in 2006. The increase is
largely related to the additional costs of growing the subscriber base, including higher
distribution and commission expenses, and larger provisions for doubtful accounts from
receivables on handset sales and service revenues. In addition, the increase includes the
impact of a one time retirement bonus payment paid to the Companys founding chief
executive officer, Mr. Amikam Cohen, of approximately NIS 15 million, as well as payments
to additional retiring senior executives.

Operating
profit.As a result of the above, the Company recorded an operating profit
in 2007 of NIS 1,404.5 million (US$ 365.2 million), representing an increase of 15.3% from
NIS 1,218.4 million in 2006.

Financial
expenses.Financial expenses decreased in 2007 by 24.1%, or NIS 40.1
million, from NIS 166.4 million in 2006 to NIS 126.3 million (US$ 32.8 million). The
decrease is primarily attributable to an increase in financial income of NIS 21.1
million together with a reduction of NIS 82.8 million in financial and coverage expenses
and due to currency fluctuations, offset by an increase of NIS 63.8 million in CPI linkage
expenses resulting from the higher CPI level.

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

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

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

Taking
into account this reduction in tax provisions, total tax expenses for 2007 were NIS 338.4
million (US$ 88.0 million), a decrease of 8.7% from NIS 370.7 million in 2006. The
decrease also reflects the lower Israeli corporate tax rate in 2007 of 29% compared with
31% in 2006. In 2008, the Israeli corporate tax rate will decrease further to 27% (see
Note 9b to our consolidated financial statements).

Net
income.Net income in 2007 was NIS 939.8 million (US$ 244.4 million) and
earnings of NIS 5.96 (US$ 1.55) per diluted share, representing a 37.7% increase from NIS
682.3 million (earnings of NIS 4.41 per diluted share), in 2006.

Results of Operations for
the Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Revenues.Revenues in 2006 were NIS 5,606.7 million, increasing by 9.4%
          from NIS 5,122.9 million in 2005.

Revenues
from services.Revenues in 2006 from services were NIS 5,027.3 million in 2006,
representing an increase of 8.8% from 2005 service revenues of NIS 4,619.9 million.Compared with 2005, total network minutes increased in 2006 by 13.2%, partially offset
by a 5.5% 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 5.5% in 2006. The dilution in the average tariff per minute compared with 2005 was
driven primarily by the reduction in interconnection tariffs which went into effect in
March 2006, as well as 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 lower.

51

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Revenues
from equipment.Revenues in 2006 from equipment were NIS 579.4 million , an increase
of 15.2% from NIS 503 million in 2005. This increase was caused by an increase
in the average revenue per sale, reflecting a higher proportion of UMTS handset
sales to new and upgrading subscribers, as well as an increase in the number of
handsets sold to new and upgrading subscribers.

Data
and content revenues.Data and content revenues, including SMS messages, totaled NIS
526.7 million for 2006 as a whole, accounting for 9.4% of total revenues or 10.5% of
service revenues, up from NIS 404.2 million, 7.9% of total revenues, or 8.7% of service
revenues, in 2005, despite the mandated 49% reduction in SMS interconnection tariffs which
went into effect in March 2006. The increase compared with 2005 was driven by data and
content non-SMS service revenues, which increased by 36.1%. Revenues from SMS services in
2006 increased by 21.7% compared with 2005, despite the reduction in SMS interconnect
tariffs from March 2006, as mandated by the Ministry of Communications. SMS messages
accounted for approximately 38% of data and content revenues in 2006, compared with
approximately 42% in 2005.

Cost
of revenues.Cost of revenues in 2006 increased by 3.5% to NIS 3,897.3
million from NIS 3,766.4 million in 2005.

Cost
of revenues  services in 2006 increased by 2.1% to NIS 3,085.5 million , from NIS
3,022.5 million in 2005. The increase was primarily driven by higher variable airtime
costs resulting from the growth in airtime usage, offset by lower depreciation, lower
royalties, and efficiency measures taken by the Company.

Cost
of revenues  equipment in 2006 increased by 9.1% to NIS 811.8 million from NIS 743.9
million in 2005. The increase was driven primarily by the selling of more advanced and
higher cost of 3G handsets and an approximate 7% growth in sales transactions to new and
upgrading subscribers.

Gross
profit.Gross profit for 2006 was NIS 1,709.4 million , the equivalent of
30.4% of revenues, up by 26.0% from NIS 1,356.6 million, or 26.5% of revenues, in 2005.

Selling
and marketing expenses.Selling and marketing expenses in 2006 were NIS
307.6 million , an increase of 12.7% from NIS 272.9 million in 2005. The increase was
primarily due to an increase in the sales force, which contributed to growth in sales
transactions, as well as increases in distribution and advertising costs.

General
and administrative expenses.General and administrative expenses in 2006
were NIS 183.5 million , up by 1.5% from NIS 180.8 million in 2005, the increase primarily
due to fees related to ensuring Sarbanes-Oxley Act compliance.

Operating
profit.Operating profit for 2006 was NIS 1,218.4 million , an increase of
34.9% from NIS 902.9 million in 2005. As a percentage of revenues, operating profit
increased from 17.6% in 2005 to 21.7% in 2006.

Financial
expenses.Financial expenses in 2006 were NIS 166.4 million , a decrease of
51.8% from NIS 345.4 million in 2005. The decrease is primarily attributed to one-off
charges in 2005 including a NIS 63 million charge related to the redemption of the
US$ 175 million 13% Senior Subordinated Notes in August 2005. The decrease also reflects
lower interest expenses resulting from the refinancing of the Companys long term
debt with lower cost CPI linked shekel-denominated debt, as well as lower expenses
resulting from the lower average CPI level in 2006 of -0.1% compared with 2.4% in 2005.

Income
before taxes.Income before taxes for 2006 was NIS 1,052 million up 88.7%-
compared to NIS 557.5 million in 2005.

Following
the ruling of the Supreme Court in November 2006 in the matter of Paz Gas Marketing
Company Ltd. and Others vs. the Assessing Officer and Others, which overturned the rules
regarding the recognition of financing expenses, the Company included in its financial
statements an additional provision of taxes in the amount of NIS 35 million. This
provision was an estimate of the additional tax expense relating to the possibility that
part of the financing expenses accrued in the years 2005 and 2006 in respect of a
financial debt, which is attributable, inter alia, to the financing of a repurchase of
Company shares, would not be recognized as an expense for tax purposes.

Net
income.Net income in 2006 was NIS 682.3 million or earnings of NIS 4.44
per basic ADS or share (NIS 4.41 per diluted ADS or share), representing a 92.4% increase
from NIS 354.6 million, or earnings of NIS 2.19 per basic ADS or share (NIS 2.17 per
diluted ADS or share), in 2005.

During
2006, our net active subscribers increased by 139,000, or 5.5%. The Companys
subscriber base at the end of December 2006 was approximately 2,668,000, accounting for an
approximate market share of 32%, including approximately 605,000 business subscribers or
23% of the base, approximately 1,282,000 postpaid private subscribers, or 48% of the base,
and approximately 781,000 prepaid subscribers, or 29% of the base. Of the Companys
subscriber base, approximately 276,000 were 3G subscribers. Net new active subscribers in
the business sector accounted for approximately 71% of net new active subscribers in the
year.

52

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The
annual churn rate in 2006 increased to 15.6% up from 13.6% in 2005. The increase was
primarily related to the prepaid sector.

Average
monthly usage per subscriber (MOU) for 2006 was 311 minutes, an increase of
5.8% compared with 294 minutes in 2005. Average monthly revenue per subscriber
(ARPU) in 2006 was NIS 158 (US$ 37.4), an increase of 1.3% compared with NIS
156 in 2005, despite the reduction in interconnection charges mandated by the Ministry of
Communications in March 2006.

Seasonality

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

|                 | Three months ended
|---------------- | ------------------
|
|
|
|
|Service Revenues |                   
|                 |                   
|2006             |                   
|2007             |                   
|                 |                   

Impact of Inflation and
Exchange Rate Fluctuations

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

Although
we have the ability to borrow under our bank credit facility in US dollars, our current
borrowings are in shekels, and most of our financial debt (shekel bank borrowings and our
Notes due 2012) are linked to the consumer price index (CPI). If the CPI
increases, we may not be permitted to raise our tariffs in a manner that would fully
compensate for any increase in our financial expenses. We partly hedge the principal
amount of our Notes due 2012 against adverse movement in the CPI.

# 5B. Liquidity and
Capital Resources

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

At
December 31, 2007, total financial debt (including the current portion of our long-term
liabilities) amounted to NIS 2,100.9 million, compared to NIS 2,329.1 million at December
31, 2006. Short-term financial debt, which is comprised of the current portion of
long-term debt, amounted to NIS 28.3 million at December 31, 2007, compared to NIS 40.2
million at December 31, 2006. Capital expenditures amounted to approximately NIS 469
million, NIS 488 million and NIS 486 million in 2007, 2006 and 2005, respectively.

53

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Currently,
our main sources of liquidity are:

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

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

| |  | our
senior credit facilities.
| | - | -----------------------------

Cash
on hand.At December 31, 2007, we had NIS 148 million in cash on hand.

Operating
cash flows.Cash flows generated from operating activities in 2007 (NIS 1,456.3
million or US $378.6 million), net of cash flows from investing activities (NIS 540.1
million or US $140.4 million), were NIS 916.2 million (US $238.2 million), an
increase of 18.2%, or NIS 141.4 million from 2006. Cash flows from operating activities
increased in 2007 primarily due to the increase of NIS 257.5 million increase in net
income, offset by a decrease in cash flow from other short term balance sheet line items
of NIS 24.7 million. The level of investment in fixed assets increased in 2007 primarily
due to an increase cost in fixed assets purchased of NIS 116.5 million.

Senior
credit facilities.Our senior credit facilities currently consist of a US$75 million
term loan facility (facility A) and a US$75 million revolving loan facility (facility B),
both maturing on September 1, 2009. Our credit facilities are unsecured. Bank Hapoalim
B.M., Bank Leumi Le-Israel B.M., Israel Discount Bank Ltd. and Mizrahi Tefahot Bank Ltd.
are participating in the facilities. At December 31, 2007, the balances available for
drawing were approximately US$75 million under Facility A, and US$75 million
under Facility B. In addition, we hold an advance of approximately US$4 million
carried over from our previous facility as of December 31, 2007.

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

The
Notes are due 2012 and principal and interest payments are linked to the CPI. The annual
interest on the notes is 4.25% payable quarterly. Quarterly principal repayments in twelve
installments 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, and, as further described below, to
repurchase up to 33.3 million shares from our founding Israeli shareholders and to redeem
our 13% Senior Subordinated Notes due 2010, originally issued in August 2000.

| |  | In
April 2005, we repurchased approximately 33.3 million of our shares pursuant to an offer
received from our 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 our issued and outstanding
share capital. The price per share at which these shares were acquired was NIS 32.22 per
share. The total consideration paid for the shares was approximately NIS 1,074 million.
We cancelled the repurchased shares.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In
August 2005, we redeemed the 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 we financed from our new
bank facility and funds generated from current operations, concluded the refinancing of
our long term debt into lower cost CPI linked shekel-denominated debt.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dividend
payments and share repurchases.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. During the years 2006 and
2007, we distributed cash dividends to our shareholders in the amount of NIS 307 million
and NIS 631 million, respectively. In February 2008, the Board of Directors approved the
distribution of a cash dividend in the amount of NIS 2.02 per share (approximately NIS 318
million ($83 million)) to shareholders of record as of February 20, 2008. Cash dividends
are paid in Israeli currency. For further information see Item 8A. Consolidated
Financial Statements and other Financial Information  Dividend Distribution
Policy. In February 2008, the Board also approved a share buy-back plan throughout
2008 in an amount of up to NIS 600 million, subject to appropriate market conditions. As
of April 30, 2008, we have repurchased approximately 625,000 of our shares for a total
consideration of approximately NIS 49 million. See Item 16E. Purchases of Equity
Securities by the Issuer and Affiliated Purchasers.

We
believe that funds from our operations, together with funds raised under our credit
facility and our cash on hand 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.

54

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# 5D. Trend Information

First quarter of 2008         The convenience translations of
the nominal New Israeli Shekel (NIS) figures into US Dollars were made at the rate of
exchange prevailing at March 31, 2008: US $1.00 equals NIS 3.553. The translations were
made purely for the convenience of the reader.

Financial Review

Revenues. Partners
first quarter 2008 net revenues totaled NIS 1,587.8 million           (US$ 446.9
million), an increase of 12.0% from NIS 1,417.8 million in the first           quarter of
2007.

Revenues
from services. Service revenues increased by 6.7% from NIS 1,258.3 million
in the first quarter of 2007 to NIS 1,342.5 million (US$ 377.8 million) in the first
quarter of 2008. The increase primarily reflected the growth in the subscriber base, an
increase in the weight of post-paid subscribers in our subscriber base, higher average
minutes of use, as well as an increase in content and data revenues. This was partially
offset by a decrease in average revenue per minute resulting from competitive pressures
and regulatory intervention including the approximate 14% reduction in interconnect
tariffs which went into effect on March 1, 2008, the final reduction in the Ministry of
Communications program of mandated gradual reductions from 2005 to 2008.

Revenues
from content and data excluding SMS were NIS 122.4 million (US$ 34.5 million) in the first
quarter of 2008, representing an increase of 40.8% from the first quarter of 2007, the
equivalent of 9.1% of service revenues in the first quarter of 2008, compared with 6.9% of
service revenues in the first quarter of 2007. Revenues from SMS totaled NIS 75.9 million
(US$ 21.4 million), increasing by 32.7% from the first quarter of 2007, the equivalent of
5.7% of service revenues in the first quarter of 2008, compared with 4.5% in the first
quarter of 2007.

Gross
profit from services. Gross profit from services increased by 8.2% in the
first quarter of 2008 compared with the first quarter of 2007, from NIS 499.9 million to
NIS 540.9 million (US$ 152.2 million). The increase reflected the higher service revenues,
offset by a 5.7% increase in the cost of service revenues. The cost of service revenues
increased primarily due to additional depreciation expenses of approximately NIS 36
million resulting from the accelerated depreciation of the equipment to be replaced under
an agreement with LM Ericsson Israel Ltd. Most of the accelerated depreciation is expected
to be recorded during 2008, resulting in additional full year depreciation expenses of
approximately NIS 70 million.

Equipment
revenues. Equipment revenues totaled NIS 245.3 million (US$ 69.0 million)
in the first quarter of 2008, a 53.8% increase from NIS 159.5 million in the first quarter
of 2007. The increase was primarily attributable to the higher proportion of 3G handsets
sold compared with 2G handsets. Gross loss on equipment in the first quarter of 2008 was
NIS 34.4 million (US$ 9.7 million), compared with NIS 53.9 million in the first quarter of
2007, a decrease of 36.1%. This resulted from increased use of more competitive airtime
rate plan tariffs that offer lower subsidies, as well as from a decrease in the cost per
handset sold.

Gross
profit. Overall, gross profit in the first quarter of 2008 increased by
13.6%, from NIS 446.0 million in the first quarter of 2007 to NIS 506.5 million (US$ 142.5
million) in the first quarter of 2008.

Selling,
marketing, general and administration expenses. Selling, marketing, general
and administration expenses totaled NIS 157.7 million (US$ 44.4 million) in the first
quarter of 2008, an 8.9% increase from NIS 144.9 million in the first quarter of 2007. The
increase was due mainly to additional costs of growing the subscriber base, including
larger provisions for doubtful accounts from receivables on handset sales and service
revenues and higher selling and distribution costs.

Operating
profit.  Overall, the first quarter of 2008 operating profit was NIS 348.8
million (US$ 98.2 million), representing a 15.8% increase compared with NIS 301.1 million
in the first quarter of 2007.

Financial
expenses.  Financial expenses in the first quarter of 2008 were NIS 15.6
million (US$ 4.4 million), decreasing by 20.5% from NIS 19.6 million in the first quarter
of 2007. The decrease is primarily due to an increase in gains from currency exchange
movements, partially offset by higher linkage expenses due to the higher consumer price
index (CPI) level.

Net
income. Quarterly net income in the the first quarter of 2008 was NIS 243.3
million (US$ 68.5 million), compared with NIS 195.8 million in the first quarter of 2007,
an increase of 24.2%.

Basic
earnings per share. Basic earnings per share or ADS, based on the average
number of shares outstanding during the first quarter of 2008, was NIS 1.55 (44 US cents),
up by 23.0% from NIS 1.26 in the first quarter of 2007.

55

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Funding and Investing
Review

Cash
flows generated from operating activities, net of cash flows from investing activities
totaled negative NIS 20.0 million (US$ 5.6 million) in the first quarter of 2008, compared
with NIS 241.1 million in the first quarter of 2007, a decrease of 108.3%. The decrease
was primarily due to a decrease in cash flows from operating activities of 75.8% from NIS
384.6 million in the first quarter of 2007 to NIS 93.1 million (US$ 26.2 million) in the
first quarter of 2008, reflecting the large increase in cash flows from operating
activities in the first quarter of 2007 due to a change in payment terms to suppliers, as
well as payments during the first quarter of 2008 for handset inventories. This decrease
was partially offset by a decrease in cash flows used for investing activities which
totaled NIS 113.1 million (US$ 31.8 million) in the first quarter of 2008, a decrease of
21.2% from NIS 143.5 million in the first quarter of 2007.

In
February 2008, the Board approved a share buy-back plan throughout 2008 in an amount of up
to NIS 600 million, subject to appropriate market conditions. As of March 31, 2008, the
Company had repurchased approximately 625,000 of its shares at an average price per share
of NIS 77.61, for a total consideration of approximately NIS 49 million. For further
information, see Item 16E. Purchases of Equity Securities by the Issuer and
Affiliated Purchasers.

The
Board has approved the distribution of a dividend for the first quarter of 2008 of NIS
1.24 (35 US cents) per share (in total approximately NIS 195 million or US$ 55
million) to shareholders and ADS holders of record on May 28, 2008. The dividend will be
paid on June 12, 2008.

Operational Review

On
January 1, 2008 the Company adopted a more conservative and rigorous policy for
recognizing prepaid subscribers. The aim of the new policy is to ensure that purchased
prepaid SIM cards are only recognized in the subscriber base after the prepaid SIM cards
are actually used by the prepaid subscribers. The change had the effect of reducing the
subscriber base on January 1, 2008 by approximately 61,000 subscribers.

Approximately
24,000 net active subscribers joined the Company in the first quarter of 2008, comprising
approximately 40,000 net active postpaid subscribers joining the Company and 16,000 net
active prepaid subscribers leaving the Company. Following the change in the subscriber
recognition policy, the Companys active subscriber base at the end of the first
quarter of 2008 was approximately 2,823,000, including approximately 727,000 business
subscribers (25.8% of the base), 1,381,000 postpaid private subscribers (48.9% of the
base) and 715,000 prepaid subscribers (25.3% of the base). Total market share at the end
of the quarter was estimated to be unchanged at 32%.

The
Companys 3G subscriber base reached approximately 753,000 by the end of the first
quarter of 2008, with approximately 120,000 subscribers joining the 3G network during the
quarter.

The
quarterly churn rate increased from 4.4% in the first quarter of 2007 to 5.1% in the first
quarter of 2008. The increase is generally explained by the effect of the introduction of
number portability in December 2007, with most of the increase being attributable to
higher churn in the prepaid segment (churn does not include the impact of the change in
subscriber recognition policy).

First
quarter 2008 average monthly usage per subscriber (MOU) was 359 minutes, an increase of
11.1% from 323 in the first quarter of 2007. Average revenue per user (ARPU) was
approximately NIS 155 (US$ 44) in the first quarter of 2008, an increase of 1.3% from NIS
153 in the first quarter of 2007.

56

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# Outlook

Our
expectation for 2008 is that we will continue to grow our subscriber base, even given the
highly penetrated and competitive environment, though at a lower rate than in 2007. We
also expect total revenues to continue to grow in 2008 though at a lower rate than in
2007. Barring any further adverse material regulatory decisions, we also expect annual
EBITDA growth in 2008, again at a lower rate than in 2007. For more information, see
Regulatory Developments in Item 4B. Information on the
CompanyBusiness OverviewRegulation.

Our
strategic goals for 2008 include focusing on efficiency, as demonstrated in the
transaction with Ericsson, and establishing the platform for our non-cellular activity. We
are acting to expand our offering of telecommunications services, including data
transmission, internet, VOB and domestic land-line services. Capital expenditures for 2008
are currently expected to be no more than approximately 10% of anticipated revenues in
2008. In order to expand our offerings, we may consider acquiring businesses and
technologies in areas complementary to our existing business. We believe that the Israeli
telecommunications market will be characterized increasingly by service providers that can
offer the bundling of telecommunications services in packages that are designed to attract
and retain subscribers by meeting a wider range of their telecommunications needs.

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

# 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, 2007:

|                                      | 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      |                                          
|Handsets                              |                                          
|Fixed Assets                          |                                          
|Unrecognized tax benefit              |                                          
|                                      |                                          
|Total Contractual Cash Obligations    |                                          
|                                      |                                          

*
This table does not include payments of interest on our Long-Term Debt. Interest on our
Notes due 2012, which represents NIS 2,072.6 million of our Long-Term Debt is at 4.25% per
annum, linked to changes in the consumer price index (CPI). Our remaining
Long-Term Debt consists of NIS 21.5 million with interest of 5.6%, linked to the CPI.

57

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# ITEM 6. DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES

# 6A. Directors and Senior
Management

Below
is a list of the Directors of the Company as of December 31, 2007:

Directors

|Name of Director             | Age | Position                          
|---------------------------- | --- | ----------------------------------
|
|
|
|
|Fok Kin-ning, Canning        | 56  | Chairman of the Board of Directors
|Dr. Michael J. Anghel (2)(4) | 69  | Director                          
|Chan Ting Yu (1)(3)          | 57  | Director                          
|Chow Woo Mo Fong, Susan      | 54  | Director                          
|Uzia Galil                   | 82  | Director                          
|Erez Gissin (1)(2)           | 49  | Director                          
|Dennis Pok Man, Lui (1)(3)   | 57  | Director                          
|Pesach Shachar (1)           | 74  | Director                          
|Amikam Shorer (5)            | 40  | Director                          
|Frank John Sixt              | 56  | Director                          
|Moshe Vidman (1)(2)(3)(4)    | 64  | Director                          
|                             |     |                                   

---

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

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

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

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

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

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

Dr.
          Michael J. 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 to 2005, Dr. Anghel served as
CEO of DCM,           the investment banking arm of the Israel Discount Bank.   He
has been           involved in various technology enterprises and has served on the
Boards of           Directors of various major Israeli corporations and financial
institutions           including Elron, Elbit, Nice, Gilat, American Israeli Paper Mills,
Maalot (the           Israeli affiliate of Standard and Poors) and Hapoalim Capital
          Markets.  He currently serves on the Boards of Directors of Syneron
Medical           Ltd., ECI Telecom 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.  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 Executive Director of Hutchison Telecommunications International
Limited. Since joining the Hutchison Whampoa group, he has been closely involved in the
management and development of Hutchisons telecommunications business
internationally. Mr. Chan holds a Bachelor of Arts degree, a Bachelor of Laws degree and a
Postgraduate Certificate in Laws. Mr. Chan was nominated as a director, and as a member of
the Executive Committee, by Advent Investments Pte Ltd.

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

Uzia
Galil has been a director of Partner since August 1999. Mr. Galil currently serves as
Chairman and Chief Executive Officer of Uzia Initiatives and Management Ltd., a company
specializing in the promotion and nurturing of new businesses 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 of
Directors. From January 1981 until leaving Elron, Mr. Galil also served as Chairman of the
Board of Directors of Elbit Ltd., an electronic communication affiliate of Elron, and as a
member of the Boards of Directors of Elbit Systems Ltd., a defense electronics affiliate
of Elron, and all other private companies held in the Elron portfolio. Mr. Galil currently
serves as a member of the Boards of Directors of Orbotech Ltd., 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.

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

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

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

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

Senior Management

Below is a list of the Senior
Management of the Company as of December 31, 2007.

|Name of Officer* | Age | Position                                                                
|---------------- | --- | ------------------------------------------------------------------------
|
|
|
|
|David Avner      | 56  | Chief Executive Officer                                                 
|Emanuel Avner    | 47  | Chief Financial Officer                                                 
|Iris Beck        | 42  | Vice President, Marketing                                               
|Chaim Beker      | 63  | Vice President, Operations                                              
|Alon Berman      | 47  | Vice President, Technologies                                            
|Adi Biran        | 64  | Vice President, Regulation and New Business Development                 
|Michal Dana      | 52  | Vice President, Human Resources and Operations                          
|Dan Eldar        | 54  | Vice President, Carrier, International and Investor Relations           
|Eli Glickman     | 46  | Vice President, Customer and Private Sales Division                     
|Roly Klinger     | 47  | Vice President, Legal and Regulatory Affairs and Joint Company Secretary
|Gil Rosenfeld    | 42  | Vice President, Business Division                                       
|Edith Shih       | 54  | Joint Company Secretary                                                 
|                 |     |                                                                         

---

*With effect as of January 1, 2008,
Oded Degany was appointed as Vice President Corporate Development, Strategy and Investor
Relations, and Erez Paz was appointed Vice President, Marketing and Content. See
Appointments below.

David
Avner was appointed Chief Executive Officer on January 1, 2007, having served as
Deputy CEO since April 2005 and Chief Operating Officer since January 2006. Prior to
joining the Company, Mr. Avner served as Senior Vice President of Operations and Member of
the executive management at Amdocs Limited. Previously, he served at Amdocs as Group
President Europe and LATAM & Member of Management. Prior to that, Mr. Avner served at
Strauss Dairy Ltd. for 17 years, the last four as General Manager of the Dairy Division.
He was also the 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. David Avner and Emanuel Avner are not related.

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

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. Ms. Beck will conclude her service as Vice
President Marketing with the Company as of December 31, 2008.

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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 from his position as team leader of
Partners bidding group and from April 1998 until November 2007 served as Vice
President, Regulation and New Business Development. Mr. Biran came to Partner from Elbit
Ltd., where, since 1992, he initiated and headed their effort to enter the
telecommunications market as an additional mobile radio operator, using the GSM standard,
and in that capacity, he guided 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. 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.

Michal
Danaserves as Vice President, Human Resources and Operations since May 2006. She
worked at Amdocs since 2002, where she served first as the Director of Human Resources for
Amdocs European and Latin American division, and from 2005 as the Vice President of
Human Resources, overseeing the worldwide customer business group for all human resource
activities in Europe, Asia Pacific, and Latin America. From 2000 to 2002, Ms. Dana served
as the Vice President of Human Resources for Bungee Communications, a start-up wireless
broadband telecommunications company. Before that, she served from 1999-2000 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. Dr. Eldar concluded his service as
Vice President with the Company as of December 31, 2007.

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

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

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

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

61

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Appointments

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

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

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

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

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

# 6B. Compensation

The
aggregate compensation paid, and benefits in kind granted to or accrued on behalf of all
our directors and senior management for their services in all capacities to the Company
and its subsidiaries during the year ended December 31, 2007 was approximately NIS 48
million ($12.5 million). This amount includes approximately NIS 2.21 million ($0.57
million) set aside or accrued to provide pension, retirement or similar benefits on behalf
of all our senior management during the year ended December 31, 2007, as well as a special
retirement bonus of NIS US$3.65 million approved by the Compensation Committee, the Audit
Committee, the Board of Directors and the shareholders,to Mr. Amikam Cohen, our
previous Chief Executive Officer, who retired from his functions as chief executive on
January 1, 2007, and from the Company on April 1, 2007. The aggregate compensation amount
does not include performance bonus payments made in 2007 with respect to the year ending
December 31, 2006, but does include bonus payments deemed earned with respect to the year
ending December 31, 2007, and paid in 2008.

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

In
2007 options were granted to our senior management under the 2004 Employee Stock Option
Plan to purchase up to 660,000 of our ordinary shares at exercise prices between NIS 42.1
and NIS 64.9 per share. These options will expire by December 2017. For more information,
see Item 6E. Directors, Senior Management and EmployeesShare
Ownership2004 Employee Stock Option Plan.

# 6C. Board Practices

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

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Terms of Directors

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

Alternate Directors

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

External Directors under
the Companies Law

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

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

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

Financial Experts under
the Companies Law

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

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Nasdaq Rule Exemptions

Under
Nasdaq rules, companies that satisfy the definition of a Controlled Company
may be exempt from certain regulatory requirements. The regulatory requirements which a
Controlled Company is exempt from include (i) the requirement that a majority
of the Board of Directors members must be independent; (ii) the requirement that the
compensation committee must be comprised solely of independent directors, or that
compensation of our senior management must be determined by a majority of the independent
directors on the full Board of Directors; and (iii) the requirement that the nomination
committee must be comprised solely of independent directors or that nominations must be
made by a majority of the independent directors on the full Board of Directors.

A
Controlled Company is defined as a company of which more than 50% of the
voting power is held by an individual, group or another company. As Hutchison Telecom owns
more than 50% of our outstanding ordinary shares, we fall under the definition of a
Controlled Company and therefore we rely on the exemptions for a
Controlled Company as provided under the Nasdaq rules. However, our Board of
Directors may from time to time review this decision.

In
addition, in connection with our adoption of our 2004 Employee Share Option Plan, we
received an exemption from the Nasdaq requirement that issuers receive shareholder
approval when establishing a stock option plan, purchase plan or other equity compensation
arrangement pursuant to which stock may be acquired by officers, directors or consultants.
In accordance with Israeli law, Board of Directors approval was obtained in connection
with the adoption of the 2004 Employee Share Option Plan, and shareholder approval will be
obtained when required under Israeli law, such as when options would be issued under the
plan to directors or to office holders who hold a controlling interest in Partner.

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

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.

Audit Committee

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

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

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

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

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Compensation Committee

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

Security Committee

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

Internal Auditor

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

Fiduciary Duties of an
Office Holder

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

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

Approval of Related Party
Transactions

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

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

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

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

Duty of a Shareholder

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

Indemnification

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hutchison
Telecom and its participating subsidiaries, including us, are also covered by further
excess directors and officers liability insurance policies of up to a limit of
US$75 million for any one claim and in the aggregate for the policy period. These policies
are shared with Cheung Kong (Holdings) Ltd (Cheung Kong), HWL, CK Life Sciences
Intl. (Holdings), Inc. and Hongkong Electric Holdings Limited. and their respective
subsidiaries. In the event of the depletion of the insurance coverage underlying the first
layers of insurance as the result of payment of loss, these policies shall continue to
apply for subsequent losses as excess insurance over the amount of insurance remaining
under such first layers of insurances on follow form basis. Our participation in the
annual premium of the insurance program as described above is US $624,109 for 2007.

# 6D. Employees

At
December 31, 2007, we had 4,130 employees on full time equivalent basis, compared with
3,714 at December 31, 2006 and 3,403 at December 31, 2005. The number of employees at
year-end 2007, 2006, and 2005, according to their activity, was as follows:

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

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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. A participating employee
generally 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%
and 7.5% of such employees salary.

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

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

# 6E. Share Ownership

As
of April 30, 2008, our directors and senior management owned an aggregate of 346,667
ordinary shares, which constitutes less than 1% of our outstanding ordinary shares.
Directors and senior management do not have different voting rights than other
shareholders of the Company.

As
of April 30, 2008, our senior management held, in the aggregate, options to purchase up to
1,417,957 of our ordinary shares, of which 302,957 options were vested and exercisable as
of that date and an additional 62,500 will be vested and exercisable during the sixty
days thereafter. No individual senior manager holds options to purchase 1% or more of our
outstanding ordinary shares. No options have been granted to our directors.

The
table below sets forth the number of options held by our senior management according to
exercise price and expiration date, as of April 30, 2008:

|Option exercise price (NIS) | Number of options held | Option expiration Date
|--------------------------- | ---------------------- | ----------------------
|26.74                       | 237,500                | November 2014         
|33.72                       | 175,000                | April 2015            
|33.58                       | 110,000                | May 2016              
|32.73                       | 150,457                | July 2016             
|34.63                       | 85,000                 | September 2016        
|42.1                        | 300,000                | January 2017          
|57.96                       | 235,000                | June 2017             
|64.90                       | 125,000                | December 2017         

Until
November 2003, we granted options to our senior management 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, 2005 and 2006 we granted options to our management and
other employees pursuant to the 2004 Employee Stock Option Plan.

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In
March 2008, the Board of Directors terminated the 1998 and 2000 Employee Stock Option Plan
as well as the 2003 Amended Plan. As a result, no further options will be granted under
such plans.

1998 Employee Stock
Option Plan

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

The
1998 Plan initially authorized the issuance of options to purchase 5,833,333 shares. In
2000, options to purchase 729,166 shares were transferred to the 2000 Plan which left
options to purchase 5,104,167 shares in the 1998 plan. As of December 31, 2007, options to
purchase 4,905,028 ordinary shares had been exercised under the 1998 Plan, options to
purchase 3,386 ordinary shares were outstanding, and options to purchase 195,753 ordinary
shares were available for grant. However, on March 26, 2008, the Board of Directors
terminated the 1998 Employee Stock Option Plan, and as a result, no further options will
be granted under such plan. The termination of the 1998 Plan shall not adversely affect
the terms of any option which has already been granted.

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

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

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

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

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

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

2000 Employee Stock
Option Plan

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

The
2000 Plan authorizes the issuance of options to purchase up to 4,472,222 ordinary shares.
In November 2003, 419,930 options under this plan were transferred to the 2003 Amended
Plan. As of December 31, 2007, options to purchase 3,626,472 ordinary shares had been
exercised, options to purchase 193,500 ordinary shares were outstanding, and options to
purchase 232,320 ordinary shares were available for grant. However, on March 26, 2008, the
Board of Directors terminated the 2000 Employee Stock Option Plan, and as a result, no
further options will be granted under such plan. The termination of the 2000 Plan shall
not adversely affect the terms of any option which has already been granted.

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The
exercise prices of the outstanding options range from NIS 17.25  NIS 27.35.

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

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

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

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

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

2003 Amended Plan

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

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

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

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

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

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

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 to
employees, directors, officers and advisors. The options will be granted to employees
under the provisions of the capital gains tax route provided for in Section 102 of
the Israeli Income Tax Ordinance. The options 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.

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 in which case
approval of the shareholders meeting would be required upon the grant of options to such
directors or controlling partners.

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

The
2004 Share Option 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 Share Option 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.

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As
of December 31, 2007 options to purchase 3,023,318 ordinary shares had been exercised,
options to purchase 2,666,932 shares were outstanding and options to purchase 84,750
ordinary shares were available for grant under the 2004 Plan. The exercise price of the
options is based on the fair market value of the Companys shares at the time of
grant. The fair market value of an ordinary share on any date will be equal to the average
of the closing sale price of ordinary shares during the preceding 30 trading days, as such
closing sale price is published by the Tel-Aviv Stock Exchange. The exercise prices of
outstanding options as of March 31, 2008, range from NIS 26.74 to NIS 64.90. Options that
had been forfeited or expired unexercised may be regranted.

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

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# ITEM 7. MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

# 7A. Major Shareholders

The
following table sets forth certain information with respect to the beneficial ownership of
our ordinary shares as of April 30, 2008 with respect to each person who we believe to be
the beneficial owner of 5% or more of our ordinary shares. Except where otherwise
indicated, we believe, based on information furnished to us by the principal shareholders,
that the beneficial owners of the ordinary shares listed below have sole investment and
voting power with respect to such ordinary shares. None of our major shareholders has any
different voting rights than any other shareholder. See Item 10B. Memorandum and
Articles of Association  Rights Attached to Shares.

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

---

|(1) | Hutchison
Telecommunications International Limited (Hutchison                Telecom),
Advent Investments Pte Ltd., (Advent), Hutchison
               Telecommunications International (Netherlands) B.V., (Hutchison
               (Netherlands)), Hutchison Whampoa Limited (HWL) and
Cheung                Kong (Holdings) Limited (Cheung Kong). Hutchison
Telecom, a company                incorporated in the Cayman Islands and whose ordinary
shares are listed on the                Hong Kong Stock Exchange and ADSs are listed on
the New York Stock Exchange,                owns Partner shares through two indirect
subsidiaries, Advent and Hutchison                (Netherlands), which own 65,464,024 and
13,476,080 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), HWL and Cheung Kong, HWL, a company incorporated in Hong
Kong and                whose ordinary shares are listed on the Hong Kong Stock Exchange,
owns Partner                shares through its direct wholly owned subsidiary Hutchison
International                Limited, which in turn directly holds 100% of Ommaney
Holdings Limited (formerly                Hutchison Telecommunications Limited), which in
turn directly holds 100% of                Hutchison Telecommunications Investment
Holdings Limited (HTIHL),                which in turn directly holds
approximately 54.79% and also through its wholly                owned subsidiary,
Hutchison Telecommunications Holdings Limited (formerly, New                Brilliant
Holdings Limited), indirectly holds approximately 4.54% of the total
               outstanding ordinary shares of Hutchison Telecom, which indirectly owns
               78,940,104 of the ordinary shares of Partner.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Based
on publicly available SEC filings as of January 2008, Cheung Kong, through
               its indirect ownership of approximately 49.97% of the issued shares of HWL
and                its indirect ownership of 1.1% of the issued shares of Hutchison
Telecom, may be                deemed to have sole voting and dispositive power over the
ordinary shares of                Partner beneficially owned by HWL and Hutchison
Telecom. However, as stated in                publicly available SEC filings, Cheung Kong
expressly disclaims beneficial                ownership of the shares of Hutchison
Telecom beneficially owned in aggregate by                HWL, HTIHL and Hutchison
Telecommunications Holdings Limited, and of the                ordinary shares of the
Company.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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|(5) | Treasury
shares do not have a right to dividends or to vote.
|--- | ------------------------------------------------------------

|(6) | As
of March 31, 2008, our directors and senior management owned an aggregate of
               346,667 ordinary shares, which constitutes less than 1% of our outstanding
               ordinary shares and have been included under Public in the
table                above. For information regarding options held by our senior
management to                purchase ordinary shares, see Item 6E. Share Ownership.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Controlling Shareholders

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

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

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

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.

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

Other

On
April 30, 2008, 13,776,959 ADSs (equivalent to 13,776,959 ordinary shares or approximately
8.7% of our total outstanding ordinary shares were outstanding and held of record by 27
registered holders in the United States. Additionally, on March 31, 2008, there were
approximately 47 holders of record of our ordinary shares. Of these holders, none had a
registered address in the United States, although certain accounts of record with
registered addresses other than in the United States may hold our ordinary shares, in
whole or in part, beneficially for United States persons. We are aware that many ADSs and
ordinary shares are held of record by brokers and other nominees and accordingly the above
numbers are not necessarily representative of the actual number of persons who are
beneficial holders of ADSs and ordinary shares, or the number of ADSs and ordinary shares
beneficially held by such persons.

# 7B. Related Party
Transactions

Relationship Agreement

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

License Conditions:
Required Minimum Israeli and Founding Shareholder Percentages

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

Foreign Mobile Radio
Telephone Operator

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

Compulsory Transfer in
the Event of Default

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

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Term and Termination

The
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.

Related agreement among
Israeli founding shareholders

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

Transactions with
Affiliates

Agreements with
affiliates of Hutchison Telecom

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

We
are participants in a directors and officers liability insurance policy
procured by Hutchison Telecom, insuring our directors and officers liability
and our undertaking to indemnify them, in respect of certain matters permitted by the
Companies Law. The insurance program provides primary coverage of Partner and its
subsidiaries for an amount of US $20 million for any one claim and in the aggregate, and
in excess thereof the insurance program provides coverage for Hutchison Telecom and its
participating subsidiaries, including Partner, of up to US$105 million for any one claim
and in the aggregate. We also participate in further excess directors and
officers liability insurance policies of up to $75 million together with Hutchison
Telecom and its participating subsidiaries, which provide coverage in the event of
depletion of insurance coverage under the first layers of insurance as the result of
payment of loss. Our participation in the annual premium of the insurance program as
described above was US $624,109 for the year 2007. See Item 6C. Board Practices
 Indemnification.

In
August 2002, we signed a Cost-Sharing Agreement (the CSA) with certain members
of the HWL group of companies for the joint acquisition and development of information
technology platforms and software solutions, hardware, content and other services, in
connection with the 3G generation business. The CSA allows us to participate in
acquisition and development projects with other 3G companies within the HWL and Hutchison
Telecom groups, and to benefit from the combined purchasing power and resources of the
groups which include companies in Austria, Australia, Denmark, Hong Kong, Ireland, Italy,
Sweden and the United Kingdom. As of December 31, 2006, 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, because the
CSA gives us an opportunity to maximize economies of scale and operational efficiencies
for development and procurement activities associated with our 3G business. See
Note 12(c) to our consolidated financial statements.

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

In
2005, 2006 and 2007 we entered into agreements with H3G Procurement Services S.à
r.l., a subsidiary of HWL (H3G), for the purchase of 3G handsets.

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

Agreements with
affiliates of Eurocom

Eurocom
Communications Ltd. (Eurocom) one of our founding Israeli shareholders, sells
our services or distributes handsets in connection with their sale of Nokia handsets to
private customers and small business customers. Eurocom receives a commission from us for
the activation of each handset that it sells to customers as one of our distributors and
for the logistical support related to the supply of handsets.

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During
2007 we purchased a portion of our Nokia handsets from Eurocom that represented
approximately 40% of all of our handset purchases.

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

Other Agreements

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 our former Chief Executive Officer,
Amikam Cohen, for the sale, installation and maintenance of car kits in approximately 35
locations.

In
April 2005, we entered into a new 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. See Item 5. Operating and Financial Review and
ProspectsLiquidity and Capital Resources.

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

Registration Rights

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

# 7C. Interests of Experts
and Counsel

Not
applicable.

# ITEM 8. FINANCIAL INFORMATION

# 8A. Consolidated
Financial Statements and Other Financial Information

Audited
financial statements for the three fiscal years ended December 31, 2007 are included
under "Item 18. Financial Statements."

Legal and Administrative Proceedings

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

In
addition to a ordinary course proceedings described above, we have been named as
defendants in a number of civil and criminal proceedings related to our network
infrastructure and consumer claims regarding, for example, our tariff plans and billing
methods, which may result in civil liabilities or criminal penalties against us or our
officers and directors. Plaintiffs in some of these proceedings are seeking certification
as class actions. Unless and until any of these claims is recognized as a class action, we
and our legal counsel are unable to evaluate the probability of success of such claim, or
the range of a potential loss, with any degree of certainty, and therefore no provision
has been made. See Note 7 to our consolidated financial statements.

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During 2007, 8 criminal proceedings were brought against us concerning the erection of
network sites without building permits, of which three were also brought against our
officers and directors. As of December 31, 2007, 17 criminal proceedings were pending
against us concerning the erection of network sites without building permits, of which six
were also pending against our officers and directors. We are currently negotiating with
the relevant local authorities to reach a settlement regarding the relocation of affected
sites or obtaining building permits for those sites. The total amount of fines paid in
2007 was approximately NIS 0.5 million. Settlements of previous criminal proceedings
brought against us resulted in Partner, but not its officers or directors, admitting guilt
and paying a fine, and also resulted in the imposition of demolition orders for the
relevant sites, the execution of which have been stayed for a period of time to allow us
to obtain the necessary permits or to relocate the relevant network site.

In
April 2006, a claim was filed against us, together with a motion requesting certification
as a class action, alleging a variety of customer complaints. At a preliminary hearing
that took place in September 2007, the plaintiff informed the Court of his wish to
withdraw his claim and in October 2007 the claim was dismissed.

Dividend Distribution
Policy

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

Our
dividend policy for 2007 provides for an 80% payout ratio of annual net income.
Previously, with respect to the year 2006, our dividend policy provided for a payout ratio
of 60%. See Item 3D. Risk Factors for risks relating to future payments of
dividends. In addition, our Board of Directors has approved a share buy-back plan
throughout 2008, in an amount of up to NIS 600 million, subject to appropriate market
conditions.

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

# 8B. Significant Changes

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

# ITEM 9. THE OFFER AND
LISTING

# 9A. Offer and Listing Details

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

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

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|               | Nasdaq | London Stock Exchange | Tel Aviv Stock Exchange
|-------------- | ------ | --------------------- | -----------------------
|
|
|
|
|2003           |        |                       |                        
|               |        |                      
|2004           |        |                       |                        
|               |        |                      
|2005           |        |                       |                        
|               |        |                      
|2006           |        |                       |                        
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        
|               |        |                      
|2007           |        |                       |                        
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        

---

|*       
The
data for the fourth quarter of 2004 is based on last trade reported to the London Stock
Exchange. From January 1, 2005 through December 31, 2007, there were no trades of our ADS
executed on the London Stock Exchange trading system.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|              | Nasdaq | London Stock Exchange | Tel Aviv Stock Exchange
|------------- | ------ | --------------------- | -----------------------
|
|
|
|
|November 2007 |        |                       |                        
|December 2007 |        |                       |                        
|January 2008  |        |                       |                        
|February 2008 |        |                       |                        
|March 2008    |        |                       |                        
|April 2008    |        |                       |                        

*     As
indicated above, from January 1, 2005 through December 31, 2007, there were no trades of
our ADS executed on the London Stock Exchange trading system.

# 9B. Plan of Distribution

Not
applicable.

# 9C. Markets

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

# 9D. Selling Shareholders

Not
applicable.

# 9E. Dilution

Not
applicable.

# 9F. Expenses of the Issue

Not
applicable.

78

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# ITEM 10. ADDITIONAL
INFORMATION

# 10A. Share Capital

Not
applicable.

# 10B. Memorandum and Articles
of Association

Purposes and Objects of
the Company

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

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

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

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

The Powers of the
Directors

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

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 157,320,770 ordinary shares were issued and outstanding as of
December 31, 2007, and 157,463,353 shares were issued and outstanding as of April 30,
2008. All outstanding ordinary shares are validly issued. The rights attached to our
ordinary shares are described below.

Dividend Rights

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

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

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

Voting Rights

Holders
of 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.

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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.

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

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

Rights in the
Companys Profits

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

Rights in the Event of
Liquidation

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

Limitations on Ownership
and Control

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

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

Changing Rights Attached
to Shares

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

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Annual and Extraordinary
Meetings

The
Board of Directors must convene an annual meeting of shareholders at least once every
calendar year, within fifteen months of the last annual meeting. Notice of a general
meeting must be sent to each registered shareholder within five days after the record date
set by the Board of Directors for that meeting, unless a different notice time is required
under applicable law or unless all shareholders who qualify to vote at the time approve in
writing of a shorter notice period. An extraordinary meeting may be convened by the Board
of Directors, as it decides or upon a demand of any two directors or 25% of the directors,
whichever is lower, or of one or more shareholders holding in the aggregate at least 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 Mobile Telephone License  License
Conditions,   Our Permit Regarding Cross Ownership and Item
10B. Rights Attached to Shares Limitations on ownership and control.

Limitations on Change in
Control and Disclosure Duties

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

Changes in our Capital

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

Share Buy-back Program

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

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

# 10C. Material Contracts

In
January 2006, we signed an agreement with Med I.C.1 (1999) Ltd. to purchase its
fiber-optic cable infrastructure comprising of a network of approximately 900 kilometers
of submerged and terrestrial transmission fiber in Israel. We entered into this agreement
in order to enable us to reduce our transmission costs as well as to provide our business
customers with bundled services of transmission of data and voice. In July 2006, we
completed this transaction for a final purchase price of approximately NIS 71 million
($16.8 million).

In
January 2007, we signed a two-year contract with the international long-distance provider
Golden Lines (012), to carry all of our international call traffic. The
agreement provides that Partner will route calls to its customers that are roaming abroad
via Golden Lines (012). In addition, Partner will route outgoing international calls from
foreign roamers hosted on Partners network in Israel. Under the agreement, all
international signaling traffic related to Partners roamers abroad and foreign
roamers hosted on Partners network while visiting Israel will be also be routed
through Golden Lines (012). We expect that the costs related to these services provide by
Golden Lines (012) will exceed US $10 million over a two-year period.

In
December 2007, we signed an agreement with LM Ericsson Israel Ltd. for the replacement of
third party 3G equipment existing in our network and the expansion thereof and for the
support and maintenance of the Ericsson elements in our network. As a result, Ericsson
shall become the sole supplier for our 3G network. The Company allocated the purchase
price of US$ 65 million to the above deliverables based on their relative fair values. Of
this amount, US$ 6.6 million related to support and maintenance of the network for three
years. The purchase price is after deduction of commercial discounts, some of which are
contingent upon future negotiations for further purchases of services that are probable.

We
have contracted with Super-Pharm, the largest drugstore chain in Israel, to
sell our network services. At December 31, 2007 our services were sold in Super-Pharm and
Super-Link stores nationwide in a variety of formats, including Partner shop-in-shops,
kiosks, wall-unit displays and at front counters. In 2007, approximately 16% of our new
subscribers were recruited through sales by Super-Pharm. Super-Pharm sells our network
services in their stores, and in a chain of stores called Super-Link that is
dedicated to selling communications services and equipment. The agreement between the
parties, which was amended in July 2007 with retroactive effect as of June 2006, will be
renewed automatically at the beginning of each calendar year unless either of the parties
notifies the other party in advance of their intention not to renew the agreement.

81

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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

The
corporate tax rate applicable in 2007 was 29%. This rate was reduced to 27% in 2008, and
had been scheduled to be reduced to 26% in 2009 and 25% in 2010 and beyond.

Special Provisions
Relating to Taxation under Inflationary Conditions

Our
taxable income is determined under the Income Tax (Inflationary Adjustment) Law 1985 (the
Inflationary Adjustments Law), which attempts to overcome some of the problems
presented to a traditional tax system by 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.

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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
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 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
Income Tax Law (Inflationary Adjustments), 1985 will be abolished from the tax year 2008,
subject to transitional provisions.

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 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 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 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 who have acquired their shares prior to
an initial public offering (that may be subject to a different tax arrangement).
Inflationary surplus that accrued after December 31, 1993, is exempt from tax.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Real
Gains derived from the disposal after January 1, 2003 of an asset purchased prior to this
date will be subject to capital gains tax at a blended rate. The regular corporate tax
rate of 29% (in 2007 and reduced to 27% in 2008) and a marginal tax rate of up to 48% (in
2007 and reduced to 47% during 2008) for individuals will be applied to the gain amount
which bears the same ratio to the total gain realized as the ratio which the holding
period commencing at the acquisition date and terminating on January 1, 2003 bears to the
total holding period. The remainder of the gain realized will be subject to capital gains
tax at a 25% rate for corporations and 20% for individuals (25% for an individual who was
a Significant Shareholder at any time during the 12-month period preceding
such sale).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Taxation
of Israeli Residents. In July 2001 our ordinary shares were listed for trading on the
Tel Aviv Stock Exchange. As a result of our dual listing and due to the 2003 Tax Reform
(inclusion of new provisions concerning the taxation of capital markets) and that since
our ordinary shares are no longer considered foreign traded securities, 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 the
shareholders purchase of the shares will determine the tax outcomes in this regard.

# Sale of shares purchased
after January 1, 2003

Individuals

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

Corporations

Corporations that are subject to
the Inflationary Adjustments Law on August 10, 2005

The
shareholder will be subject to tax at the corporate rate on the realized capital gain (
29%in 2007 and 27% in 2008).

Corporations that are not subject
to the Inflationary Adjustments Law on August 10, 2005

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

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

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

| | Foreign
investors (individuals and corporations) that are not engaged in the business of trading
securities through a permanent establishment in Israel, who purchased the shares after
the listing on the Tel Aviv Stock Exchange will be exempt from tax on capital gains
derived from the sale of the shares. Foreign corporations will not be entitled to such
exemption if an Israeli resident (i) has a controlling interest of 25% or more in such
non-Israeli corporation, or (ii) is the beneficiary of or is entitled to 25% or more of
the revenues or profits of such foreign corporation, whether directly or indirectly.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Taxation
of Investors Engaged in a Business of Trading Securities. Individual and corporate
dealers in securities in Israel are taxed at tax rates applicable to business income.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Withholding
at Source from Capital Gains from Traded Securities.Under the 2006 Tax Reform,
Israeli stockbrokers have a duty to withhold tax upon the sale of traded securities. The
applicable withholding tax rate is generally 20% from the real gain derived from such
sale by Israeli resident individuals and 25% from the real gain derived by Israeli
resident corporations. Non-Israeli residents are generally not subject to a withholding
tax on the capital gain derived from the sale of traded securities provided all the
following conditions are met:
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | 3  | the
shares sold were purchased upon or after the initial public offering.
| | --- | -------------------------------------------------------------------------

Dividends

The
following Israeli tax consequences shall apply in the event of actual payment of any
dividends on ordinary shares or ADSs.

Income
from dividends in 2006 and thereafter, other than bonus shares (stock dividends), to
Israeli residents who purchased our Shares will generally be subject to income tax at a
rate of 20% for individuals, or 25% if the dividends receipt is a Significant Shareholder
(as defined above) at any time during the 12-month period preceding such distribution and
will be exempt from income tax for Israeli corporations.

Non-residents
of Israel (both individuals and corporations) are subject to income tax on income accrued
or derived from sources in Israel, including dividends from Israeli corporations. The
distribution of dividend income, other than bonus shares (stock dividends), to
non-residents of Israel will generally be subject to income tax at a rate of 20% (or 25%
for a shareholder that is considered a Significant Shareholder (as defined above) at any
time during the 12-month period preceding such distribution), unless a lower rate is
stipulated by a treaty between Israel and the shareholders country of residence.

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In the event of actual payment of any
dividends on our ordinary shares or ADSs the following withholding rates will be applied:
(i) Israeli resident corporation  0%, (ii) Israeli resident individual  20%
(iii) non-Israeli resident  20%, subject to a reduced tax rate under an applicable
double tax treaty.

Taxation of Residents of
the United States under the US Treaty

Residents
of the United States will generally be subject to withholding tax in Israel on dividends
paid, if any, on Shares (including ADSs). Generally, under the Convention Between the
Government of the United States of America and the Government of the State of Israel with
Respect to Taxes on Income (the US Treaty), the maximum rate of withholding
tax on dividends paid to a holder of Shares (including ADSs) who is a resident of the
United States (as defined in the US Treaty) will be 25%. Since the tax rate of 25% is
generally higher than the maximum Israeli tax rate on dividends pursuant to the 2006 Tax
Reform, the maximum tax rate should be 20%. The maximum rate of withholding tax on
dividends paid by Israeli corporation to a US corporation generally will be 12.5% if,
inter alia, during the part of the Israeli corporations taxable year which
precedes the date of payment and during the whole of its prior taxable year, at least 10%
of the outstanding shares of the voting stock of the Israeli corporation was owned by the
US corporation.

The
US Treaty exempts from taxation in Israel any capital gain realized on the sale, exchange
or other disposition of Shares (including ADSs) provided the following conditions are met
(a) the seller is a resident of the United States for purposes of the US Treaty, and (b)
the seller owns directly or indirectly, less than 10% of our voting stock at all times
during the 12-month period preceding such sale, exchange or other disposition (c) the
seller, being an individual, is present in Israel for a period or periods of less than 183
days at the taxable year; and (d) the capital gain from the sale was not derived through a
permanent establishment of the seller in Israel.

Purchasers
of Shares (including ADSs), who are residents of the United States and who hold 10% or
more of the outstanding ordinary shares at any time during such 12-month period will be
subject to Israeli capital gains tax. However, under the US Treaty, residents of the
United States (as defined in the US Treaty) generally would be permitted to claim a credit
for this tax against US federal income tax imposed on the sale, exchange or other
disposition, subject to the limitations in US laws applicable to the utilization of
foreign tax credits generally.

The
application of the US Treaty provisions to dividends and capital gains described above is
conditioned upon the fact that such income is not effectively connected with a permanent
establishment (as defined in the US Treaty) maintained by the non-Israeli resident in
Israel.

A
non-resident of Israel that has dividend income derived from or accrued in Israel, from
which tax was withheld at the source, is generally exempt from the duty to file tax
returns in Israel in respect of such income, provided such income was not connected to or
derived from a trade or business conducted in Israel by the tax payer.

Repatriation

Non-residents
of Israel who acquire any of the Shares (including ADSs) of the Company will be able to
repatriate dividends, liquidation distributions and the proceeds from the sale of such
ADSs or ordinary shares, in non-Israeli currencies at the rate of exchange prevailing at
the time of repatriation provided that any applicable Israel income tax has been paid, or
withheld, on such amounts. US holders should refer to the United States Federal
Income Taxation  Dividends section below with respect to the US federal tax
treatment of foreign currency gain or loss.

United States Federal
Income Tax Considerations

The
following discussion is a summary of certain material US federal income tax considerations
applicable to a US holder (as defined below) regarding the acquisition, ownership and
disposition of ordinary shares or ADSs. This summary is based on provisions of the
Internal Revenue Code of 1986, as amended (the Code), existing and proposed US
Treasury regulations, administrative pronouncements, rulings and judicial decisions in
effect as of the date of this Annual Report. All of these authorities are subject to
change, possibly with retroactive effect, and to change or changes in interpretation. In
addition, this summary does not discuss all aspects of US federal income taxation that may
be applicable to investors in light of their particular circumstances or to investors who
are subject to special treatment under US federal income tax law, including US
expatriates, insurance companies, banks, regulated investment companies, securities
broker-dealers, financial institutions, tax-exempt organizations, persons holding ordinary
shares or ADSs as part of a straddle, hedging or conversion transaction, persons subject
to the alternative minimum tax, persons who acquired their ordinary shares or ADSs
pursuant to the exercise of employee stock options or otherwise as compensation, persons
having a functional currency other than the US dollar, persons owning (directly,
indirectly or by attribution) 10% or more of our outstanding share capital or voting
stock, and persons not holding the ordinary shares or ADSs as capital assets.

85

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As
used herein, the term US holder means a beneficial owner of an ordinary share
or an ADS who is eligible for benefits as a US resident under the limitation on benefits
article of the US Treaty (as defined above in Taxation of residents of the
United States under the US Treaty), and is:

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

| | a
corporation (or an entity taxable as a corporation for US federal income tax purposes)
created or organized in or under the laws of the United States or any political
subdivision thereof (including the District of Columbia);
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

If
a partnership, or other entity treated as a partnership for US federal income tax
purposes, holds ordinary shares or ADSs, the tax treatment of a partner generally will
depend upon the status of the partner and the activities of the partnership. A partner in
a partnership that holds ordinary shares or ADSs is urged to consult its own tax advisor
regarding the specific tax consequences of owning and disposing of ordinary shares or
ADSs.

For
US federal income tax purposes, US holders of ADRs will be treated as owners of the ADSs
evidenced by the ADRs and the ordinary shares represented by the ADSs. Furthermore,
deposits or withdrawals by a US holder of ordinary shares for ADSs, or of ADSs for
ordinary shares, will not be subject to US federal income tax or Israeli income tax. The
statements of US federal income tax laws set forth assume that each obligation in the
Deposit Agreement and any related agreement will be performed in accordance with its
terms.

US
holders should review the summary above under Israeli Taxation and
Israeli TaxationTaxation of residents of the United States under the US
Treaty for a discussion of the Israeli taxes which may be applicable to them.

Holders
of ordinary shares or ADSs should consult their own tax advisors concerning the specific
Israeli, US federal, state and local tax consequences of the ownership and disposition of
the ordinary shares or ADSs in light of their particular situations as well as any
consequences arising under the laws of any other taxing jurisdiction. In particular, US
holders are urged to consult their own tax advisors concerning whether they will be
eligible for benefits under the US Treaty.

Dividends

A
US holder generally will be required to include in gross income as ordinary dividend
income the amount of any distributions paid on the ordinary shares and ADSs, including the
amount of any Israeli taxes withheld in respect of such dividend. Dividends paid by us
will not qualify for the dividends-received deduction applicable in certain cases to US
corporations.

The
amount of any distribution paid in NIS, including the amount of any Israeli withholding
tax thereon, will be included in the gross income of a US holder of ordinary shares in an
amount equal to the US dollar value of the NIS calculated by reference to the spot rate of
exchange in effect on the date the distribution is received by the US holder or, in the
case of ADSs, by the Depositary. If a US holder converts dividends paid in NIS into US
dollars on the day such dividends are received, the US holder generally should not be
required to recognize foreign currency gain or loss with respect to such conversion. If
the NIS received in the distribution are not converted into US dollars on the date of
receipt, any foreign currency gain or loss recognized upon a subsequent conversion or
other disposition of the NIS will be treated as US source ordinary income or loss. Special
rules govern and special elections are available to accrual method taxpayers to determine
the US dollar amount includible in income in the case of taxes withheld in a foreign
currency. Accrual basis taxpayers are urged to consult their own tax advisors regarding
the requirements and the elections applicable in this regard.

Any
dividends paid by us to a US holder on the ordinary shares or ADSs will be treated as
foreign source income and will be categorized as passive income or, in the
case of certain US holders, financial services income for US foreign tax
credit purposes. For taxable years beginning after December 31, 2006, dividend income
generally will constitute passive category income or, in the case of certain
US holders, general category income. Subject to the limitations in the Code,
as modified by the US Treaty, a US holder may elect to claim a foreign tax credit against
its US federal income tax liability for Israeli income tax withheld from dividends
received in respect of ordinary shares or ADSs. US holders who do not elect to claim the
foreign tax credit may instead claim a deduction for Israeli income tax withheld, but only
for a year in which the US holder elects to do so with respect to all foreign income
taxes. A deduction does not reduce US tax on a dollar-for-dollar basis like a tax credit.
The deduction, however, is not subject to the limitations applicable to foreign tax
credits. The rules relating to the determination of the foreign tax credit are complex.
Accordingly, if you are a US holder of ordinary shares or ADSs, you should consult your
own tax advisor to determine whether and to what extent you would be entitled to the
credit.

86

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Certain
US holders (including individuals) are eligible for reduced rates of US federal income tax
(at a maximum rate of 15%) in respect of qualified dividend income received in
taxable years beginning before January 1, 2011. For this purpose, qualified dividend
income generally includes dividends paid by a non-US corporation if, among other things,
the US holders meet certain minimum holding periods and the non-US corporation satisfies
certain requirements, including that either (i) the shares (or ADSs) with respect to which
the dividend has been paid are readily tradable on an established securities market in the
United States, or (ii) the non-US corporation is eligible for the benefits of a
comprehensive US income tax treaty (such as the US Treaty) which provides for the exchange
of information. We currently believe that dividends paid with respect to our ordinary
shares and ADSs, should constitute qualified dividend income for US federal income tax
purposes. We anticipate that our dividends will be reported as qualified dividends on
Forms 1099-DIV delivered to US holders. Each individual US holder of ordinary shares or
ADSs is urged to consult his own tax advisor regarding the availability to him of the
reduced dividend tax rate in light of his own particular situation and regarding the
computations of his foreign tax credit limitation with respect to any qualified dividend
income paid by us, as applicable.

The
US Treasury has expressed concern that parties to whom ADSs are released may be taking
actions that are inconsistent with the claiming of foreign tax credits or reduced rates in
respect of qualified dividends by US holders of ADSs. Accordingly, the discussion above
regarding the creditability of Israeli withholding tax or the availability of qualified
dividend treatment could be affected by future actions that may be taken by the US
Treasury with respect to ADSs.

Sale, Exchange or Other
Disposition

Upon
the sale, exchange or other disposition of ordinary shares or ADSs, a US holder generally
will recognize capital gain or loss equal to the difference between the US dollar value of
the amount realized on the sale, exchange or other disposition and the US holders
adjusted tax basis, determined in US dollars, in the ordinary shares or ADSs. Any gain or
loss recognized upon the sale, exchange or other disposition of the ordinary shares or
ADSs will be treated as long-term capital gain or loss if, at the time of the sale,
exchange or other disposition, the holding period of the ordinary shares or ADSs exceeds
one year. In the case of individual US holders, capital gains generally are subject to US
federal income tax at preferential rates if specified minimum holding periods are met. The
deductibility of capital losses by a US holder is subject to significant limitations. US
holders should consult their own tax advisors in this regard.

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, 2007. 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.

87

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Backup
withholding is not an additional tax. Amounts withheld as backup withholding may be
credited against a holders US federal income tax liability, and a holder may obtain
a refund of any excess amounts withheld by filing the appropriate claim for refund with
the IRS and furnishing any required information.

# 10F. Dividends and
Paying Agents

Not
applicable.

# 10G. Statement By Experts

Not
applicable.

# 10H. Documents on Display

Reports
and other information of Partner filed electronically with the US Securities and Exchange
Commission may be found at www.sec.gov. They can also be inspected without charge and
copied at prescribed rates at the public reference facilities maintained by the SEC in
Room 1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549.

# 10I. Subsidiary
Information

Not
applicable.

# ITEM 11. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

We
are exposed to market risk, including movements in foreign currency exchange and
inflation-indexed interest rates. Where appropriate, we enter into derivative transactions
to hedge underlying exposure to foreign currencies and inflation (as measured by the
consumer price index (CPI)). As a matter of policy we do not enter into
transactions of a speculative or trading nature. Interest rate and foreign exchange
exposures are monitored by tracking actual and projected commitments and through the use
of sensitivity analysis.

We
have borrowings in shekels linked to the CPI and in foreign currencies. The following
table provides information derived from the financial statements about these borrowings,
as of December 31, 2007.

# Non-Derivative
Instruments

|                                                          | Fair Value (NIS equivalent in
millions, except percentages)
|--------------------------------------------------------- | -----------------------------------------------------------
|
|
|
|
|NIS linked to the CPI (1)                                 |                                                            
|                                                          |                                                            
|Long-term fixed Notes due 2012                            |                                                            
|Weighted average interest rate payable                    |                                                            
|                                                          |                                                            
|Long-term - fixed bank debt                               |                                                            
|Weighted average interest rate payable on fixed rate debt |                                                            
|                                                          |                                                            
|Capital lease                                             |                                                            
|Weighted average interest rate payable                    |                                                            
|                                                          |                                                            
|Foreign Currencies (mainly USD) (1)                       |                                                            
|                                                          |                                                            
|Payables-trade                                            |                                                            
|Weighted average interest rate payable                    |                                                            
|                                                          |                                                            
|Capital lease                                             |                                                            
|Weighted average interest rate payable                    |                                                            
|                                                          |                                                            
|Total                                                     |                                                            
|                                                          |                                                            

|(1) | Book
value approximates fair value at December 31, 2007.
|--- | --------------------------------------------------------

88

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Expected Maturity Dates:

We have a senior credit facility with
Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel Discount Bank Ltd., in which
United Mizrahi Bank Ltd. also participates. The facility is divided into two tranches: a
$150 million term loan facility (Facility A) and a $100 million revolving loan
facility (Facility B) both expiring September 1, 2009. Facility A must be
reduced to $50 million by August 31, 2008. Until February 19, 2007, the facilities were
secured by a first ranking floating charge on our assets. With effect March 1, 2007, we
have reduced Facility A to $75 million (in addition to an advance of approximately $25
million carried over from our previous facility, which on balance sheet date, was reduced
to $4 million) and Facility B to $75 million. As a result, the total maximum availability
under the facility is currently approximately $154 million.

Foreign Exchange and
Inflation

Substantially
all of our revenues and a majority of our operating expenses are denominated in shekels.
However, through December 31, 2007, a material amount of our operating expenses were
linked to non-shekel currencies, mainly the U.S. dollar. These expenses related mainly to
the acquisition of handsets where the price paid by us is based on various foreign
currencies, mainly the U.S. dollar. In addition, most of our capital expenditures are
incurred in, or linked to non-shekel currencies, mainly the U.S. dollar. In light of the
decrease in the average value of the U.S. dollar compared to the shekel during 2006 and
2007, changes in foreign exchange rates thus had an overall favorable impact on our
expenses and financial results. In the event of a devaluation of the shekel against the
dollar (or other foreign currencies), the shekel cost of our non-shekel denominated or
linked expenses would increase. Such an increase may have an adverse impact on our
results, which may be material. We hedge some of our foreign currency commitments.

Our
hedging strategy is to neutralize and mitigate our currency exposures by entering into
hedging transactions which convert into shekels the liabilities not denominated in
shekels. We do not hold or issue derivative financial instruments for trading purposes.

Our
bank credit facility borrowings and Notes due 2012 are currently in shekels, most of which
are linked to the CPI. We may not be permitted to raise our tariffs pursuant to our
license in a manner that would fully compensate for any increase in the CPI. Therefore, an
increase in the rate of inflation may also have a material adverse impact upon us by
increasing our financial expenses without an offsetting increase in revenue. 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. See Note 10b to our consolidated financial
statements.

# Derivative Instruments

| |                                                       | As of
December
31, 2007 | Maturing in
2008 | Fair Value at
December 31,
2007
| | ----------------------------------------------------- | ----------------------- | ---------------- | -------------------------------
|
|
|
|
| | Forward transactions - for the exchange of: Dollars   |                         |                  |                                
| | into NIS                                              |                         |                  |                                
| | Embedded derivatives - Dollars into NIS               |                         |                  |                                
| | Forward transactions - for changes in the Israeli CPI |                         |                  |                                
| |                                                       |                         |                  |                                

# ITEM 12. DESCRIPTION OF
SECURITIES OTHER THAN EQUITY SECURITIES

Not
applicable.

89

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# 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. Our management, including our Chief
          Executive Officer and Chief Financial Officer carried out an evaluation of the
          effectiveness of the design and operation of our disclosure controls and
          procedures as of December 31, 2007. Disclosure controls and procedures means
          controls and other procedures designed to ensure that information required to
be           disclosed in the reports that we file under the Securities Exchange Act of
1934,           as amended, is recorded, processed, summarized and reported within the
time           periods specified in the rules and forms of the SEC. Disclosure controls
and           procedures include, without limitation, controls and procedures designed to
          ensure that information required to be disclosed in the reports we file or
          submit under the Securities Exchange Act of 1934, as amended, is accumulated
and           communicated to our management, including our principal executive and
principal           financial officers, or persons performing similar functions, as
appropriate, to           allow timely decisions regarding required disclosure.

There
are inherent limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or overriding
of the controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control objectives.
Nevertheless, our disclosure controls and procedures are designed to provide reasonable
assurance of achieving the desired control objectives. Based upon our evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls
and procedures in place as of December 31, 2007 were effective.

(b)
Managements Annual Report on Internal Control over Financial
          Reporting. Our management, under the supervision of our Chief Executive
          Officer and Chief Financial Officer, is responsible for establishing and
          maintaining adequate internal control over our financial reporting, as defined
          in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended. The
          Companys internal control over financial reporting is a process designed
          to provide reasonable assurance regarding the reliability of financial
reporting           and the preparation of financial statements for external purposes in
accordance           with generally accepted accounting principles. Internal control over
financial           reporting includes policies and procedures that:

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

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

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

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

Due
to its inherent limitations, internal control over financial reporting may not prevent or
detect all misstatements. In addition, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.

Our
management, including our Chief Executive Officer and Chief Financial Officer conducted an
evaluation of the effectiveness of our internal control over financial reporting as of
December 31, 2007 based on the framework for Internal Control-Integrated Framework
set forth by The Committee of Sponsoring Organizations of the Treadway Commission. Based
on this assessment, management concluded that the Companys internal control over
financial reporting was effective as of December 31, 2007.

Our
internal control over financial reporting as of December 31, 2007 has been audited by
Kesselman & Kesselman, an independent registered public accounting firm in Israel and
a member of PricewaterhouseCoopers International Limited., as stated in their report which
is included under Item 18.

90

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(c)
Attestation report of the registered public accounting firm. The
          attestation report of Kesselman & Kesselman, an independent registered
          public accounting firm in Israel and a member of PricewaterhouseCoopers
          International Limited., regarding the Companys internal control over
          financial reporting is included under Item 18.

(d)
Changes inInternal Control Over Financial Reporting. There were
          no changes in our internal control over financial reporting that occurred
during           the year ended December 31, 2007 that have materially affected, or are
          reasonably likely to materially affect, our internal control over financial
          reporting.

# ITEM 16A. AUDIT
COMMITTEE FINANCIAL EXPERT

The
Board of Directors has determined that Moshe Vidman, Dr. Michael Anghel and Erez Gissin
are audit committee financial experts as defined in Item 16A of Form 20-F. All
the members of the Audit Committee are independent directors as defined in the
Nasdaq listing standards applicable to us.

# ITEM 16B. CODE OF ETHICS

We
have adopted a code of ethics that applies to our directors, officers and employees. We
undertake to provide to any person without charge, upon request, a copy of our code of
ethics, which you may request from Partners legal department, tel.: +972-54-4814191.

# ITEM 16C. PRINCIPAL
ACCOUNTANT FEES AND SERVICES

Kesselman
& Kesselman, independent certified public accountants in Israel and a member of
Pricewaterhouse Coopers International Limited (PwC) have served as our
independent public accountants for each of the fiscal years in the three-year period ended
December 31, 2007, 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 2006 and 2007.

| |                        | 2006 (NIS thousands) | 2007 (NIS thousands)
| | ---------------------- | -------------------- | --------------------
|
|
|
|
| | Audit Fees (1)         |                      |                     
| | Audit-related Fees (2) |                      |                     
| | Tax Fees (3)           |                      |                     
| | All other fees         |                      |                     
| | TOTAL                  |                      |                     
| |                        |                      |                     

---

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

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

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

|(4) | Including
an amount of NIS 644,000 billed for the audit of our financial                statements
for the year ended December 31, 2006, in particular for audit hours                spent
at the beginning of 2007, and which were approved and paid in the third
               quarter of 2007.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Audit Committee
Pre-approval Policies and Procedures

Our Audit Committees specific
responsibilities in carrying out its oversight of the quality and integrity of the
accounting, auditing and reporting practices of the Company include the approval of audit
and non-audit services to be provided by the external auditor. The Audit Committee
approves in advance the particular services or categories of services to be provided to
the Company during the following yearly period and also sets forth a specific budget for
such audit and non-audit services. Additional non-audit services may be pre-approved by
the Audit Committee.

91

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

Not
applicable.

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

The table below sets forth
information regarding stock repurchases effected by the Company since January 1, 2007.

|Period             | (a) Total Number of
Shares Purchased | (b) Average Price
Paid per Share | (c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1) | (d) Maximum Number
(or Approximate NIS
Value) of Shares
that May Yet Be
Purchased Under the
Plans or Programs
(1)
|------------------ | ------------------------------------ | -------------------------------- | ---------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------
|March 1 - 31, 2008 | 625,000 shares                       | NIS 77.61                        | 625,000 shares                                                                           | Up to approximately NIS 551,500,000                                                                              

| | (1) | The
share repurchase plan was publicly announced on February 6, 2008, and
               provides for the repurchase of up to a maximum of NIS 600 million. This
               repurchase plan can be stopped by the Board of Directors at any time, and
will                expire on December 31, 2008 (see above Item 10B: Memorandum and
Articles                of Association  Purchase of Our Own Shares). There
were no other                repurchase plans in existence by the Company during the
period covered by the                table above.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 17. FINANCIAL
STATEMENTS

The
company has responded to Item 18. Financial Statements in lieu of responding
to this item.

# ITEM 18. FINANCIAL
STATEMENTS

The
following financial statements are filed as part of this annual report.

|                                                                                                   | Page           
|-------------------------------------------------------------------------------------------------- | ---------------
|
|
|
|
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                            | F - 2 - F - 3  
|CONSOLIDATED FINANCIAL STATEMENTS:                                                                
|Balance sheets as of December 31, 2006 and 2007                                                    | F - 4 - F - 5  
|Statements of operations for the years ended December 31, 2005, 2006 and 2007                      | F - 6          
|Statements of changes in shareholders' equity for the years ended December 31, 2005, 2006 and 2007 | F - 7          
|Statements of cash flows for the years ended December 31, 2005, 2006 and 2007                      | F - 8 - F - 9  
|Notes to financial statements                                                                      | F - 10 - F - 51
|                                                                                                   |                

92

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# ITEM 19. EXHIBITS

Pursuant to the rules and regulations
of the Securities and Exchange Commission, we have filed certain agreements as exhibits to
this Annual Report on Form 20-F. These agreements may contain representations and
warranties by the parties. These representations and warranties have been made solely for
the benefit of the other party or parties to such agreements and (i) may have been
qualified by disclosures made to such other party or parties, (ii) were made only as of
the date of such agreements or such other date(s) as may be specified in such agreements
and are subject to more recent developments, which may not be fully reflected in our
public disclosure, (iii) may reflect the allocation of risk among the parties to such
agreements and (iv) may apply materiality standards different from what may be viewed as
material to investors. Accordingly, these representations and warranties may not describe
our actual state of affairs at the date hereof and should not be relied upon.

|Exhibit No. | Description
|----------- | -----------

|>1.1 | Partners Amended and Restated Articles of Association
|---- | ------------------------------------------------------

|*1.2 | Partners
Certificate of Incorporation
|---- | --------------------------------------

|*1.3 | Partners
Memorandum of Association
|---- | -----------------------------------

|**2.(a).1 | Form
of Share Certificate
|--------- | -------------------------

|^^2.(a).2 | Amended
and Restated Deposit Agreement Between Partner and the Bank of New York
|--------- | -------------------------------------------------------------------------------

|^2.(b) | Form
of Indenture between Partner and the Trust Company of Union Bank Ltd.
|------ | --------------------------------------------------------------------------

|^4.(a).1 | Restatement
of the Relationship Agreement dated April 20, 2005
|-------- | --------------------------------------------------------------

|**4.(a).2 | License
from the Israeli Ministry of Communications issued April 8, 1998
|--------- | ------------------------------------------------------------------------

|**4.(a).4 | License
Agreement for use of the Orange Brand in Israel dated September 14, 1998
|--------- | --------------------------------------------------------------------------------

|**4.(a).5 | Brand
Support/Technology Transfer Agreement dated July 18, 1999
|--------- | ---------------------------------------------------------------

|**4.(a).6 | Agreement
with Ericsson Radio Systems AB dated May 28, 1998
|--------- | -----------------------------------------------------------

|#++4.(a).7 | Agreement
with LM Ericsson Israel Ltd. dated November 25, 2002
|---------- | --------------------------------------------------------------

|^#4.(a).8 | Dealer
Agreement with Super-Pharm dated February 12, 2004
|--------- | ---------------------------------------------------------

|#4.(a).8.1 | Amendment
to the Dealer Agreement with Super-Pharm, dated July 8, 2007
|---------- | ----------------------------------------------------------------------

|**4.(a).9 | Lease
Agreement with Mivnei Taasia dated July 2, 1998
|--------- | -----------------------------------------------------

|^^^4.(a).13 | Asset
Purchase Agreement with Med-1 dated  as of January 22, 2006
|----------- | -----------------------------------------------------------------

|#***4.(a).14 | Amendments
Nos. 1 to 6 to our License from the Israeli Ministry of Communications
|------------ | ---------------------------------------------------------------------------------

|+4.(a).15 | Amendments
Nos. 7 to 11 to our License from the Israeli Ministry of Communications
|--------- | ----------------------------------------------------------------------------------

|++4.(a).16 | Amendments
Nos. 12 to 17 to our License from the Israeli Ministry of Communications
|---------- | -----------------------------------------------------------------------------------

|+++4.(a).17 | Amendments
Nos. 18 to 23 to our License from the Israeli Ministry of Communications
|----------- | -----------------------------------------------------------------------------------

|^4.(a).18 | Amendments
Nos. 24 to 31 to our License from the Israeli Ministry of Communications
|--------- | -----------------------------------------------------------------------------------

|^^^4.(a).19 | Amendments
Nos. 32 to 34 to our License from the Israeli Ministry of Communications
|----------- | -----------------------------------------------------------------------------------

|>4.(a).20 | Amendments
Nos. 35 to 44 to our License from the Israeli Ministry of Communications
|--------- | -----------------------------------------------------------------------------------

|4.(a).21 | Amendment
No. 44 to our License from the Israeli Ministry of Communications
|-------- | ---------------------------------------------------------------------------

|4.(a).22 | Amendment
No. 45 to our License from the Israeli Ministry of Communications
|-------- | ---------------------------------------------------------------------------

|>4.(a).58 | Special License from the Israeli Ministry of Communications for
the                Provision of Fixed-Line Domestic Transmission and Data Communications
Services                issued August 14, 2006.
|--------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|>4.(a).59 | Amendment No. 1 to Special License for the Provision of Fixed-Line
               Domestic Transmission and Data Communications Services issued September
10,                2006.
|--------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|>4.(a). 60 | Exclusive General License from the Israeli Ministry of
                Communication for the Provision of Domestic Transmission and Data
               Communications Services issued January, 15 2007.
|---------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|>4.(a). 60.1 | Amendment No. 1 to Fixed-Line License from the Israeli Ministry
of                Communications issued January 14, 2007
|------------ | ------------------------------------------------------------------------------------------------------------------------

|>4.(a). 60.2 | Amendment No. 2 to Fixed-Line License from the Israeli Ministry
of                Communications issued January 31, 2007
|------------ | ------------------------------------------------------------------------------------------------------------------------

|>4.(a).60.3 | Amendment No. 3 to Fixed-Line License from the Israeli Ministry
of                Communications issued February 19, 2007
|----------- | -------------------------------------------------------------------------------------------------------------------------

|4.(a).60.4 | Amendment
No. 4 to Fixed-Line License from the Israeli Ministry of Communications issued July 11,
2007
|---------- | ------------------------------------------------------------------------------------------------------

|4.(a).60.5 | Amendment
No. 5 to Fixed-Line License from the Israeli Ministry of Communications issued October
10, 2007
|---------- | ---------------------------------------------------------------------------------------------------------

|^4.(a).64 | Facility
Agreement dated April 14, 2005
|--------- | ---------------------------------------

|#+++4.(a).65 | Purchase
Agreement with Nortel Networks Israel (Sales and Marketing) Ltd. dated November 12, 2003.
|------------ | --------------------------------------------------------------------------------------------------

|^4.(a).66 | Share
Buy Back Agreement dated February 7, 2005
|--------- | -----------------------------------------------

|#4.(a).67 | Swap
Agreement with LM Ericsson Israel Ltd. dated December 20, 2007
|--------- | -------------------------------------------------------------------

|6. | See
Note 1r to our financial statements for information explaining how earnings
               (loss) per share information was calculated.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------

|8. | List
of Subsidiaries (see "Item 4C - Organizational Structure").
|-- | ----------------------------------------------------------------

|12.(a).1 | Certification
by CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

93

---

---

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

|^^ | Incorporated
by reference to our registration statement on Form F-6 (No. 333-132680).
|-- | -------------------------------------------------------------------------------------

|^^^ | Incorporated
by reference to our annual report on Form 20-F for the fiscal year ended December 31,
2005.
|--- | --------------------------------------------------------------------------------------------------------

|> | Incorporated
by reference to our annual report on Form 20-F for the fiscal year ended December 31,
2006.
|- | --------------------------------------------------------------------------------------------------------

|# | Confidential
treatment requested.
|- | ---------------------------------

Confidential material has been
redacted and has been separately filed with the Securities and Exchange Commission.

94

---

---

# GLOSSARY OF SELECTED
TELECOMMUNICATIONS TERMS UPDATE

The
following explanations are not intended as technical definitions, but to assist the reader
in understanding certain terms as used in this annual report.

|     |                                                                                                                                                                                  
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AMPS | Advanced Mobile Phone System; the analogue cellular telephone technology adopted in the
United States. Also N-AMPS (Narrowband AMPS), a more frequency-efficient variant of
AMPS.

|                  |                                                                                                                                                                                                                 
|----------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Analog Technology | A technology in which some property of an electrical signal is varied proportionally to
the input signal being transmitted, stored or processed. Fixed transmitter/receiver
equipment in each cell of a cellular

|                                 |                                                                                                 
|-------------------------------- | ------------------------------------------------------------------------------------------------
|Base Transceiver Station ("BTS") | telecommunications network that communicates by radio with all cellular telephones in
that cell.

|                                |                                                                                                                                                                        
|------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Base Station Controller ("BSC") | Monitors and controls one or more base stations in order to exchange messages, handover
cellular units from cell to cell and perform other system administrative tasks.

|             |                                                                                                              
|------------ | -------------------------------------------------------------------------------------------------------------
|Blocked call | Where a cellular phone call fails because no channels are available in the cell in
which the user is located.

|     |                                                                                                                                        
|---- | ---------------------------------------------------------------------------------------------------------------------------------------
|CDMA | Code Division Multiple Access; a method by which many users sharing the same radio
channel can be distinguished by unique code numbers.

|     |                                                                                                              
|---- | -------------------------------------------------------------------------------------------------------------
|Cell | In a cellular telephone system, the coverage area of a single base transceiver station
or one sector therein.

|        |                                                                                                      
|------- | -----------------------------------------------------------------------------------------------------
|Channel | A frequency or time slot in a telecommunications system over which distinct messages
can be conveyed.

|      |                                                                                                                                                                                                                                                                                                                  
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Churn | The number of customers who are disconnected from a network, either involuntarily, due
to payment delinquency or suspected fraudulent use, or voluntarily, as customers switch
to competing networks, relocate outside the network's service area, or cease using
cellular telephones permanently or temporarily.

|       |                                                                                                                                                                          
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|D-AMPS | Digital Advanced Mobile Phone System; a digital mobile system first implemented in the
United States and intended initially to permit gradual upgrading of AMPS networks.

|             |                                                        
|------------ | -------------------------------------------------------
|Dropped call | When a cellular phone call is involuntarily terminated.

|     |                                                                                                                                                                                                                                                                                   
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|GPRS | General Packet Radio Services (GPRS) is a packet-based wireless communication service
that enables data rates from 56 up to 114 Kbps and continuous connection to the
Internet for mobile phone and computer users. GPRS is based on Global System for Mobile
(GSM) communication.

|    |                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|GSM | The Global System for Mobile Communications, a comprehensive digital standard for the
operation of all elements of a mobile telephone system. GSM originated in Europe, but
is now the most popular digital mobile telephone standard worldwide.

|        |                                                                                                                             
|------- | ----------------------------------------------------------------------------------------------------------------------------
|GSM 900 | GSM operation in the 900 MHz frequency band; the original frequency band allocated to
 GSM, later extended by 10 MHz (EGSM).

|         |                                                                                                                                                                                                               
|-------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|GSM 1800 | GSM operation in the 1800 MHz frequency band; formerly known as DCS 1800 or PCN, first
allocated for the expansion of mobile network competition in Europe, now used for the
same purpose in many other areas.

|         |                                                                              
|-------- | -----------------------------------------------------------------------------
|GSM 1900 | GSM operation in the 1900 MHz band; primarily used in North and South America

|                |                                                                                                                                                                                                                                                                                   
|--------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|GSM Association | Formerly known as the GSM Memorandum of Understanding Association (GSM MoU), an
organization of operators, government administrations, and equipment and service
suppliers that promotes the development and promulgation of the GSM standard and
relations between GSM operators.

95

---

---

|      |                                                                                                                                                                                        
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|HSCSD | High Speed Circuit Switched Data is an infrastructure development which enables the
transmission of data at higher speeds than the 9600 Bps speed previously available on
GSM networks.

|      |                                                                                                                                                                                                                                                         
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|HSXPA | HSXPA technology describes the third generation (UMTS) cellular High Speed Packet Access
protocol that combines both the High Speed Downlink Packet Access (HSPDA) and High
Speed Uplink Packet Access (HSUPA) modes for high performance ACDMA systems.

|                           |                                                                                                
|-------------------------- | -----------------------------------------------------------------------------------------------
|Intelligent Network ("IN") | Network architecture that centralizes the processing of calls and billing information
of calls.

|                                  |                                                                                                                                                
|--------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------
|Cellular Switching Center ("MSC") | A large, computer-based device used to connect calls within a cellular network and as
 the interface of the cellular network to other networks.

|    |                      
|--- | ---------------------
|RTT | Real-time technology.

|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|SMS | Short message service, a service which enables cellular telephone users to send and
receive written messages on their handsets.

|     |                                                                                                                                        
|---- | ---------------------------------------------------------------------------------------------------------------------------------------
|UMTS | Universal Cellular Telecommunications System, the "third generation" of cellular
telecommunications standard, also referred to as UMTS.

|                                |                                                                                                                                                                                                                                             
|------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Virtual Private Network ("VPN") | A private network provided by means of the facilities of a public telephone network but
which operates by logic as a closed user group thereby providing the convenience of a
private network with the economy of scale of a public network.

|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|WAP | Wireless Application Protocol, a language specifically developed for cellular
telephones that facilitates internet usage.

96

---

---

# SIGNATURES

The
Company hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.

| |  | Partner Communications Company Ltd.By: /s/ David Avner
David AvnerChief Executive Officer May 6, 2008
| |  | -------------------------------------------------------------------------------------------------------------------

| |  | By: /s/ Emanuel Avner
Emanuel AvnerChief Financial Officer May 6, 2008
| |  | ------------------------------------------------------------------------------------

97

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
2007 ANNUAL REPORT



---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
2007 ANNUAL REPORT

TABLE OF CONTENTS

|                                                                                                   | Page       
|-------------------------------------------------------------------------------------------------- | -----------
|
|
|
|
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                            | F-2 - F-3  
|CONSOLIDATED FINANCIAL STATEMENTS:                                                                
|Balance sheets as of December 31, 2006 and 2007                                                    | F-4 - F-5  
|Statements of operations for the years ended December 31, 2005, 2006 and 2007                      | F-6        
|Statements of changes in shareholders' equity for the years ended December 31, 2005, 2006 and 2007 | F-7        
|Statements of cash flows for the years ended December 31, 2005, 2006 and 2007                      | F-8 - F-9  
|Notes to financial statements                                                                      | F-10 - F-51
|                                                                                                   |            

The
amounts are stated in New Israeli Shekels (NIS) in thousands.



---

---

# Report of Independent
Registered Public Accounting Firm

To the Shareholders of

# PARTNER COMMUNICATIONS
COMPANY LTD.

We have completed integrated audits
of Partner Communications Company Ltd.s (collectively  the Company
or Partner) 2007 and 2006 consolidated financial statements and of its
internal control over financial reporting as of December 31, 2007, and an audit of its
2006 consolidated financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Our opinions, based on our
audits, are presented below.

# Consolidated financial
statements

We have audited the consolidated
balance sheets of Partner as of December 31, 2007 and 2006 and the related consolidated
statements of income, changes in shareholders equity and cash flows for each of the
three years in the period ended December 31, 2007. These consolidated financial statements
are the responsibility of the Companys Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on our
integrated audits.

We conducted our audits in accordance
with auditing standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the Companys Board of Directors
and management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above, present fairly, in all material respects, the
financial position of Partner at December 31, 2007 and 2006, and the results of their
operations, changes in shareholders equity and their cash flows for each of the
three years in the period ended December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in notes 1o and 9h to
the consolidated financial statements, effective January 1, 2007 the company changed its
method of accounting for uncertainty in income taxes. In addition, as discussed in note
1s, effective January 1, 2006, the company changed its method of accounting for
share-based payment.

# Internal control over
financial reporting

Also, in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2007, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys Board of Directors and management are responsible
for maintaining effective internal control over financial reporting and management is
responsible for the assessment of the effectiveness of internal control over financial
reporting included in the accompanying Managements Annual Report on Internal Control
over Financial Reporting appearing under Item 15(b). Our responsibility is to express an
opinion on the effectiveness of the Companys internal control over financial
reporting based on our integrated audit. We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting includes obtaining an
understanding of internal control over financial reporting, assessing the risk that a
material weakness exists and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also includes performing such
other procedures as we consider necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

F - 2

---

---

A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

|                 |                                    
|---------------- | -----------------------------------
|
|
|
|
|Tel-Aviv, Israel | /s/ Kesselman & Kesselman          
|May 5, 2008      | Certified Public Accountants (Isr.)
|                 | A member of PricewaterhouseCoopers 
|                 | International Limited              

F - 3

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
CONSOLIDATED BALANCE SHEETS

|                                                             | December 31
|------------------------------------------------------------ | -----------
|
|
|
|
|A s s e t s                                                  |            
|CURRENT ASSETS:                                              |            
|Cash and cash equivalents                                    |            
|Accounts receivable (note 11a):                              |            
|Trade                                                        |            
|Other                                                        |            
|Inventories (note 11b)                                       |            
|Deferred income taxes (note 9d)                              |            
|                                                             |            
|T o t a l  current assets                                    |            
|                                                             |            
|INVESTMENTS AND LONG-TERM RECEIVABLES:                       |            
|Accounts receivable - trade (note 11a)                       |            
|Funds in respect of employee rights upon retirement (note 6) |            
|                                                             |            
|                                                             |            
|                                                             |            
|FIXED ASSETS, net of accumulated depreciation and            |            
|amortization (note 2)                                        |            
|                                                             |            
|LICENSE, DEFERRED CHARGES AND OTHER                          |            
|INTANGIBLE ASSETS, net of accumulated amortization (note 3)  |            
|                                                             |            
|DEFERRED INCOME TAXES(note 9d)                               |            
|                                                             |            
|T o t a l  assets                                            |            
|                                                             |            
|                                                             |            

Date
of approval of the financial statements: April 7, 2008

|                        |                         |             
|----------------------- | ----------------------- | ------------
|
|
|
|
|                        |                         |             
|David Avner             | Emanuel Avner           | Moshe Vidman
|Chief Executive Officer | Chief Financial Officer | Director    
|                        |                         |             

F - 4

---

---

|                                                                     | December 31
|-------------------------------------------------------------------- | -----------
|
|
|
|
|Liabilities and shareholders' equity                                 |            
|CURRENT LIABILITIES:                                                 |            
|Current maturities of long-term liabilities (notes 4, 11e)           |            
|Accounts payable and accruals:                                       |            
|Trade                                                                |            
|Other (note 11c)                                                     |            
|Parent group - trade (note 12)                                       |            
|                                                                     |            
|T o t a l   current liabilities                                      |            
|                                                                     |            
|LONG-TERM LIABILITIES:                                               |            
|Bank loans, net of current maturities (note 4)                       |            
|Notes payable (note 5)                                               |            
|Liability for employee rights upon retirement (note 6)               |            
|Other liabilities (note 11e)                                         |            
|                                                                     |            
|T o t a l   long-term liabilities                                    |            
|                                                                     |            
|COMMITMENTS AND CONTINGENT LIABILITIES(note 7)                       |            
|                                                                     |            
|T o t a l   liabilities                                              |            
|                                                                     |            
|SHAREHOLDERS' EQUITY(note 8):                                        |            
|Share capital - ordinary shares of NIS 0.01 par                      |            
|value: authorized - December 31, 2006 and 2007 - 235,000,000 shares; |            
|issued and outstanding -                                             |            
|December 31, 2006 - 154,516,217 shares and                           |            
|December 31, 2007 - 157,320,770  shares                              |            
|Capital surplus                                                      |            
|Accumulated deficit                                                  |            
|                                                                     |            
|T o t a l   shareholders' equity                                     |            
|                                                                     |            
|                                                                     |            
|                                                                     |            
|                                                                     |            

The
accompanying notes are an integral part of the financial statements.

F - 5

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                              | Year ended December 31
|--------------------------------------------- | ----------------------
|
|
|
|
|REVENUES- net:                                |                       
|Services                                      |                       
|Equipment                                     |                       
|                                              |                       
|                                              |                       
|COST OF REVENUES:                             |                       
|Services                                      |                       
|Equipment                                     |                       
|                                              |                       
|                                              |                       
|                                              |                       
|GROSS PROFIT                                  |                       
|                                              |                       
|SELLING AND MARKETING EXPENSES                |                       
|GENERAL AND ADMINISTRATIVE EXPENSES           |                       
|                                              |                       
|                                              |                       
|                                              |                       
|OPERATING PROFIT                              |                       
|FINANCIAL EXPENSES, net (note 11f)            |                       
|                                              |                       
|INCOME BEFORE TAXES ON INCOME                 |                       
|TAXES ON INCOME(note 9)                       |                       
|                                              |                       
|INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE   |                       
|IN ACCOUNTING PRINCIPLES                      |                       
|CUMULATIVE EFFECT, AT BEGINNING OF YEAR, OF A |                       
|CHANGE IN ACCOUNTING PRINCIPLES, net of tax   |                       
|                                              |                       
|NET INCOME FOR THE YEAR                       |                       
|                                              |                       
|EARNINGS PER SHARE ("EPS"):                   |                       
|Basic:                                        |                       
|Before cumulative effect                      |                       
|                                              |                       
|Cumulative effect                             |                       
|                                              |                       
|                                              |                       
|                                              |                       
|Diluted:                                      |                       
|Before cumulative effect                      |                       
|                                              |                       
|Cumulative effect                             |                       
|                                              |                       
|                                              |                       
|                                              |                       
|WEIGHTED AVERAGE NUMBER OF                    |                       
|SHARES OUTSTANDING:                           |                       
|Basic                                         |                       
|                                              |                       
|Diluted                                       |                       
|                                              |                       
|                                              |                       

The accompanying
notes are an integral part of the financial statements.

F - 6

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

|                                                                | Share capital |  |  |             |  
|--------------------------------------------------------------- | ------------- |  |  | ----------- | -
|
|
|
|
|New Israeli Shekels:                                            |               |  |  |             |  
|BALANCE AT 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                                                       |               |  |  |             |  
|Employee share-based compensation expenses                      |               |  |  |             |  
|Dividend                                                        |               |  |  |             |  
|Net income                                                      |               |  |  |             |  
|                                                                |               |  |  |             |  
|BALANCE AT DECEMBER 31, 2005                                    |               |  |  | 152,528,288 |  
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2006:                |               | 
|Exercise of options granted to employees                        |               |  |  | 1,987,929   |  
|Cumulative effect, at beginning of year, of a change in         |               | 
|accounting principles                                           |               |  |  |             |  
|Employee share-based compensation expenses                      |               |  |  |             |  
|Dividend                                                        |               |  |  |             |  
|Net income                                                      |               |  |  |             |  
|                                                                |               |  |  |             |  
|BALANCE AT DECEMBER 31, 2006                                    |               |  |  | 154,516,217 |  
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2007                 |               | 
|Exercise of options granted to employees                        |               |  |  | 2,804,553   |  
|Employee share-based compensation expenses                      |               |  |  |             |  
|Dividend                                                        |               |  |  |             |  
|Net income                                                      |               |  |  |             |  
|                                                                |               |  |  |             |  
|BALANCE AT DECEMBER 31, 2007                                    |               |  |  | 157,320,770 |  
|                                                                |               |  |  |             |  
|Convenience translation into u.s. dollars(note 1a):             |               | 
|BALANCE AT JANUARY 1, 2007                                      |               |  |  | 154,516,217 |  
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2007                 |               | 
|Exercise of options granted to employees                        |               |  |  | 2,804,553   |  
|Employee share-based compensation expenses                      |               |  |  |             |  
|Dividend                                                        |               |  |  |             |  
|Net income                                                      |               |  |  |             |  
|                                                                |               |  |  |             |  
|BALANCE AT DECEMBER 31, 2007                                    |               |  |  | 157,320,770 |  
|                                                                |               |  |  |             |  
|                                                                |               |  |  |             |  

The
accompanying notes are an integral part of the financial statements.

F - 7

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---

(Continued) - 1

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                      | Year ended December 31
|----------------------------------------------------- | ----------------------
|
|
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                 |                       
|Net income for the year                               |                       
|Adjustments to reconcile net income to net cash       |                       
|provided by operating activities:                     |                       
|Depreciation and amortization                         |                       
|Employee share-based compensation expenses            |                       
|Liability for employee rights upon retirement         |                       
|Deferred income taxes                                 |                       
|Income tax benefit in respect of exercise of options  |                       
|granted to employees                                  |                       
|Accrued interest, exchange and linkage                |                       
|differences on (erosion of) long-term liabilities     |                       
|Amount carried to deferred charges                    |                       
|Capital loss on sale and disposal of fixed assets     |                       
|Cumulative effect, at beginning of year, of a change  |                       
|in accounting principles                              |                       
|Changes in operating asset and liability items:       |                       
|Decrease (increase) in accounts receivable:           |                       
|Trade                                                 |                       
|Other                                                 |                       
|Increase (decrease) in accounts payable and accruals: |                       
|Trade                                                 |                       
|Other                                                 |                       
|Parent group - trade                                  |                       
|Increase (decrease) in asset retirement obligations   |                       
|Decrease (increase) in inventories                    |                       
|                                                      |                       
|Net cash provided by operating activities             |                       
|                                                      |                       
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |                       
|Purchase of fixed assets                              |                       
|Acquisition of optic fibers activity                  |                       
|Proceeds from sale of fixed assets                    |                       
|Purchase of additional spectrum                       |                       
|Payments in respect of land line license              |                       
|Funds in respect of employee rights upon retirement   |                       
|                                                      |                       
|Net cash used in investing activities                 |                       
|                                                      |                       
|                                                      |                       

F - 8

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---

(Continued) - 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)                                |                       
|Issuance of notes payable under a prospectus, net of   |                       
|issuance costs                                         |                       
|Redemption of notes payable                            |                       
|Proceeds from exercise of stock options granted to     |                       
|employees                                              |                       
|Windfall tax benefit in respect of exercise of 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                                               |                       
|                                                       |                       
|Income taxes (net of refund of approximately NIS 74    |                       
|million)                                               |                       
|                                                       |                       
|                                                       |                       

Supplementary information on investing and financing activities not involving cash flows

At December 31, 2005, 2006 and 2007, trade payables include NIS 90.3 million, NIS 201.8 million and NIS 160
million ($ 42 million), respectively, in respect of acquisition of fixed assets. In addition, at December 31,
2005 trade payables included NIS 27.7 million in respect of acquisition of additional spectrum.

At December 31, 2007, tax withholding related to dividend of approximately NIS 7 million is outstanding.

At December 31, 2005, dividend payable of approximately NIS 45 million was outstanding.

During 2005 and 2007, the Company has undertaken a capital lease with respect to fixed assets in the amount
of NIS 15.8 million and NIS 7.4 million ($2 million), respectively.

These balances are recognized in the cash flow statements upon payment.

The accompanying notes are an integral part of the financial statements.

F - 9

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---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

# NOTE 1 
SIGNIFICANT ACCOUNTING POLICIES:

| | a. | General:
| | -- | --------

| | Nature
of operations:
| | ---------------------

| | 1) | Partner
Communications Company Ltd. (the Company) operates a mobile
          telecommunications network in Israel. The Company is a subsidiary of Hutchison
          Telecommunications International Limited (HTIL).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | The
Company was incorporated on September 29, 1997, and operates under a
          license granted by the Ministry of Communications to operate a cellular
          telephone network for a period of 10 years beginning April 7, 1998. The
          Company commenced full commercial operations on January 1, 1999.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company paid a one-time license fee of approximately new Israeli shekels (NIS) 1.6
billion which is presented under license, deferred charges and other intangible
assets. 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 for the
2G spectrum, and NIS 220 million for the 3G spectrum.
| | -------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company launched its 3G network on December 1, 2004.
| | --------------------------------------------------------

| | Under
the terms of the amended license, the Company provided a bank guarantee in NIS equivalent
of USD 10 million to the State of Israel to secure the Companys adherence to
the terms of the license.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 14, 2006 the Company was awarded a temporary license from the Ministry of
Communications for the offering of transmission services in consideration of NIS 300,000.
In August 2007 the temporary transmission services license was converted into the special
general license for domestic fixed services. The license is for a period of 20 years. The
license was awarded to Partner Land-Line Communication Solutions (Partner Land Line)
 a limited Partnership under the Companys control. An additional NIS 700,000
was paid upon the Companys receipt of the license.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the terms of the license, the Company provided a bank guarantee in NIS equivalent of NIS 10
million to the State of Israel to secure the Companys adherence to the terms of the
license.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | On
July 3, 2006 the Company acquired MED I.C-1 (1999) Ltd. (Med 1)
          transmission activity including 900 kilometers of transmission fiber for
          approximately NIS 71 million in cash. The Company purchased Med-1 transmission
          network to lower its transmission expenses and to have the ability to provide
          its customers with additional services. As from July 3, 2006 the transmission
          activity has been included in the financial results.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 10

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | The
Company has adopted Financial Accounting Standards SFAS No. 141, Business
Combinations. In accordance with the FAS when a corporation and one or more incorporated
or unincorporated businesses are combined into one entity, the purchase price paid by an
acquiring entity should be allocated to the identifiable individual assets acquired and
liabilities assumed based on their fair values, with the remaining unallocated purchase
price recorded as goodwill.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the acquisition was NIS 106 million. In accordance with SFAS 141, since the
fair value exceeds the purchase price, the excess of fair value over the purchase price
was allocated pro-rata between the acquired tangible and intangible assets.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company allocated the purchase price paid for Med 1s transmission activity as
follows (see also note 1: e, f):
| | -------------------------------------------------------------------------------------------------------------------

| |                         | NIS in
thousands | Estimated Remaining Useful
Life
| | ----------------------- | ---------------- | -------------------------------
|
|
|
|
| | Fixed assets            |                  |                                
| | Customer Relationships  |                  |                                
| | with Carriers           |                  |                                
| | Customer Relationships  |                  |                                
| | with Business Customers |                  |                                
| |                         |                  |                                
| |                         |                  |                                
| |                         |                  |                                
| |                         |                  |                                

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

| | Functional
currency and reporting currency
| | ------------------------------------------

| | The
functional currency of the Company and its subsidiary and Partnership (together  The
Group) is the local currency New Israeli Shekels  NIS. The consolidated financial
statements have been drawn up on the basis of the historical cost of Israeli currency and
are presented in NIS.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Convenience
translation into U.S. dollars (dollars or $)
| | ------------------------------------------------------------

| | The
NIS figures at December 31, 2007 and for the period then ended have been translated into
dollars using the representative exchange rate of the dollar at December 31, 2007 ($1 =
NIS 3.846). 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).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

F - 11

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | b. | Principles
of consolidation:
| | -- | ----------------------------

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

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

| | c. | Inventories
| | -- | -----------

| | Inventories
of cellular telephones (handsets) 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. The balance of
these investments is fully impaired.
| | -------------------------------------------------------------------------------------------------------------------------------

| | e. | Fixed
assets:
| | -- | -------------

| | 1) | These
assets are stated at cost.
| | -- | --------------------------------

| | 2) | Direct
consultation and supervision costs and other direct costs relating to
               setting up the Companys communications network and information
systems for                recording and billing calls are capitalized to cost of the
assets.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | Interest
costs in respect of loans and credit which served to finance the
               construction or acquisition of fixed assets  incurred until
installation                of the fixed assets is completed  are capitalized to
cost of such assets.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | Assets
are depreciated by the straight-line method, on basis of their estimated           useful
life.
| | -- | ------------------------------------------------------------------------------------------------------

| | Annual
rates of depreciation are as follows:
| | --------------------------------------------

|                                                 | %          
|------------------------------------------------ | -----------
|
|
|
|
|Communications network (*)                       | 10 - 20    
|                                                 | (mainly 15)
|Computers, hardware and software for            
|information systems                              | 15-33      
|Office furniture and equipment                   | 7-15       
|Optic fibers (see note 1a(3)) and related assets | 6-10       
|                                                 |            

| | (*) | See
7 below.
| | --- | ------------

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

F - 12

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---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | e. | Fixed
assets (continued):
| | -- | -------------------------

| | 5) | Fixed
assets leased by the Company under capital leases are classified as the           Companys
assets and are recorded, at the inception of the lease, at the           lower of the
assets fair value or the present value of the minimum lease           payments.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6) | Computer
Software Costs
| | -- | -----------------------

| | The
cost of internal-use software which has useful life in excess of one year is capitalized
in accordance with Statement of Position (SOP) No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. Subsequent additions,
modifications or upgrades to internal-use software are capitalized only to the extent
that they allow the software to perform a task it previously did not perform. Software
maintenance and training costs are expensed in the period in which they are incurred.
Capitalized computer software costs are amortized using the straight-line method over a
period of 3 to 7 years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7) | On
December 20, 2007 Partner has entered into an agreement (the           Agreement)
with LM Ericsson Israel Ltd. (Ericsson), for           the replacement of
third party 3G radio equipment existing in Partners           network, and for
additional investment in the 3G network in addition to the           support and
maintenance of the Companys network for a period of three           years.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
company allocated the purchase price of USD 65 million to the above deliverables based on
their relative fair values. Of this amount, USD 6.6 million related to support and
maintenance of the Network.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
purchase price is after deduction of commercial discounts, some of which contingent upon
future negotiations for further purchases of purchase of services that are probable.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
replacement process is scheduled to take place during a period ending no later than June
30, 2011. The main part of the replacement is planned to take place during 2008.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Following
the agreement, in accordance with Financial Accounting Standards No. 144 (FAS 144), Accounting
for the Impairment or Disposal of Long Lived Assets, the Company, on December 20,
2007, reviewed the communication network for impairment, in order to assure that the
carrying amount of the fixed assets is recoverable. No impairment loss was required.
Following the impairment test, the Company accelerated the estimated useful life of the
equipment to be replaced (in the depreciated amount of approximately NIS 136 million) to
the period it is anticipating that the actual replacement will take place.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
a result of the above change in estimate, the effect on depreciation expenses (included
in cost of service revenues), net income and earnings per share was immaterial for 2007.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 13

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---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | e. | Fixed
assets (continued):
| | -- | -------------------------

| | The
subsequent accounting treatment of the various elements is as follows:
| | --------------------------------------------------------------------------

| | (a) | Network
equipment  the amount attributed will be depreciated over its           estimated
useful life.
| | --- | -------------------------------------------------------------------------------------------------------

| | (b) | Support
and maintenance services  the amount attributed will be expensed            on
a straight line method  over the support and maintenance           services
agreement period (three years).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | License,
deferred charges and other intangible assets:
| | -- | ------------------------------------------------------

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

| | 2) | Customer
relationships relating to Med-1 fiber optic acquisition are amortized           over the
estimated useful life which is 5-7 years.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | Deferred
charges:
| | -- | -----------------

| | a) | Costs
relating to the obtaining of long-term credit lines are deferred and           amortized
using the effective interest rate determined for the borrowing           transactions
over the life of the line of credit.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Issuance
costs relating to Notes payable (see note 5) are amortized using the           effective
interest rate stipulated for the Notes.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------

| | 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. See also 1e and f.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 14

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | h. | Cash
equivalents
| | -- | ----------------

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

| | i. | Comprehensive
income
| | -- | --------------------

| | The
Company has no comprehensive income components other than net income.
| | -------------------------------------------------------------------------

| | j. | Revenue
recognition
| | -- | -------------------

| | Revenues
from services primarily consist of charges for airtime, roaming and value added services
provided to the Companys customers, are recognized upon performance of the
services, net of credits and adjustments for services discounts. Revenues from pre-paid
calling cards are recognized upon customers usage of the cards. Revenues from sale
of handsets and accessories are recognized upon delivery and the transfer of ownership to
the subscriber.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Revenues
from long-term credit arrangements (longer than one year) are recognized on the basis of
the present value of future cash flows, discounted according to interest rates at the
time of the transaction. The difference between the original credit and its present value
is recorded as interest income over the credit period.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Emerging
Issues Task Force (EITF) Issue 00-21, Revenue Arrangements with
Multiple Deliverables addresses the accounting, by a vendor, for contractual
arrangements in which multiple revenue-generating activities will be performed by the
vendor. EITF Issue 00-21 addresses when and, if so, how an arrangement involving multiple
deliverables should be divided into separate units of accounting. Based on EITF 00-21,
the Company determined that the sale of handsets with accompanying services constitutes a
revenue arrangement with multiple deliverables. Accordingly consideration received for
handsets, up to their fair value, that is not contingent upon the delivery of additional
items (such as the services), is recognized as equipment revenues, when revenue
recognition criteria for the equipment as stated above are met. Consideration for
services is recognized as services revenue, when earned.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | k. | Concentration
of credit risks  allowance for doubtful accounts
| | -- | ---------------------------------------------------------------

| | The
Companys revenues are derived from a large number of customers. Accordingly, the
Companys trade balances do not represent a substantial concentration of credit
risk. An appropriate provision for doubtful accounts is included in the accounts of the
Company. The allowance charged to expenses (including bad debts), determined as a
percentage of specific debts doubtful of collection, based upon historical experience and
future expectations, for the years ended December 31, 2005, 2006 and 2007 totaled NIS 28,739,000,
NIS 26,470,000 and NIS 43,770,000 ($ 11,381,000) (see note 11a),
respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
cash and cash equivalents as of December 31, 2007 are deposited mainly with leading
Israeli banks. Therefore, in the opinion of the Company, the credit risk inherent in
these balances is remote.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | l. | Handsets
warranty obligations
| | -- | -----------------------------

| | The
provision for handsets warranty obligations is calculated at the rate of 2% of the cost
of the handsets sold, see note 11d. The Company has entered into several agreements under
which the supplier does not provide any warranty but rather provides additional handsets
to satisfy its warranty obligation. In these cases, the Company provides for warranty
costs at the same time as the revenues are recognized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | m. | Advertising
expenses
| | -- | --------------------

| | Advertising
expenses are charged to the statement of operations as incurred. Advertising expenses for
the years ended December 31, 2005, 2006 and 2007 totaled NIS 97,651,000, NIS
105,035,000 and NIS 115,835,000 ($ 30,118,000), 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 9d).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred
tax assets and liabilities are presented as current or long-term items in accordance with
the nature of assets or liabilities to which they relate.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred
tax balances are computed at the tax rates expected to be in effect at the deferred tax
asset is utilized or the deferred tax liability is settled, based on the tax laws enacted
(see also note 9b).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 16

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | o. | Uncertainty
in Income Taxes:
| | -- | ----------------------------

| | As
of January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 (FIN
48). FIN 48 specifies how tax benefits for uncertain tax positions are to be recognized,
measured, and derecognized in financial statements; requires certain disclosures of
uncertain tax positions; specifies how reserves for uncertain tax positions should be
classified on the balance sheet; and provides transition and interim-period guidance,
among other provisions. On May 2, 2007, the FASB issued FASB Staff Position No. FIN 48-1,
Definition of Settlement in FASB Interpretation No. 48-1 (FSP FIN 48-1).
FSP FIN 48-1 provides guidance on how an entity should determine whether a tax position
is effectively settled for the purpose of recognizing previously unrecognized tax
benefits. The Company adopted FSP FIN 48-1 As of January 1, 2007
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys policy to include interest and penalties relating to uncertain tax
positions, within the provision for income taxes has not change as a result of
implementing FIN 48 (see also note 9h).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | q. | Derivative
financial instruments (derivatives)
| | -- | ------------------------------------------------

| | Under
FAS 133, which establishes accounting and reporting standards for derivatives, including
certain derivatives embedded in other contracts, and for hedging activities, all
derivatives are recognized on the balance sheet at their fair value. On the date that the
Company enters into a derivative contract, it designates the derivative, for accounting
purposes, as: (1) hedging instrument, or (2) non-hedging instrument. Any changes in fair
value are to be reflected as current gains or losses or other comprehensive gains or
losses, depending upon whether the derivative is designated as a hedge and what type of
hedging relationship exists. Changes in fair value of non-hedging instruments are carried
to financial expenses-net on a current basis. To date, the Company did not
have any contracts that qualify for hedge accounting under FAS 133.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company occasionally enters into commercial (foreign currency) contracts in which a
derivative instrument is embedded. This embedded derivative is separated from
the host contract and carried at fair value through income statement when (1) the
embedded derivative possesses economic characteristics that are not clearly and closely
related to the economic characteristics of the host contract and (2) a separate,
stand-alone instrument with the same terms would qualify as a derivative instrument
(see note 10).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Basic
EPS is computed by dividing net income by the weighted average number of shares
outstanding during the years.
| | -------------------------------------------------------------------------------------------------------------------

F - 17

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | r. | Earning
Per Share (EPS)(continued):
| | -- | -----------------------------------

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

| | s. | Share
based payment
| | -- | -------------------

| | Prior
to January 1, 2006, the company accounted for employees share-based payment under the
intrinsic value model in accordance with Accounting Principles Board Opinion No. 25 Accounting
for Stock Issued to Employees (APB 25) and related interpretations The
company disclosed pro forma information assuming the company had accounted for employees
share-based payments using the fair value-based method, as required.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
January 1, 2006, the company adopted Statement of Financial Accounting Standards No. 123
(revised 2004), Share-based Payment (FAS 123 (R)). FAS 123(R)
requires awards classified as equity awards to be accounted for using the grant-date fair
value method. The fair values of share-based payment transactions is recognized as
expense over the requisite service period, net of estimated forfeitures. The company
estimated forfeitures based on historical experience and anticipated future conditions.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company elected to recognize compensation cost for an award with only service conditions
using the accelerated method.
| | --------------------------------------------------------------------------------------------------------------------------

| | The
Company elected to adopt the modified prospective transition method, permitted by FAS 123(R).
Under such transition method, FAS 123(R) has been implemented as from the first quarter
of 2006 with no restatement of prior periods. The valuation provisions of FAS 123(R)
apply to new awards and to awards modified, repurchased, or cancelled after January 1,
2006. Additionally, compensation cost for the portion of awards for which the requisite
service has not been rendered that are outstanding as of January 1, 2006 are recognized
over the remaining service period using the grant-date fair value of those awards as
calculated for pro forma disclosure purposes under FAS 123.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company records deferred tax awards that result in deductions on the Companys
income tax returns, based on the amount of compensation cost recognized and the Companys
statutory tax rate.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Differences
between the deferred tax assets recognized and the actual tax deduction reported on the
companys income tax return are recorded in additional paid-in capital (If the tax
deduction exceeds the deferred tax asset) or as an expense in the income statement (if
the deferred tax asset exceeds the tax deduction and no additional paid-in capital exists
from previous awards).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
adoption of FAS 123(R) resulted in a cumulative benefit from accounting change of
approximately NIS 1 million which reflects the net cumulative impact of estimating future
forfeitures in the determination of period expense, rather than recording forfeitures
when they occur as previously permitted under APB 25.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 18

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---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | s. | Share
based payment(continued)
| | -- | ------------------------------

| | Share-based
employee compensation cost for the year ended December 31, 2005 was determined using
the intrinsic value method. The following table provides pro forma financial information
as if Share-based employee compensation cost had been computed under FAS 123:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                       | 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                   |                        
| |                                       |                        
| |                                       |                        

| | t. | Asset
retirement obligations
| | -- | ----------------------------

| | The
company recognizes a liability in respect of asset retirement obligation (ARO) associated
with the retirement of a tangible long lived asset in the period in which it is incurred
and becomes determinable , with an offsetting increase in the carrying amount of the
associated asset. The cost of the tangible asset, including the initially recognized ARO,
is depreciated such that the cost of the ARO is recognized over the useful life of the
asset.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
ARO is recorded at fair value, and the accretion expense will be recognized over time as
the discounted liability is accreted to its expected settlement value. The fair value of
the ARO is measured using expected future cash out flows discounted at the Companys
credit-adjusted risk-free interest rate.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 19

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---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | t. | Asset
retirement obligations (continued):
| | -- | -----------------------------------------

| | The
Company has adopted, as of January 1, 2006 FASB Interpretation No. 47, Accounting
for Conditional Asset Retirement Obligations (FIN 47). FIN 47 requires
an entity to recognize a liability for the fair value of a conditional asset retirement
obligation when incurred if the fair value of the liability can be reasonably estimated.
This Interpretation also clarifies that the term Conditional Asset Retirement Obligation
refers to a legal obligation to perform an asset retirement activity in which the timing
and/or method of settlement are conditional on a future event that may or may not be
within the control of the entity. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset retirement
obligation. According to FIN 47 uncertainty about the timing and/or method of settlement
of a conditional asset retirement obligation should be factored into the measurement of
the liability when sufficient information exists.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FIN
47 has not had a material impact on the companys financial condition or results of
operations.
| | ---------------------------------------------------------------------------------------------------

| | The
Company is subject to asset retirement obligations associated with its cell sites
operating leases. These lease agreements contain clauses requiring restoration of the
leased site at the end of the lease term, creating asset retirement obligations, see also
note 12e.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | u. | Recently
issued accounting pronouncements:
| | -- | ------------------------------------------

| | 1) | In
September 2006 the FASB issued SFAS No. 157, Fair Value Measurements                (SFAS
No. 157) which defines fair value, establishes a framework and                gives
guidance regarding the methods used for measuring fair value, and expands
               disclosures about fair value measurements. SFAS No. 157 is effective for
               financial statements issued for fiscal years beginning after November 15,
2007,                and interim periods within those fiscal years (as of January 1, 2008
for the                Company).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company does not expect that the adoption of this statement will have a material effect
on its financial position or its results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | In
February 2007, the FASB issued Statement of Financial
               Accounting Standards No. 159, The Fair Value Option for
Financial                Assets and Financial LiabilitiesIncluding an amendment of
FASB Statement                No. 115 (SFAS 159). SFAS 159 is
expected to expand the                use of fair value accounting but does not affect
existing standards which                require certain assets or liabilities to be
carried at fair value. The objective                of SFAS 159 is to improve financial
reporting by providing companies with the                opportunity to mitigate
volatility in reported earnings caused by measuring                related assets and
liabilities differently without having to apply complex hedge                accounting
provisions. Under SFAS 159, a company may choose, at its initial
               application or at other specified election dates, to measure eligible
items at                fair value and report unrealized gains and losses on items for
which the fair                value option has been elected in earnings at each
subsequent reporting date.                SFAS 159 is effective for financial
statements issued for fiscal years                beginning after November 15, 2007,
and interim periods within those fiscal                years (January 1, 2008, for the
Company). If the company is to elect the fair                value option for its
existing assets and liabilities, the effect as of the                adoption date, shall
be reported as a cumulative-effect adjustment to the                opening balance of
retained earnings . The Company is currently assessing the                impact that
SFAS 159 may have on its financial position.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 20

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---

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):
| | -- | -----------------------------------------------------

| | 3) | In
December 2007, the FASB issued Statement of Financial Accounting Standards
               No. 141 (revised 2007), Business Combinations (SFAS
               141(R)". SFAS 141(R) changes the accounting for business
combinations,                including the measurement of acquirer shares issued in
consideration for a                business combination, the recognition of contingent
consideration, the                accounting for contingencies, the recognition of
capitalized in-process research                and development, the accounting for
acquisition-related restructuring cost                accruals, the treatment of
acquisition related transaction costs and the                recognition of changes in
the acquirers income tax valuation allowance and                income tax
uncertainties.. SFAS 141(R) applies prospectively to business                combinations
for which the acquisition date is on or after the beginning of the                first
annual reporting period beginning on or after December 15, 2008 . Early
               application is prohibited. the Company will be required to adopt SFAS
141(R) on                January 1, 2009.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | In
December 2007, the FASB issued Statement of Financial Accounting Standards
               No. 160, Noncontrolling Interests in Consolidated Financial
Statements, an                Amendment of ARB No. 51 (SFAS 160).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. An ownership
interest in subsidiaries held by parties other than the parent should be presented in the
consolidated statement of financial position within equity, but separate from the parents
equity. SFAS 160 requires that changes in a parents ownership interest while the
parent retains its controlling financial interest in its subsidiary should be accounted
for similarly as equity transactions. When a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary should be initially measured at
fair value, with any gain or loss recognized in earnings.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
160 requires consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. It also requires
disclosure, on the face of the consolidated income statement, of the amounts of
consolidated net income attributable to the parent and to the noncontrolling interests. SFAS
160 is effective for fiscal years (including interim periods within those fiscal years)
beginning on or after December 15, 2008. Earlier adoption is prohibited. The statement
shall be applied prospectively as of the beginning of the fiscal year in which it is
initially applied, except for the presentation and disclosure requirement which shall be
applied retrospectively for all periods presented. The Company will be required to adopt
SFAS 160 on January 1, 2009. The Company is currently assessing the impact that SFAS 160
may have on its results of operations and financial position.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 21

---

---

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):
| | -- | -----------------------------------------------------

| | 5) | In
June 2006, the Emerging Issues Task Force (EITF), reached a consensus on
               Issue No. 06-01, Accounting for Consideration Given by a
Service                Provider to Manufacturers or Resellers of Equipment Necessary for
an                End-Customer to Receive Service from the Service Provider (EITF
No.                06-01). EITF 06-01 provides guidance on the accounting for
consideration given                to third party manufacturers or resellers of equipment
which is required by the                end-customer in order to utilize the service from
the service provider. EITF                06-01 is effective for fiscal years beginning
after June 15, 2007 (January                1, 2008, for the Company). An entity
should recognize the effects of applying                EITF 06-01 as a change in
accounting principle through retrospective application                to all prior
periods unless it is impracticable to do so. The Company does not                expect
the adoption of EITF 06-01 to have a material impact on its results
               of operations and financial position.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | v. | Reclassifications
| | -- | -----------------

| | Certain
comparative figures have been reclassified to conform to the current year presentation.
| | -----------------------------------------------------------------------------------------------

F - 22

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 2  FIXED
ASSETS:

| | a. | Composition
of fixed assets  net, is as follows:
| | -- | -------------------------------------------------

| |                                                  | December 31
| | ------------------------------------------------ | -----------
|
|
|
|
| | Communications network                           |            
| | Computers, hardware and software for             |            
| | information systems                              |            
| | Optic fibers and related assets                  |            
| | Office furniture and equipment                   |            
| | Leasehold improvements                           |            
| |                                                  |            
| |                                                  |            
| | Less - accumulated depreciation and amortization |            
| |                                                  |            
| |                                                  |            
| |                                                  |            
| |                                                  |            

| | The
cost of communication network in the amount of approximately NIS 1,546 million is
fully depreciated and still in use.
| | -------------------------------------------------------------------------------------------------------------------------

| | Depreciation
and amortization in respect of fixed assets totaled NIS 575,606,000, NIS 529,560,000 and
NIS 509,568,000 ($ 132,492,000) for the periods ended December 31, 2005, 2006
and 2007, respectively. As to change in estimate, refer to note 1e7.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Fixed
assets include interest expenses, direct consultation and supervision
               costs and other direct costs of establishing the cellular communications
network                and information systems, which were capitalized (before commencing
full                commercial operations or utilization of the related fixed assets) in
respect of:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                      |  | December 31
| | ------------------------------------ |  | -----------
|
|
|
|
| | Communications network               |  |            
| | Computers, hardware and software for |  |            
| | information systems                  |  |            
| |                                      |  |            
| |                                      |  |            
| | L e s s - accumulated depreciation   |  |            
| |                                      |  |            
| | Depreciated balance                  |  |            
| |                                      |  |            
| |                                      |  |            

F - 23

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---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 3  LICENSE,
DEFERRED CHARGES AND OTHER INTANGIBLE ASSETS:

| |                                            |  | December 31
| | ------------------------------------------ |  | -----------
|
|
|
|
| | License(note 1a(2))                        |  |            
| | Less - accumulated amortization            |  |            
| |                                            |  |            
| |                                            |  |            
| |                                            |  |            
| | Customers relationship                     |  |            
| | Less - accumulated amortization            |  |            
| |                                            |  |            
| |                                            |  |            
| |                                            |  |            
| | Deferred charges- in respect of obtaining: |  |            
| | Long-term credit lines                     |  |            
| | Notes payable                              |  |            
| |                                            |  |            
| |                                            |  |            
| | Less - accumulated amortization            |  |            
| |                                            |  |            
| |                                            |  |            
| |                                            |  |            
| |                                            |  |            
| |                                            |  |            
| |                                            |  |            

| | License
amortization expenses for the years ended December 31, 2005, 2006 and 2007 totaled NIS
79,255,000, NIS 79,395,000 and NIS 79,470,000 ($ 20,663,000), respectively.
Amortization expenses on deferred charges for the years ended December 31, 2005, 2006 and
2007 totaled NIS 28,642,000, NIS 11,950,000 and NIS 11,297,000 ($ 2,937,000),
respectively. Amortization expenses on deferred charges for the year ended December 31,
2005 includes NIS 11,064,000 in respect of the redemption of the Notes, see also note 5b.
Amortization expenses on customers relationship for the years ended December 31, 2006 and
2007 totaled NIS 1,529,000 and NIS 3,091,000 ($ 803,000).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
expected amortization expenses of the license and customers relationship for the next
five years are as follows:
| | --------------------------------------------------------------------------------------------------------------------

|                        | NIS | Convenience
translation into
dollars
|----------------------- | --- | ------------------------------------
|
|
|
|
|Year ended December 31: |     |                                     
|2008                    |     |                                     
|2009                    |     |                                     
|2010                    |     |                                     
|2011                    |     |                                     
|2012                    |     |                                     
|                        |     |                                     

F - 24

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---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 4  LONG-TERM
BANK LOANS

| | The
Company has a senior credit facility with Bank Hapoalim B.M., Bank Leumi Le-Israel B.M.
and Israel Discount Bank Ltd., in which United Mizrahi Bank Ltd. also participates. The
facility is divided into two tranches: a $150 million term loan facility (Facility A)
and a $100 million revolving loan facility (Facility B), both expiring on
September 1, 2009. Facility A must be reduced to $50 million by August 31, 2008. Until
February 19, 2007, the facilities were secured by a first ranking floating charge on the
Companys assets.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | With
effect March 1, 2007, the Company reduced Facility A to $75 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 $4 million), and Facility B to $75
million. As a result, the total maximum availability under the facility is currently
approximately $154 million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
credit facility is a US dollar denominated facility, and advances may be drawn in US
dollars and New Israeli Shekels, as set forth in c below.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | Status
of the credit facility at December 31, 2007 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
| | ------------------------------ | -----------
|
|
|
|
|
| | In NIS - linked to the Israeli |            
| | consumer price index (CPI)*    |            
| | In NIS - unlinked              |            
| |                                |            
| |                                |            
| | Less - current maturities      |            
| |                                |            
| |                                |            
| |                                |            
| |                                |            

| | * | Linkage
terms apply both to principal and interest.
| | - | ---------------------------------------------------

| | ** | 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 - 25

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---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 4  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. | Under
the credit facility the Company is required, inter alia, to fulfill
               certain operational conditions and to maintain certain financial ratios.
If the                Company defaults on the covenants, the banks are entitled to demand
early                repayment of the credit facility  in whole or in part. Under
the credit                facility. The Company believes that it is in compliance with
all covenants                stipulated in the credit facility.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 5  NOTES
PAYABLE:

| | a. | On
March 31, 2005, the Company completed an offering of NIS 2,000 million of
               unsecured notes, which were issued at their NIS par value. The notes have
been                registered in Israel and are traded on the Tel-Aviv Stock Exchange
(TASE). Of                these notes approximately NIS 36.5 million were purchased by
Partner Future                Communications 2000 Ltd., (PFC) a wholly owned
subsidiary of the                Company. PFC also received an additional allocation of
notes having an aggregate                principal amount of NIS 500 million. These notes
that PFC received pursuant to                this additional allocation do not confer the
right to receive any payment                whatsoever on account of principal or
interest until they are sold by PFC to a                third party.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
principal amount of the Notes is payable in 12 equal quarterly installments, beginning
June 30, 2009. The Notes bear NIS interest at the rate of 4.25% per annum, linked to the
Israeli Consumer Price Index, which is payable quarterly on the last day of each quarter,
commencing June 30, 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 31, 2007, the Notes closing price was 108.06 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 26

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---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5  NOTES PAYABLE
(continued)

| | 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, which after tax resulted in
a decrease of the Companys net income of NIS 42 million.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 6  LIABILITY
FOR EMPLOYEE RIGHTS UPON RETIREMENT:

| | a. | Israeli
labor laws and agreements require payment of severance pay upon                dismissal
of an employee or upon termination of employment in certain other
               circumstances. The Companys severance pay liability to its
employees,                mainly based upon length of service and the latest monthly
salary (one                months salary for each year worked), is reflected by the
balance sheet                accrual under the liability for employee rights upon
retirement. The                Company records the liability as if it was payable
at each balance sheet date on                an undiscounted basis. The liability is
partly funded by purchase of insurance                policies and the amounts funded are
included in the balance sheet under                investments and long-term receivables,
as funds in respect of employee                rights upon retirement. The
policies are the Companys assets and                under labor agreements, subject
to certain limitations, they may be transferred                to the ownership of the
employees.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | The
severance pay expenses for the years ended December 31, 2005, 2006 and
               2007 were approximately NIS 24 million, NIS 28 million and NIS 48
million                (approximately $ 12 million), respectively.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Cash
flows information regarding the companys liability for employee           rights
upon retirement:
| | -- | -------------------------------------------------------------------------------------------------------

| | The
Company expects to contribute NIS 23 million (USD 7 million) in respect of severance
pay in 2008.
| | -----------------------------------------------------------------------------------------------------

| | Due
to the relatively young age of the Companys employees, benefit payments to
employees reaching retirement age in the next 10 years, are not material. The amounts
were determined based on the employees current salary rates and the number of
service years that will accumulate upon their retirement date. These amounts do not
include amounts that might be paid to employees who will cease working for the Company
before their normal retirement age.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 27

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 7 
COMMITMENTS AND CONTINGENT LIABILITIES:

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

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

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

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

| | The
royalty expenses for the periods ended December 31, 2005, 2006 and 2007 were
approximately NIS 122,599,000, NIS 114,462,000 and NIS 96,799,000 ($ 25,169,000),
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 47 million, NIS 55 million and NIS 55 million ($ 14
million), for                the years 2005, 2006 and 2007, respectively. Under the above
Regulations should                the Company choose to return a frequency, such payment
is no longer due.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | Operating
leases
| | -- | ----------------

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

| | a) | Lease
agreements for its headquarters facility in Rosh Haayin for a
          fifteen-year period (until 2018). The Company has an option to shorten the
lease           periods by 3.5 to 8.5 years. The rental payments are linked to the
Israeli CPI.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

F - 28

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7  COMMITMENTS AND
CONTINGENT LIABILITIES(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, 2007, are as follows:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                         | NIS | Convenience
translation
into dollars
| | ----------------------- | --- | ------------------------------------
|
|
|
|
| | Year ended December 31: |     |                                     
| | 2008                    |     |                                     
| | 2009                    |     |                                     
| | 2010                    |     |                                     
| | 2011                    |     |                                     
| | 2012                    |     |                                     
| | 2013 and thereafter     |     |                                     
| |                         |     |                                     
| |                         |     |                                     
| |                         |     |                                     
| |                         |     |                                     

| | f) | The
rental expenses for the years ended December 31, 2005, 2006 and 2007 were
               approximately NIS 185 million, NIS 198 million, and NIS 205 million ($ 53
               million), respectively.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | At
December 31, 2007, the Company is committed to acquire fixed assets, for
          approximately NIS 414 million (approximately $ 108 million).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 5) | At
December 31, 2007, the Company is committed to acquire handsets for
          approximately NIS 333 million (approximately $ 87 million).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------

| | 6) | As
to cost sharing agreement with Hutchison Telecommunications Limited, see           note 12b.
As to an agreement with H3G PROCUREMENT SERVICES S aR.L,           see note 12c.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7) | As
to the Agreement with LM Ericsson Israel Ltd. See note 1e7.
| | -- | --------------------------------------------------------------

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

| | On
March 14, 2007, the court rejected the class action and negated the claim.
| | -----------------------------------------------------------------------------

F - 29

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7  COMMITMENTS AND
CONTINGENT LIABILITIES(continued):

| | 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 120 million (if the court rules that no fee
          should have been collected) or alternatively NIS 90 million (if the court rules
          that the fees are excessive).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and unless and until the claim is recognized as a class action, the Company
and its legal counsel are unable to evaluate the probability of success of such claim,
and therefore no provision has been made.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | During
the year 2006, claims were filed against the Company and other cellular
          telecommunication companies and, in one of the claims, also against land line
          telecommunication companies, together with a request to recognize these claims
          as a class action for collecting undue payment from its customers on calls to
          land line companies when the receiver of the call hangs up first. The amount of
          the claims against all the defendants is estimated, in one of the claims at
          approximately NIS 100 million for the seven year period leading up to the
          filing of the claim; and in the other claim the amount of the claim against the
          Company together with land line companies at approximately NIS 53 million. With
          regard to the claim that was filed also against land-line telecommunications
          companies, in September 2007 the Court approved a settlement according to which
          the Company as well as the other cellular operators have been dismissed as
          defendants.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | In
August 2006 the Company, together with the other cellular operators,           submitted
a request to hold an urgent hearing, and a motion for an order nisi           against the
Government of Israel and the Minister of Communications to explain           why they do
not act immediately to postpone the date for implementing and           activating the
number portability plan from September 1, 2006, as provided in           the
Communications law (Bezeq and Broadcasts)  1982 (the           Communications
Law).
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 18, 2007 the file was dismissed.
| | --------------------------------------------

F - 30

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7  COMMITMENTS AND
CONTINGENCIES(continued):

| | On
January 25, 2007 a claim of NIS 10.61 billion, together with a request for a
certification as a class action, was filed against the Company and against  other
Cellular and land line telecommunication Companies.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
claim is that the defendants have not implemented number portability and are in violation
of the Communication Law, mandating the implementation of telephone number portability on
September 1, 2006. It is claimed that the defendants are thus harming the claimants and
consumers of telephone services in general.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
claimants are demanding NIS 1,000 for each of the Companys 2,626,000 related
subscribers for a total demand of approximately NIS 2,600 million.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 5, 2008 the claim was dismissed.
| | -----------------------------------------

| | 5) | On
February 27, 2007, a claim was filed against the Company and two other           cellular
telecommunication companies together with a request to recognize this           claim as
a class action. The claim is for sums that were allegedly overcharged           in breach
of the Company licenses, based on intervals larger than the intervals           the
defendants were allegedly authorized to charge under their licenses, for           calls
initiated or received by the subscribers while abroad. If the claim is
          recognized as a class action, the total amount claimed from the defendants is
          estimated by the plaintiffs to be approximately NIS 449 million, of which,
          approximately NIS 88 million, is attributed to the Company.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and until the claim is recognized as a class action, the Company and its
legal counsel are unable to evaluate the probability of success of such claim, and
therefore no provision has been made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6) | In
July 3, 2007 a claim was filed against the Company together with a request           to
recognize this claim as class action. The claim alleges that the Company           over-
billed one million subscribers. The amount of the claim against the           Company is
approximately NIS 1.5 billion. Should the court recognized the claim           as a class
action, the Company estimates that the amount of the claim to be           approximately
NIS 2.5 million.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On April 16, 2008 the claim was dismissed.
| | ------------------------------------------

F - 31

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7  COMMITMENTS AND
CONTINGENCIES(continued):

| | 7) | On
August 9, 2007, a claim was filed against the Company, together with a           request
to recognize this claim as a class action. The claim is that the Company
          discontinues providing services to Prepaid subscribers that have not used their
          number for a period of thirteen months and transferred the number to other
          subscribers. The claimants allege that this violates the terms of the
          Companys license as well as the requirements against deception and the
          disclosure requirements in the Consumer Protection Law.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | If
the claim is recognized as a class action, the total amount claimed for the defendants is
estimated by the plaintiffs to be approximately NIS 197 million.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and until the claim is recognized as a class action, the company and its
legal council are unable to evaluate the probability of success of such claim, and there
fore no provision has been made.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 8) | On
September 19, 2007, a claim was filed against the Company and two other
          cellular operators, together with a request to recognize this claim as a class
          action.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
alleged claim is that the Company charged subscribers for Short Message Service (SMSs)
messages sent to specific subscribers who can not receive such messages, and that the
Company misled the subscribers who sent those messages as those subscribers received a
network message that the message has been sent..
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | If
the claim is recognized as a class action, the total amount claimed for the defendants is
estimated by the plaintiffs to be approximately NIS 183 million.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
parties are holding discussions in order to try and find an agreement in insubstantial
amounts and therefore no provision has been made.
| | --------------------------------------------------------------------------------------------------------------------------------------------

| | 9) | On
November 19, 2007 a claim and a motion to certify the claim as a class           action
was filed against the Company for allegedly unlawful collection of           payments
from customers, for content services that the customers did not ask           for.
Alternatively the plaintiff claims that the Company has not revealed to its
          subscribers the full details about these services.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
plaintiffs claim is for a period of 3 years. The total amount of the claim is
NIS 381 million. The Company filed its response on April 21, 2008.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 there
fore no provision has been made.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 32

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7  COMMITMENTS AND
CONTINGENCIES(continued):

| | 10) | On
December 17, 2007 a claim and a motion to certify the claim as a class           action
was filed against the Company and two other Cellular communications           companies.
The plaintiffs allege that cell sites were erected near their           properties
illegally, causing environmental damage. They seek various remedies,           including
removal of all allegedly illegal devices, and a sum of NIS 1 Billion           (1,000 NIS
per person times 1 million people allegedly effected) that would be           given to a
fund managed by environment and cellular specialists. The Company is           scheduled
to file its response by June 1, 2008.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 there
fore no provision has been made.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 11) | On
November 29, 2007 a petition was filed in the supreme court against the
          minister of communication, the attorney general in the ministry of
communication           and the chief executive officer in the ministry of communication,
and also           against the Company (as well as two other cellular communications
companies) as           formal respondents.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | At
this stage the court has yet to order the cellular companies to respond to the petition.
| | -------------------------------------------------------------------------------------------

| | 12) | On
March 23,  2008, a claim and a motion to certify the claim as a class action
                       were filed against the Company.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------

| | The
claim is that the Company overcharges subscribers for calls and that the subscribersbill
includes incorrect and unclear information.
| | -----------------------------------------------------------------------------------------------------------------------------------------

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

| | At
this stage, and until the claim is recognized as a class action, the Company and its
legal council are unable to evaluate the probability of success of such claim, and
therefore no provision has been made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 13) | Additional
claims were filed against the Company, together with a request to           recognize
these claims as class actions. The total amount of the claims against           the
Company is estimated at approximately NIS 117 million.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and until the claims are recognized as a class action, the Company and its
legal counsel are unable to evaluate the probability of success of such claims and
therefore no provision has been made.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 33

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7  COMMITMENTS AND
CONTINGENCIES(continued):

| | 14) | 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 in 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 15) | Section
197 of the Building and Planning Law states that a property owner has           the right
to be compensated by a local planning committee for reductions in           property
value as a result of a new building plan.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2006, the Non-ionizing Radiation Law was published, amending the Planning and
Building Law so that local Planning and Building committees must require indemnification
letters against reduction in property value from the cellular operators requesting
building permits.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accordingly,
on January 3, 2006, the National Council for Planning and Building published an interim
decision conditioning the issuance of building permits for cell site permits by local
planning and building councils upon provision of a 100% indemnification undertaking by
the cellular operators.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | This
decision shall remain in effect until it is replaced with an amendment to the National
Zoning Plan 36.
| | -----------------------------------------------------------------------------------------------------------

| | Between
January 3, 2006 and until March 31, 2008 the Company has provided the local authorities
with 265 indemnification letters as a pre-condition for obtaining building permits.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Due
to the fact that an enactment of law regarding this matter is not yet in place, at this
stage the extent of the Companys exposure from granting indemnification letters can
not be evaluated.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | 16) | 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 - 34

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 8 
SHAREHOLDERS EQUITY:

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

| | The
Companys shares are traded on the Tel-Aviv stock exchange (TASE), 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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s
stock option plans:
| | -- | ------------------------------

| | 1) | a. | On
March 3, 1999, the Companys Board of Directors approved           an employee
stock option plan (hereafter  the 1998 Plan),           pursuant to
which 5,833,333 ordinary shares were reserved for issuance upon the           exercise of
5,833,333 options to be granted to key employees without           consideration. In
2000, options to purchase 729,166 shares were transferred to           the 2000 plan
which left options to purchase 5,104,167 shares remaining in the           1998 plan.
Through December 31, 2007  5,505,557 options have been granted           pursuant
to the 1998 Plan, of which 4,905,028 options have been exercised and           597,139
options were forfeited and 4 expired (options forfeited and expired were
          available for subsequent grants).
| | -- | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
options vest in five equal annual batches over a period of five years from the beginning
of employment of each employee, unless otherwise provided in the grant instrument,
provided the employee is still in the Companys employ. An option not exercised
within 8 years from the date of its allotment shall expire. The exercise price per share
of the options granted through December 31, 2000, which is denominated in dollars, is $
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, 2007  195,753 options of the 1998 Plan remain ungranted.
| | ----------------------------------------------------------------------------

F - 35

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8  SHAREHOLDERS
EQUITY(continued):

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

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

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

| | Through
December 31, 2007  5,317,555 options were granted pursuant to the 2000 Plan, of
which 3,626,472 options have been exercised, 1,395,333 options were forfeited and 102,250
expired (options forfeited and expired were available for subsequent grants). As of
December 31, 2007  232,320 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. Through December 31, 2007 all 195,000 options that
were granted have been exercised. As of December 31, 2007  224,930 options of
the 2003 amended Plan remain ungranted.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | Through
December 31, 2007  7,051,000 options have been granted to Companys employees
pursuant to the 2004 Plan, of which 3,023,318 options have been exercised,
1,356,125 options were forfeited and 4,625 options expired (options forfeited and expired
are available for subsequent grants).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 36

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8  SHAREHOLDERS
EQUITY(continued):

| | As
of December 31, 2007  84,750 of the 2004 Plan remain ungranted.
| | -------------------------------------------------------------------

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

| | e. | The
ordinary shares derived from the exercise of the options confer the same           rights
as the other ordinary shares of the Company.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------

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

| | Through
December 31, 2003, the amount that the Company will be allowed to claim as an
expense for tax purposes will be the amount of the benefit taxable in the hands of the
employee.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | The
Company will recognize these expenses during 2010.
| | ------------------------------------------------------

F - 37

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8  SHAREHOLDERS
EQUITY(continued):

| | 2) | Following
is a summary of the status of the plans as of December 31, 2005, 2006           and 2007
and the changes therein during the years ended on those dates:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | Year ended December 31
|---------------------------------- | ----------------------
|
|
|
|
|Balance outstanding at beginning   |                       
|of year                            |                       
|Changes during the year:           |                       
|Granted**                          |                       
|Exercised                          |                       
|Forfeited                          |                       
|Expired                            |                       
|                                   |                       
|Balance outstanding at end of year |                       
|                                   |                       
|Balance exercisable at end of year |                       
|                                   |                       
|                                   |                       

| | * | Includes
options under the 1998 Plan, the exercise price of which is weighted based on the
applicable dates NIS  dollar exchange rate.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | ** | Below
market price.
| | -- | -------------------

| | *** | The
total intrinsic value of options exercised during 2005, 2006 and 2007 is NIS 35.5
million, NIS 36.8 million and NIS 100.3 million, respectively.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | The
weighted average fair value of options granted using the Black & Scholes
option-pricing model during 2005, 2006 and 2007 is NIS 21.36, NIS 10.82 and NIS 12.50 ($ 3.25),
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
2005 0%, 2006  6.14% and 2007 5.69%; expected volatility of 58%, 39% and 26%,
respectively; risk-free interest rate: 2005  3.5%, 2006  5.5%, 2007  4.1%;
weighted average expected life: 2005 and 2006  5 years and 2007  4 years. The
expected volatility is based on a historical volatility, by statistical analysis of the
daily share price for periods corresponding the options expected life. The expected
life is expected length of time until expected date of exercising the options, based on
historical data on employees exercise behavior and anticipated future condition.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
annual tax benefit regarding the exercised options during the years 2005, 2006, and 2007
is NIS 11.3 million, NIS 7.8 million, and NIS 7.6 million respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
annual income tax regarding the granted options for the years 2005, 2006, and 2007 is NIS
0.9 million, NIS 0.9 million, and NIS 2.0 million respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2007, there was NIS 13.4 million of total unrecognized compensation
cost (net of forfeitures) related to non-vested share-based compensation arrangements
granted under the plans. The weighted average remaining life of the unrecognized
compensation cost is 1.5 years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 38

---

---

PARTNER COMMUNICATIONS COMPANY LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8  SHAREHOLDERS
EQUITY(continued):

| | The
following table summarizes information about options outstanding and exercisable at
December 31, 2007:
| | ----------------------------------------------------------------------------------------------------------

| | Options outstanding
| | -------------------
|
|
|
|
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    

| | Options exercisable
| | -------------------
|
|
|
|
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    

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

| | During
the years 2006 and 2007 the Company distributed to its shareholders a cash dividend in
the amount of NIS 307 million (NIS 2 per share) and NIS 631 million (NIS 4.03 per share),
respectively out of which approximately NIS 7 million tax withholding related to dividend
was paid in January 2008.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 7, 2008, the Companys Board of Directors resolved and recommended the
distribution of a cash dividend in the amount of NIS 2.02 per share (approximately NIS 318
million ($83 million)) to shareholders of record on February 20, 2008. Cash dividends are
paid in Israeli currency.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 39

---

---

PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8  SHAREHOLDERS
EQUITY(continued):

| | d. | On February 7, 2008, the Companys Board of Directors resolved and
               recommended the share buyback of up to NIS 600 million in 2008. Till the date of
               signing of the financial statements, the Company purchased 625,000 shares.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 9  TAXES ON
INCOME:

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

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

| | In
February 2008, the Knesset (the Israeli parliament), passed a low according to which the
provisions of the Inflationary Adjustments Law will no longer apply to the Company in
2008 and thereafter.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
income of the Company and its Israeli subsidiary is taxed at the regular rate. Through
December 31, 2003, the corporate tax was 36%. In July 2004, Amendment No. 140
to the Income Tax Ordinance was enacted. One of the provisions of this amendment is that
the corporate tax rate is to be gradually reduced from 36% to 30%. In August 2005, a
further amendment (No. 147) was published, which makes a further revision to the
corporate tax rates prescribed by Amendment No. 140. As a result of the
aforementioned amendments, the corporate tax rates for are as follows: 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, 2007, the subsidiary of the Company had carryforward losses of approximately
NIS 14 million (approximately $ 4 million). The carryforward tax losses are
linked to the Israeli CPI and can be utilized indefinitely.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 40

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PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9  TAXES ON INCOME(continued):

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

| | The
major components of the net deferred tax asset, current and non-current, in respect of
the balances of temporary differences and the related valuation allowance as of December
31, 2006 and 2007, are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                     | December 31
| | ----------------------------------- | -----------
|
|
|
|
| | In respect of carryforward tax      |            
| | losses (see c. above)               |            
| | Subscriber acquisition costs        |            
| | Allowance for doubtful accounts     |            
| | Provisions for employee rights      |            
| | Depreciable fixed assets            |            
| | Amortized license                   |            
| | Options granted to employees        |            
| | Other                               |            
| |                                     |            
| |                                     |            
| | Valuation allowance - in respect of |            
| | carryforward tax losses *           |            
| |                                     |            
| |                                     |            
| |                                     |            
| |                                     |            

| | *
The carryforward tax losses are related to the wholly owned subsidiary.
| | -------------------------------------------------------------------------

| | The
changes in the valuation allowance for the years ended December 31, 2005, 2006 and 2007,
are as follows:
| | ------------------------------------------------------------------------------------------------------------

| |                              | 2005 | 2006 | 2007 | 2007  
| | ---------------------------- | ---- | ---- | ---- | ------
|
|
|
|
| | Balance at beginning of year |      |      |      | 5,694 
| | Change during the year       |      |      |      | (2,455
| |                              |      |      |      |       
| | Balance at end of year       |      |      |      | 3,239 
| |                              |      |      |      |       
| |                              |      |      |      |       

| | 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 - 41

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PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9  TAXES ON INCOME(continued):

| | e. | Following
is a reconciliation of the theoretical tax expense, assuming all                income is
taxed at the regular tax rates applicable to companies in Israel (see                b.
above), and the actual tax expense:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                | Year ended December 31
| | ---------------------------------------------- | ----------------------
|
|
|
|
| | Income before taxes on income,                 |                       
| | as reported in the income statements           |                       
| |                                                |                       
| | Theoretical tax expense                        |                       
| | Increase in taxes resulting from adjustment to |                       
| | deferred tax balances due to changes in        |                       
| | tax rates, see b above                         |                       
| | Increase (decrease) in tax resulting from      |                       
| | disallowable deductions: *                     |                       
| | In respect of previous year                    |                       
| | For the current year                           |                       
| | Change in the estimated utilization period of  |                       
| | the tax assets                                 |                       
| | Difference between the basis of measurement    |                       
| | of income reported for tax purposes and        |                       
| | the basis of measurement of income for         |                       
| | financial reporting purposes - net             |                       
| | Other                                          |                       
| |                                                |                       
| | Taxes on income for the reported year          |                       
| |                                                |                       

| | * | Following
the ruling of the Supreme Court, on November 20, 2006 on the matter of Paz Gas Marketing
Company Ltd. and others vs. the assessing officer and others, which overturned the rules
regarding the recognition of financing expenses, the Company included in its financial
statements an additional provision for taxes in the amount of NIS 35 million. This
provision was an estimate of the additional tax expense relating to the possibility that
part of the financing expenses accrued in the years 2005 and 2006 in respect of a
financial debt, which is attributable, inter alia, to the financing of a repurchase of
Company shares, will not be recognized as an expense for tax purposes.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 28 and 29, 2007, the Israeli Supreme Court issued a new ruling readdressing the
same issue. The Company re-evaluated the provision in light of the new ruling and decided
to reduce the provision of unrecognized tax benefit to an amount of NIS 7 million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 42

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PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9  TAXES ON INCOME(continued):

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

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

| |                                       | Year ended December 31
| | ------------------------------------- | ----------------------
|
|
|
|
| | For the reported year:                |                       
| | Current                               |                       
| | Deferred, see d above                 |                       
| | In respect of previous year - current |                       
| |                                       |                       
| |                                       |                       
| |                                       |                       
| |                                       |                       

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

| | 1) | Tax
returns filed by the Company through the year ended December 31, 2002,           are
considered to be final.
| | -- | ----------------------------------------------------------------------------------------------------------------

| | 2) | The
subsidiary has not been assessed for tax purposes since incorporation.
| | -- | --------------------------------------------------------------------------

| | h. | Uncertain
tax positions:
| | -- | ------------------------

| | As
described in Note 1o, the Company adopted the provisions of FIN 48 as of January 1, 2007.
| | --------------------------------------------------------------------------------------------

| | As
of December, 31 2006, the Company recognized a liability for unrecognized tax benefits in
amount of NIS 35 million (See also e above). This amount did not result in a change to
the balance of accumulated deficit, since the amount was fully provided for prior to the
adoption of FIN 48.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December, 31 2007 a provision of NIS 7 million is presented as short term liability in
the balance sheet.
| | ---------------------------------------------------------------------------------------------------------------

| | In
2007 the Company recognized interest expense, in respect of those underpayments of income
taxes and penalties in an immaterial amounts.
| | ------------------------------------------------------------------------------------------------------------------------------------------

| | Following
is a reconciliation of the total amounts of the Companys unrecognized tax benefits
at the beginning and the end of the year ended on December 31, 2007:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                     | NIS in thousands
| | ------------------------------------------------------------------- | ----------------
|
|
|
|
| | Balance at beginning of year                                        |                 
| | Increases in unrecognized tax benefits as a result of tax positions |                 
| | taken during the current period                                     |                 
| | Decreases in unrecognized tax benefits as a result of:              |                 
| | Positions taken during a prior period                               |                 
| | Tax positions taken during the current period                       |                 
| |                                                                     |                 
| | Balance at end of year                                              |                 
| |                                                                     |                 
| |                                                                     |                 

F - 43

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PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9  TAXES ON INCOME(continued):

| | The
amounts of unrecognized tax benefits as of December 31, 2007 and January 1, 2007 that
would affect the effective tax rate if recognized are NIS 7 million and NIS 35 million,
respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company anticipates that it is reasonably possible that over the next twelve months the
amount of unrecognized tax benefits could be reduced to zero because the Company is
currently under periodical examination by the tax authorities.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 10  FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT:

| | a. | Linkage
of monetary balances:
| | -- | -----------------------------

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

| |                              | December 31, 2007
| | ---------------------------- | -----------------
|
|
|
|
| | NIS:                         |                  
| | Assets                       |                  
| |                              |                  
| | Liabilities                  |                  
| |                              |                  
| |                              |                  
| | Convenience translation into |                  
| | dollars:                     |                  
| | Assets                       |                  
| |                              |                  
| | Liabilities                  |                  
| |                              |                  
| |                              |                  

| | 2) | Data
regarding the dollar exchange rate and the Israeli CPI:
| | -- | ------------------------------------------------------------

| |                                        | Exchange
rate of one
dollar | Israeli
CPI*
| | -------------------------------------- | --------------------------- | ------------
|
|
|
|
| | At December 31:                        |                             |             
| | 2007                                   |                             |             
| | 2006                                   |                             |             
| | 2005                                   |                             |             
| | 2004                                   |                             |             
| | Increase (decrease) during the period: |                             |             
| | 2007                                   |                             |             
| | 2006                                   |                             |             
| | 2005                                   |                             |             
| |                                        |                             |             

| | *
Based on the index for the month ending on each balance sheet date, on the basis of 1993
average = 100.
| | ---------------------------------------------------------------------------------------------------------

F - 44

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PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10  FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT(continued):

| | b. | Derivative
financial instrument  foreign exchange risk management
| | -- | ------------------------------------------------------------------

| | The
Company enters into foreign currency derivative transactions in order to protect itself
against the risk that the eventual dollar cash flows resulting from the anticipated
payments in respect of purchases of handsets and capital expenditures in foreign currency
will be affected by changes in exchange rates. In addition the Company enters into
derivative transactions in order to protect itself against the increase in the CPI in
respect of the principal of the CPI-linked Notes payable. However, these contracts do not
qualify for hedge accounting under FAS 133.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | As
the counterparties to the derivatives are Israeli banks, the Company considers the
inherent credit risks remote.
| | -------------------------------------------------------------------------------------------------------------------

| | The
notional amounts of foreign currency derivatives as of December 31, 2006 and 2007 are as
follows:
| | -----------------------------------------------------------------------------------------------------

| |                              | December 31
| | ---------------------------- | -----------
|
|
|
|
| | Forward transactions for the |            
| | changes in the Israeli CPI   |            
| |                              |            
| | Forward transactions for the |            
| | exchange of dollars into NIS |            
| |                              |            
| | Embedded derivatives -       |            
| | dollars into NIS             |            
| |                              |            
| |                              |            

| | The
derivative financial instruments are for a period of up to one year. As of December 31,
2007, the remaining contractual lives are for periods up to one year.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
financial instruments of the Company as of December 31, 2007 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 5.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of derivatives as of December 31, 2007, is a liability of approximately NIS
18.7 million (approximately $ 4.9 million) and an asset of approximately NIS 28.6
million (approximately $ 7.4 million) (December 31, 2006  a liability of
approximately NIS 21.2 million and an asset of approximately NIS 7.5 million).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 45

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PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 11 
SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

| | a. | Accounts
receivable:
| | -- | --------------------

| |    |                                               | December 31
| | -- | --------------------------------------------- | -----------
|
|
|
|
| | 1) | Trade (current and long-term)                 |            
| |    | The item is presented after the deduction of: |            
| |    | (a)         Deferred interest income*         |            
| |    |                                               |            
| |    |                                               |            

| | * | Long-term
trade receivables (including current maturities) as of December 31, 2006 and 2007 in the
amount of NIS 661,474,000 and NIS 1,009,065,000 ($ 262,367,000), 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 at the date of the transaction (4.6%  5.6%) (2006  5.85%
6.6%).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
changes in the allowance for the years ended December 31, 2005, 2006 and 2007, are as
follows:
| | --------------------------------------------------------------------------------------------------

| |                              | 2005 | 2006 | 2007 | 2007   
| | ---------------------------- | ---- | ---- | ---- | -------
|
|
|
|
| | Balance at beginning of year |      |      |      | 86,651 
| | Utilization during the year  |      |      |      | (6,590 
| | Change during the year       |      |      |      | 28,739 
| |                              |      |      |      |        
| | Balance at end of year       |      |      |      | 108,800
| |                              |      |      |      |        

| | 2) | Other:
| | -- | ------

| |                           | December 31
| | ------------------------- | -----------
|
|
|
|
| | Inventory held by dealers |            
| | Government institutions   |            
| | Prepaid expenses          |            
| | Derivative instruments    |            
| | Sundry                    |            
| |                           |            
| |                           |            
| |                           |            
| |                           |            

F - 46

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PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11  SUPPLEMENTARY
FINANCIAL STATEMENT INFORMATION(continued):

| | b. | Inventory:
| | -- | ----------

| |                       | December 31
| | --------------------- | -----------
|
|
|
|
| | Handsets              |            
| | Accessories and other |            
| | Spare parts           |            
| |                       |            
| |                       |            
| |                       |            
| |                       |            

| | c. | Accounts
payable and accruals  other:
| | -- | --------------------------------------

| |                                           | December 31
| | ----------------------------------------- | -----------
|
|
|
|
| | Employees and employee institutions       |            
| | Provision for vacation and recreation pay |            
| | Government institutions                   |            
| | Unrecognized tax benefit                  |            
| | Income received in advance                |            
| | In respect of derivative instruments      |            
| | Handsets warranty                         |            
| | Sundry                                    |            
| |                                           |            
| |                                           |            
| |                                           |            

| | d. | Provision
for warranty  the changes in the provision for warranty                for the
years ended December 31, 2005, 2006 and 2007, are as follows:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |                               | 2005 | 2006 | 2007 | 2007  
| | ----------------------------- | ---- | ---- | ---- | ------
|
|
|
|
| | Balance at beginning of year  |      |      |      | 1,734 
| | Product warranties issued for |      |     
| | new sales                     |      |      |      | 2,420 
| | Utilization during the year   |      |      |      | (3,090
| |                               |      |      |      |       
| | Balance at end of year        |      |      |      | 1,064 
| |                               |      |      |      |       
| |                               |      |      |      |       

F - 47

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PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11  SUPPLEMENTARY
FINANCIAL STATEMENT INFORMATION(continued):

| | e. | Other
liabilities:
| | -- | ------------------

| | 1. | Asset
retirement obligations  the changes in the asset retirement           obligations
for the years ended December 31, 2005, 2006 and 2007, are as           follows:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                   | 2005 | 2006 | 2007 | 2007 
| | --------------------------------- | ---- | ---- | ---- | -----
|
|
|
|
| | Balance at January 1,             |      |      |      | 7,567
| | Liability incurred during the     |      |     
| | year                              |      |      |      | 682  
| | Liability settled during the year |      |      |      | (751 
| | Accretion expenses                |      |      |      | 659  
| |                                   |      |      |      |      
| | Balance at December 31,           |      |      |      | 8,157
| |                                   |      |      |      |      
| |                                   |      |      |      |      

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

| |                                   | December 31
| | --------------------------------- | -----------
|
|
|
|
| | Total commitment                  |            
| | Less - deferred interest expenses |            
| |                                   |            
| | Long term lease *                 |            
| | Less - current maturities         |            
| |                                   |            
| |                                   |            
| |                                   |            
| |                                   |            

| | *
To be paid until April 2009.
| | ------------------------------

| | The
commitments for capital lease are presented in the balance sheet as follows:
| | --------------------------------------------------------------------------------

| |                   | December 31
| | ----------------- | -----------
|
|
|
|
|
| | Linked to the USD |            
| |                   |            
| | Linked to the CPI |            
| |                   |            
| |                   |            
| |                   |            
| |                   |            
| |                   |            

F - 48

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PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11  SUPPLEMENTARY
FINANCIAL STATEMENT INFORMATION(continued):

| | f. | Financial
expenses, net:
| | -- | ------------------------

| |                                 | Year ended December 31
| | ------------------------------- | ----------------------
|
|
|
|
| | Financial income:               |                       
| | In respect of trade receivables |                       
| | Other                           |                       
| | Financial expenses              |                       
| | Expenses relating to the        |                       
| | redemption of notes, note 5b    |                       
| | Derivative instruments          |                       
| | Exchange rate differences       |                       
| | CPI Linkage differences         |                       
| |                                 |                       
| |                                 |                       
| |                                 |                       

| | g. | Diluted
EPS
| | -- | -----------

| | Following
are data relating to the net income and the weighted average number of shares that were
taken into account in computing the basic and diluted EPS:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | Year ended December 31
|----------------------------------------- | ----------------------
|
|
|
|
|Net income used for the computation of    |                       
|basic and diluted EPS (in thousands) :    |                       
|Before cumulative effect                  |                       
|Cumulative effect                         |                       
|                                          |                       
|Net income                                |                       
|                                          |                       
|Weighted average number of shares used    |                       
|in computation of basic EPS               |                       
|Add - net additional shares from assumed  |                       
|exercise of employee stock options        |                       
|                                          |                       
|Weighted average number of shares used in |                       
|computation of diluted EPS                |                       
|                                          |                       
|                                          |                       

F - 49

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PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 12 
TRANSACTIONS AND BALANCES WITH RELATED PARTIES:

| | a. | Transactions
with related parties:
| | -- | ----------------------------------

| |                                       | Year ended December 31
| | ------------------------------------- | ----------------------
|
|
|
|
| | Acquisition of handsets from related  |                       
| | parties                               |                       
| |                                       |                       
| | Financial expenses, mainly in respect |                       
| | of the Facility agreement, net        |                       
| |                                       |                       
| |                                       |                       
| | Selling commissions, maintenance and  |                       
| | other expenses                        |                       
| |                                       |                       
| |                                       |                       

| | As
to the repurchase of Companys share, see note 8a.
| | -----------------------------------------------------

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

F - 50

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PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12 
TRANSACTIONS AND BALANCES WITH RELATED PARTIES(continued):

| | b. | Cost
sharing agreement
| | -- | ----------------------

| | 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, 2007, the
Company had given notice of its participation in 8 projects.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | The
Company has entered into a framework agreement with H3G procurement services
               S a R.L concerning the purchase of 3G handsets.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------

F - 51

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