| 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, 2011                                                                                      |
|   |                                                                                                                             |
|   | OR                                                                                                                               |
|   |                                                                                                                             |
| o      | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                         |
|   |                                                                                                                             |
|   | For the transition period from  _____________________ to  ____________________                                    |
|   |                                                                                                                             |
|   | OR                                                                                                                               |
|   |                                                                                                                             |
| o      | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934                                     |
|   | Date of event requiring this shell company report .................................. |

|   | Commission file number 001-33271 |
|--------|----------------------------------|

| CELLCOM ISRAEL LTD.                                      |
|----------------------------------------------------------|
| (Exact name of Registrant as specified in its charter    |
| and translation of Registrant’s name into English) |
|                                                     |
| ISRAEL                                                   |
| (Jurisdiction of incorporation or organization)          |
|                                                     |
| 10 Hagavish Street, Netanya 42140, Israel                |
| (Address of principal executive offices)                 |

| Title of each class                           | Name of each exchange on which registered    |
|-----------------------------------------------|----------------------------------------------|
| Ordinary Shares, par value NIS 0.01 per share | New York Stock Exchange (“NYSE”) |

| None             |
|------------------|
| (Title of Class) |

----

| None             |
|------------------|
| (Title of Class) |

| Large accelerated filer  [ X ] | Accelerated filer  [  ] | Non-accelerated filer  [  ] |
|------------------------------------------|---------------------------------------------|-------------------------------------------------|

|   | [  ]  Yes | [X]  No |
|--------|-------------------------------|-------------------|

----

----

| · | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | 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 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of the company’s assets that could have a material effect on the financial statements. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Exhibit Number | Description                                                                                                                                                                          |   |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 1.1            | Updated Articles of Association and Memorandum of Association ††††                                                                                           |
| 2.1            | Form of Ordinary Share Certificate†                                                                                                                                            |
| 4.1            | Series A Indenture dated December 21, 2005 and an addendum dated February 27, 2006 between Cellcom and Aurora Fidelity Trust Ltd. †                                            |
| 4.1.1          | Series A Debentures Trustee Replacement Agreement dated June 11, 2009. †††                                                                                         |
| 4.2            | Series B Indenture dated December 21, 2005 and an addendum dated February 27, 2006 between Cellcom and Hermetic Trust (1975) Ltd. †                                            |
| 4.3            | Series C Indenture dated September 20, 2007, between Cellcom and Aurora Fidelity Trust Ltd. ††                                                                           |
| 4.3.1          | Series C Debentures Trustee Replacement Agreement dated June 11, 2009. †††                                                                                         |
| 4.4            | Series D Indenture dated September 20, 2007, between Cellcom and Hermetic Trust (1975) Ltd. ††                                                                           |
| 4.5            | Series E Indenture dated March 31, 2009, between Cellcom and Hermetic Trust (1975) Ltd. †††                                                                        |
| 4.6            | Shelf Prospectus Indenture dated July 14, 2011, between Cellcom and Hermetic Trust (1975) Ltd. ††††                                                          |
| 4.6.1          | Shelf Prospectus Indenture dated March 7, 2012, between Cellcom and Strauss Lazar Trust Company (1992) Ltd. ††††                                             |
| 4.6.2.         | Amendment and Addendum no. 1 to the Indenture from January 19, 2012, dated March 7, 2012, between Cellcom and Strauss Lazar Trust Company (1992) Ltd.††††    |
| 4.7            | Amended 2006 Share Incentive Plan††††                                                                                                                        |
| 4.8            | Registration Rights Agreement dated March 15, 2006 among Cellcom, Goldman Sachs International, DIC, DIC Communication and Technology Ltd. and PEC Israel Economic Corporation† |
| 4.9            | Amended Non-Exclusive General License for the Provision of Mobile Radio Telephone Services in the Cellular Method dated June 27, 1994††††                    |
| 4.10           | Netvision Ltd. Merger Agreement††††                                                                                                                          |

----

| Exhibit Number | Description |   |
|----------------|-------------|--------|

| 8.1  | Subsidiaries of the Registrant††††                                                                                                                  |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 12.1 | Certification of Principal Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act *                                 |
| 12.2 | Certification of Principal Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act *                                 |
| 13.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act * |
| 15   | Consent of Independent Registered Public Accounting Firm *                                                                                                             |

| * | Filed herewith. |
|---|-----------------|

| † | Incorporated by reference to our registration statement on Form F-1 (registration no. 333-140030) filed with the SEC on January 17, 2007. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------|

| †† | Incorporated by reference to our annual report on Form 20-F for the year 2007 filed with the SEC on March 18, 2008. |
|----------------|---------------------------------------------------------------------------------------------------------------------|

| ††† |  Incorporated by reference to our annual report on Form 20-F for the year 2009 filed with the SEC on March 2, 2010. |
|-----------------------|--------------------------------------------------------------------------------------------------------------------------|

| †††† |  Incorporated by reference to our annual report on Form 20-F for the year 2011 filed with the SEC on March 7, 2012. |
|------------------------------|--------------------------------------------------------------------------------------------------------------------------|

----

| Cellcom Israel Ltd.   |
|---------------------------------|
| By:                             | /s/ Nir Sztern |
|                            | Name: | Nir Sztern |
|                            | Title: | President and Chief Executive Officer |

----

|                                            |    |   |
|-------------------------------------------------|---------|--------|
| Contents                                        |    |   |
|                                            |    |   |
|                                            |    |   |
|                                            |    | Page   |
|                                            |    |   |
|                                            |    |   |
| Auditors' Report                                | F2-F3   |
|                                            |    |   |
|                                            |    |   |
| Consolidated Financial Statements               |
|                                            |    |   |
|                                            |    |   |
| Consolidated Statements of Financial Position   | F4      |
|                                            |    |   |
|                                            |    |   |
| Consolidated Statements of Income               | F5      |
|                                            |    |   |
|                                            |    |   |
| Consolidated Statements of Comprehensive Income | F6      |
|                                            |    |   |
|                                            |    |   |
| Consolidated Statements of Changes in Equity    | F7      |
|                                            |    |   |
|                                            |    |   |
| Consolidated Statements of Cash Flows           | F8-F9   |
|                                            |    |   |
|                                            |    |   |
| Notes to the Consolidated Financial Statements  | F10-F72 |

----

Table of Contents

To Board of Directors and Shareholders of

----

Table of Contents

----

Table of Contents

Consolidated Statements of Financial Position

----

|                                                                       |   |     |   |   | December 31,2010 |      |   | December 31,2011 |   |      | Conveniencetranslation intoUS dollar (Note 2D)December 31,2011 |   |
|----------------------------------------------------------------------------|--------|----------|--------|--------|------------------|-----------|--------|------------------|--------|-----------|----------------------------------------------------------------|--------|
|                                                                       |   | Note     |   |   | NIS millions     |      |   | NIS millions     |   |      | US$ millions                                                   |   |
| Assets                                                                     |   |     |   |   |             |      |   |             |   |      |                                                           |   |
| Cash and cash equivalents                                                  |   | 8        |   |   |             | 533       |   |             |   | 920       |                                                           |   |   | 241 |   |
| Current investments, including derivatives                                 |   |     |   |   |             | 404       |   |             |   | 290       |                                                           |   |   | 76 |   |
| Trade receivables                                                          |   | 9        |   |   |             | 1,478     |   |             |   | 1,859     |                                                           |   |   | 487 |   |
| Other receivables                                                          |   | 9        |   |   |             | 64        |   |             |   | 93        |                                                           |   |   | 24 |   |
| Inventory                                                                  |   | 10       |   |   |             | 104       |   |             |   | 170       |                                                           |   |   | 44 |   |
| Total current assets                                                       |   |     |   |   |             | 2,583     |   |             |   | 3,332     |                                                           |   |   | 872 |   |
| Trade and other receivables                                                |   | 9        |   |   |             | 597       |   |             |   | 1,337     |                                                           |   |   | 350 |   |
| Property, plant and equipment, net                                         |   | 11       |   |   |             | 2,063     |   |             |   | 2,168     |                                                           |   |   | 567 |   |
| Intangible assets, net                                                     |   | 12       |   |   |             | 753       |   |             |   | 1,680     |                                                           |   |   | 440 |   |
| Deferred tax assets                                                        |   | 28       |   |   |             | -         |   |             |   | 40        |                                                           |   |   | 10 |   |
| Total non- current assets                                                  |   |     |   |   |             | 3,413     |   |             |   | 5,225     |                                                           |   |   | 1,367 |   |
| Total assets                                                               |   |     |   |   |             | 5,996     |   |             |   | 8,557     |                                                           |   |   | 2,239 |   |
| Short term credit and current maturities of long term loans and debentures |   |  17 |   |   |             | 348  |   |             |   | 674  |                                                           |   |   | 176  |   |
| Trade payables and accrued expenses                                        |   | 13       |   |   |             | 716       |   |             |   | 1,026     |                                                           |   |   | 268 |   |
| Current tax liabilities                                                    |   |     |   |   |             | 132       |   |             |   | 69        |                                                           |   |   | 18 |   |
| Provisions                                                                 |   | 14       |   |   |             | 84        |   |             |   | 148       |                                                           |   |   | 39 |   |
| Other payables, including derivatives                                      |   | 15       |   |   |             | 379       |   |             |   | 547       |                                                           |   |   | 143 |   |
| Dividend declared                                                          |   | 19       |   |   |             | -         |   |             |   | 189       |                                                           |   |   | 49 |   |
| Total current liabilities                                                  |   |     |   |   |             | 1,659     |   |             |   | 2,653     |                                                           |   |   | 693 |   |
| Long-term loans from banks                                                 |   | 17       |   |   |             | -         |   |             |   | 19        |                                                           |   |   | 5 |   |
| Debentures                                                                 |   | 17       |   |   |             | 3,913     |   |             |   | 5,452     |                                                           |   |   | 1,427 |   |
| Provisions                                                                 |   | 14       |   |   |             | 17        |   |             |   | 21        |                                                           |   |   | 5 |   |
| Other long-term liabilities                                                |   | 16       |   |   |             | -         |   |             |   | 41        |                                                           |   |   | 11 |   |
| Liability for employee rights upon retirement, net                         |   | 18       |   |   |             | 1         |   |             |   | 10        |                                                           |   |   | 3 |   |
| Deferred tax liabilities                                                   |   | 28       |   |   |             | 65        |   |             |   | 174       |                                                           |   |   | 46 |   |
| Total non- current liabilities                                             |   |     |   |   |             | 3,996     |   |             |   | 5,717     |                                                           |   |   | 1,497 |   |
| Total liabilities                                                          |   |     |   |   |             | 5,655     |   |             |   | 8,370     |                                                           |   |   | 2,190 |   |
| Equity attributable to owners of the Company                               |   | 19       |   |   |             |      |   |             |   |      |                                                           |   |   |   |   |
| Share capital                                                              |   |     |   |   |             | 1         |   |             |   | 1         |                                                           |   |   | - |   |
| Cash flow hedge reserve                                                    |   |     |   |   |             | (21       | )      |             |   | 7         |                                                           |   |   | 2 |   |
| Retained earnings                                                          |   |     |   |   |             | 361       |   |             |   | 175       |                                                           |   |   | 46 |   |
| Non-controlling interest                                                   |   |     |   |   |             | -         |   |             |   | 4         |                                                           |   |   | 1 |   |
| Total equity                                                               |   |     |   |   |             | 341       |   |             |   | 187       |                                                           |   |   | 49 |   |
| Total liabilities and equity                                               |   |     |   |   |             | 5,996     |   |             |   | 8,557     |                                                           |   |   | 2,239 |   |

----

Table of Contents

Consolidated Statements of Income

----

|                                |   |   | Year endedDecember 31,2009 |   |   | Year endedDecember 31,2010 |   |   | Year ended December 31,2011 |   |   | Convenience translation into USdollar (Note 2D)Year endedDecember 31,2011 |   |
|-------------------------------------|--------|--------|----------------------------|--------|--------|----------------------------|--------|--------|-----------------------------|--------|--------|---------------------------------------------------------------------------|--------|
|                                | Note   |   | NIS millions               |   |   | NIS millions               |   |   | NIS millions                |   |   | US$ millions                                                              |   |
| Revenues                            | 22     |   |                       | 6,483  |   |                       |   | 6,662  |                        |   |   | 6,506                                                                     |   |   |   | 1,703 |   |
| Cost of revenues                    | 23     |   |                       | (3,333 | )      |                       |   | (3,322 | )                           |   |   | (3,408                                                                    | )      |   |   | (892 | ) |
| Gross profit                        |   |   |                       | 3,150  |   |                       |   | 3,340  |                        |   |   | 3,098                                                                     |   |   |   | 811 |   |
| Selling and marketing expenses      | 24     |   |                       | (716   | )      |                       |   | (756   | )                           |   |   | (990                                                                      | )      |   |   | (259 | ) |
| General and administrative expenses | 25     |   |                       | (660   | )      |                       |   | (641   | )                           |   |   | (685                                                                      | )      |   |   | (179 | ) |
| Other expenses, net                 | 26     |   |                       | (6     | )      |                       |   | (5     | )                           |   |   | (1                                                                        | )      |   |   | - |   |
| Operating profit                    |   |   |                       | 1,768  |   |                       |   | 1,938  |                        |   |   | 1,422                                                                     |   |   |   | 373 |   |
| Financing income                    |   |   |                       | 151    |   |                       |   | 106    |                        |   |   | 116                                                                       |   |   |   | 30 |   |
| Financing expenses                  |   |   |                       | (370   | )      |                       |   | (336   | )                           |   |   | (409                                                                      | )      |   |   | (107 | ) |
| Financing expenses, net             | 27     |   |                       | (219   | )      |                       |   | (230   | )                           |   |   | (293                                                                      | )      |   |   | (77 | ) |
| Profit before taxes on income       |   |   |                       | 1,549  |   |                       |   | 1,708  |                        |   |   | 1,129                                                                     |   |   |   | 296 |   |
| Taxes on income                     | 28     |   |                       | (367   | )      |                       |   | (417   | )                           |   |   | (304                                                                      | )      |   |   | (80 | ) |
| Profit for the year                 |   |   |                       | 1,182  |   |                       |   | 1,291  |                        |   |   | 825                                                                       |   |   |   | 216 |   |
| Attributable to:                    |   |   |                       |   |   |                       |   |   |                        |   |   |                                                                      |   |   |   |   |   |
| Owners of the Company               |   |   |                       | 1,182  |   |                       |   | 1,291  |                        |   |   | 824                                                                       |   |   |   | 216 |   |
| Non-controlling interests           |   |   |                       | -      |   |                       |   | -      |                        |   |   | 1                                                                         |   |   |   | - |   |
| Profit for the year                 |   |   |                       | 1,182  |   |                       |   | 1,291  |                        |   |   | 825                                                                       |   |   |   | 216 |   |
| Earnings per share                  |   |   |                       |   |   |                       |   |   |                        |   |   |                                                                      |   |   |   |   |   |
| Basic earnings per share (in NIS)   | 19     |   |                       | 12.01  |   |                       |   | 13.04  |                        |   |   | 8.28                                                                      |   |   |   | 2.17 |   |
| Diluted earnings per share (in NIS) | 19     |   |                       | 11.90  |   |                       |   | 12.98  |                        |   |   | 8.28                                                                      |   |   |   | 2.17 |   |

----

Table of Contents

Consolidated Statements of Comprehensive Income

----

|                                                                       |   | Year ended December 31,2009 |   |   | Year ended December 31,2010 |   |   | Year ended December 31,2011 |   |   | Convenience translation into USdollar (Note 2D)Year endedDecember 31,2011 |   |
|----------------------------------------------------------------------------|--------|-----------------------------|--------|--------|-----------------------------|--------|--------|-----------------------------|--------|--------|---------------------------------------------------------------------------|--------|
|                                                                       |   | NIS millions                |   |   | NIS millions                |   |   | NIS millions                |   |   | US$ millions                                                              |   |
|                                                                       |   |
| Profit for the year                                                        |   |                        | 1,182  |   |                        |   | 1,291  |                        |   |   | 825                                                                       |   |   |   | 216 |   |
| Net change in fair value of cash flow hedges transferred to profit or loss |   |                        | (14    | )      |                        |   | (10    | )                           |   |   | 20                                                                        |   |   |   | 5 |   |
| Changes in fair value of cash flow hedges, net of income tax               |   |                        | (2     | )      |                        |   | 9      |                        |   |   | 13                                                                        |   |   |   | 3 |   |
| Income tax on other comprehensive income                                   |   |                        | 4      |   |                        |   | 3      |                        |   |   | (5                                                                        | )      |   |   | (1 | ) |
| Other comprehensive income for the year, net of income tax                 |   |                        | (12    | )      |                        |   | 2      |                        |   |   | 28                                                                        |   |   |   | 7 |   |
| Total comprehensive income for the year                                    |   |                        | 1,170  |   |                        |   | 1,293  |                        |   |   | 853                                                                       |   |   |   | 223 |   |
| Total comprehensive income attributable to:                                |   |                        |   |   |                        |   |   |                        |   |   |                                                                      |   |   |   |   |   |
| Owners of the Company                                                      |   |                        | 1,170  |   |                        |   | 1,293  |                        |   |   | 852                                                                       |   |   |   | 223 |   |
| Non-controlling interests                                                  |   |                        | -      |   |                        |   | -      |                        |   |   | 1                                                                         |   |   |   | - |   |
| Total comprehensive income for the year                                    |   |                        | 1,170  |   |                        |   | 1,293  |                        |   |   | 853                                                                       |   |   |   | 223 |   |

----

Table of Contents

Consolidated Statements of Changes in Equity

----

|                                                                      |   | Attributable to owners of the Company |   |   | Non-controllinginterests |   |   | Totalequity      |   |   | Conveniencetranslation intoUS dollar(Note 2D) |   |
|---------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------|--------|--------|------------------|--------|--------|-----------------------------------------------|--------|
|                                                                      |   | Share capital                         |   |   | Capitalreserve           |   |   | Retainedearnings |   |   | Total                                         |   |   |   |   |   |   |   |   |   |   |
|                                                                      |   | NIS millions                          |   |   | US$ millions             |   |
|                                                                      |   |                                  |   |   |                     |   |   |             |   |   |                                          |   |   |   |   |   |   |   |   |   |   |
| Balance as of January 1, 2009                                             |   |                                  | 1      |   |                     |   | (11    | )                |   |   | 400                                           |   |   |   | 390 |   |   |   | - |   |   |   | 390 |   |   |   | 102 |   |
| Other comprehensive income for the year, net of tax                       |   |                                  | -      |   |                     |   | (12    | )                |   |   | -                                             |   |   |   | (12 | ) |   |   | - |   |   |   | (12 | ) |   |   | (3 | ) |
| Profit for the year                                                       |   |                                  | -      |   |                     |   | -      |             |   |   | 1,182                                         |   |   |   | 1,182 |   |   |   | - |   |   |   | 1,182 |   |   |   | 309 |   |
| Share based payments                                                      |   |                                  | -      |   |                     |   | -      |             |   |   | 1                                             |   |   |   | 1 |   |   |   | - |   |   |   | 1 |   |   |   | - |   |
| Dividend paid in cash                                                     |   |                                  | -      |   |                     |   | -      |             |   |   | (1,187                                        | )      |   |   | (1,187 | ) |   |   | - |   |   |   | (1,187 | ) |   |   | (311 | ) |
|                                                                      |
| Balance as of December 31, 2009                                           |   |                                  | 1      |   |                     |   | (23    | )                |   |   | 396                                           |   |   |   | 374 |   |   |   | - |   |   |   | 374 |   |   |   | 97 |   |
| Other comprehensive income for the year, net of tax                       |   |                                  | -      |   |                     |   | 2      |             |   |   | -                                             |   |   |   | 2 |   |   |   | - |   |   |   | 2 |   |   |   | 1 |   |
| Profit for the year                                                       |   |                                  | -      |   |                     |   | -      |             |   |   | 1,291                                         |   |   |   | 1,291 |   |   |   | - |   |   |   | 1,291 |   |   |   | 338 |   |
| Share based payments                                                      |   |                                  | -      |   |                     |   | -      |             |   |   | 1                                             |   |   |   | 1 |   |   |   | - |   |   |   | 1 |   |   |   | - |   |
| Cash dividend paid                                                        |   |                                  | -      |   |                     |   | -      |             |   |   | (1,327                                        | )      |   |   | (1,327 | ) |   |   | - |   |   |   | (1,327 | ) |   |   | (347 | ) |
|                                                                      |
| Balance as of December 31, 2010                                           |   |                                  | 1      |   |                     |   | (21    | )                |   |   | 361                                           |   |   |   | 341 |   |   |   | - |   |   |   | 341 |   |   |   | 89 |   |
|                                                                      |
| Other comprehensive income for the year, net of tax                       |   |                                  | -      |   |                     |   | 28     |             |   |   | -                                             |   |   |   | 28 |   |   |   | - |   |   |   | 28 |   |   |   | 7 |   |
| Profit for the year                                                       |   |                                  | -      |   |                     |   | -      |             |   |   | 824                                           |   |   |   | 824 |   |   |   | 1 |   |   |   | 825 |   |   |   | 216 |   |
| Share based payments                                                      |   |                                  | -      |   |                     |   | -      |             |   |   | 6                                             |   |   |   | 6 |   |   |   | - |   |   |   | 6 |   |   |   | 2 |   |
| Dividend paid in cash                                                     |   |                                  | -      |   |                     |   | -      |             |   |   | (827                                          | )      |   |   | (827 | ) |   |   | - |   |   |   | (827 | ) |   |   | (216 | ) |
| Declared dividend                                                         |   |                                  | -      |   |                     |   | -      |             |   |   | (189                                          | )      |   |   | (189 | ) |   |   | (1 | ) |   |   | (190 | ) |   |   | (50 | ) |
| Non-controlling interests in respect of business combination (see note 7) |   |                                  | -      |   |                     |   | -      |             |   |   | -                                             |   |   |   | - |   |   |   | 4 |   |   |   | 4 |   |   |   | 1 |   |
| Balance as of December 31, 2011                                           |   |                                  | 1      |   |                     |   | 7      |             |   |   | 175                                           |   |   |   | 183 |   |   |   | 4 |   |   |   | 187 |   |   |   | 49 |   |

----

Table of Contents

Consolidated Statements of Cash Flows

----

|                                                           |   | Year endedDecember 31,2009 |   |   | Year endedDecember 31,2010 |   |   | Year endedDecember 31,2011 |   |   | Conveniencetranslation into USdollar (Note 2D)Year endedDecember 31,2011 |   |
|----------------------------------------------------------------|--------|----------------------------|--------|--------|----------------------------|--------|--------|----------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                           |   | NIS millions               |   |   | NIS millions               |   |   | NIS millions               |   |   | US$ millions                                                             |   |
| Cash flows from operating activities                           |   |                       |   |   |                       |   |   |                       |   |   |                                                                     |   |
| Profit for the year                                            |   |                       | 1,182  |   |                       |   | 1,291  |                       |   |   | 825                                                                      |   |   |   | 216 |   |
| Adjustments for:                                               |   |                       |   |   |                       |   |   |                       |   |   |                                                                     |   |   |   |   |   |
| Depreciation and amortization                                  |   |                       | 755    |   |                       |   | 724    |                       |   |   | 738                                                                      |   |   |   | 193 |   |
| Share based payment                                            |   |                       | 1      |   |                       |   | 1      |                       |   |   | 6                                                                        |   |   |   | 2 |   |
| Loss on sale of property, plant and equipment                  |   |                       | 6      |   |                       |   | 5      |                       |   |   | -                                                                        |   |   |   | - |   |
| Income tax expense                                             |   |                       | 367    |   |                       |   | 417    |                       |   |   | 304                                                                      |   |   |   | 80 |   |
| Financing expenses, net                                        |   |                       | 219    |   |                       |   | 230    |                       |   |   | 293                                                                      |   |   |   | 77 |   |
| Other expenses                                                 |   |                       | -      |   |                       |   | -      |                       |   |   | 2                                                                        |   |   |   | 1 |   |
|                                                           |
| Changes in operating assets and liabilities:                   |   |                       |   |   |                       |   |   |                       |   |   |                                                                     |   |   |   |   |   |
| Change in inventory                                            |   |                       | (105   | )      |                       |   | -      |                       |   |   | (67                                                                      | )      |   |   | (18 | ) |
| Change in trade receivables (including long-term amounts)      |   |                       | (69    | )      |                       |   | 172    |                       |   |   | (585                                                                     | )      |   |   | (153 | ) |
| Change in other receivables (including long-term amounts)      |   |                       | 2      |   |                       |   | (6     | )                          |   |   | 61                                                                       |   |   |   | 16 |   |
| Changes in trade payables, accrued expenses and provisions     |   |                       | 152    |   |                       |   | (42    | )                          |   |   | 146                                                                      |   |   |   | 38 |   |
| Change in other liabilities (including long-term amounts)      |   |                       | (4     | )      |                       |   | (16    | )                          |   |   | (52                                                                      | )      |   |   | (14 | ) |
| Proceeds from (payments for) derivative hedging contracts, net |   |                       | 21     |   |                       |   | (16    | )                          |   |   | (14                                                                      | )      |   |   | (4 | ) |
| Income tax paid                                                |   |                       | (447   | )      |                       |   | (380   | )                          |   |   | (325                                                                     | )      |   |   | (85 | ) |
| Net cash from operating activities                             |   |                       | 2,080  |   |                       |   | 2,380  |                       |   |   | 1,332                                                                    |   |   |   | 349 |   |
|                                                           |
| Cash flows from investing activities                           |   |                       |   |   |                       |   |   |                       |   |   |                                                                     |   |   |   |   |   |
| Acquisition of property, plant, and equipment                  |   |                       | (404   | )      |                       |   | (441   | )                          |   |   | (333                                                                     | )      |   |   | (87 | ) |
| Acquisition of intangible assets                               |   |                       | (173   | )      |                       |   | (180   | )                          |   |   | (99                                                                      | )      |   |   | (26 | ) |
| Acquisition of activity                                        |   |                       | -      |   |                       |   | (108   | )                          |   |   | -                                                                        |   |   |   | - |   |
| Acquisition of subsidiary, net of cash acquired (see note 7)   |   |                       | -      |   |                       |   | -      |                       |   |   | (1,458                                                                   | )      |   |   | (382 | ) |
| Change in current investments, net                             |   |                       | (212   | )      |                       |   | (154   | )                          |   |   | 197                                                                      |   |   |   | 52 |   |
| Proceeds from (payments for) other derivative contracts, net   |   |                       | 8      |   |                       |   | (17    | )                          |   |   | 1                                                                        |   |   |   | - |   |
| Gain on sale of property, plant and equipment                  |   |                       | 2      |   |                       |   | 2      |                       |   |   | 3                                                                        |   |   |   | 1 |   |
| Interest received                                              |   |                       | 5      |   |                       |   | 9      |                       |   |   | 33                                                                       |   |   |   | 9 |   |
| Net cash used in investing activities                          |   |                       | (774   | )      |                       |   | (889   | )                          |   |   | (1,656                                                                   | )      |   |   | (433 | ) |

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|                                                                   |   | Year endedDecember 31,2009 |   |   | Year endedDecember 31,2010 |   |   | Year endedDecember 31,2011 |   |   | Conveniencetranslation into USdollar (Note 2D)Year endedDecember 31,2011 |   |
|------------------------------------------------------------------------|--------|----------------------------|--------|--------|----------------------------|--------|--------|----------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                                   |   | NIS millions               |   |   | NIS millions               |   |   | NIS millions               |   |   | US$ millions                                                             |   |
|                                                                   |
| Cash flows from financing activities                                   |   |                       |   |   |                       |   |   |                       |   |   |                                                                     |   |
| Proceeds from derivative contracts, net                                |   |                       | 33     |   |                       |   | 34     |                       |   |   | 11                                                                       |   |   |   | 3 |   |
| Reciept (repayment) of long term loans from banks                      |   |                       | 8      |   |                       |   | (8     | )                          |   |   | (4                                                                       | )      |   |   | (1 | ) |
| Repayment of debentures                                                |   |                       | (332   | )      |                       |   | (343   | )                          |   |   | (354                                                                     | )      |   |   | (93 | ) |
| Proceeds from issuance of debentures, net of issuance costs            |   |                       | 989    |   |                       |   | -      |                       |   |   | 2,165                                                                    |   |   |   | 566 |   |
| Dividend paid                                                          |   |                       | (1,186 | )      |                       |   | (1,319 | )                          |   |   | (858                                                                     | )      |   |   | (225 | ) |
| Interest paid                                                          |   |                       | (190   | )      |                       |   | (225   | )                          |   |   | (245                                                                     | )      |   |   | (64 | ) |
|                                                                   |
| Net cash from (used in) financing activities                           |   |                       | (678   | )      |                       |   | (1,861 | )                          |   |   | 715                                                                      |   |   |   | 186 |   |
|                                                                   |
| Cash balance presented under assets held for sale (see notes 9 and 15) |   |                       | -      |   |                       |   | -      |                       |   |   | (4                                                                       | )      |   |   | (1 | ) |
|                                                                   |
| Changes in cash and cash equivalents                                   |   |                       | 628    |   |                       |   | (370   | )                          |   |   | 387                                                                      |   |   |   | 101 |   |
| Cash and cash equivalents as at the beginning of the year              |   |                       | 275    |   |                       |   | 903    |                       |   |   | 533                                                                      |   |   |   | 140 |   |
| Cash and cash equivalents as at the end of the year                    |   |                       | 903    |   |                       |   | 533    |                       |   |   | 920                                                                      |   |   |   | 241 |   |

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Notes to the Consolidated Financial Statements

----

| A.   | Statement of compliance |
|----------------|-------------------------|

| B.   | Functional and presentation currency |
|----------------|--------------------------------------|

| C.   | Basis of measurement |
|----------------|----------------------|

| D.   | Convenience translation into U.S. dollars ("dollars" or "$") |
|----------------|--------------------------------------------------------------|

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| E.   | Use of estimates and judgments |
|----------------|--------------------------------|

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| F.   | Newly adopted accounting standards during the period |
|----------------|------------------------------------------------------|

|   | 1.   | IAS 24 (2009) Related Party Disclosures (hereinafter – "the Standard"). The new standard includes changes in the definition of a related party and changes with respect to disclosures required by entities related to government. The Standard is effective from January 1, 2011. For the purpose of applying the Standard for the first time, the Group mapped its relationships with related parties. The Standard has no material impact on the Group's consolidated financial statements. |
|--------|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2.   | Amendment to IFRS 7 Financial Instruments: Disclosures - Clarification of disclosures (hereinafter – “the Amendment”) – The Amendment added a declaration that the interaction between the qualitative and quantitative disclosures enables the users of the financial statements to better assess the Group's exposure to risks arising from financial instruments. Furthermore, the clause stating that quantitative disclosures are not required when the risk is immaterial was removed, and certain disclosure requirements regarding credit risk were amended while others were removed. The Amendment is implemented from annual periods beginning on January 1, 2011. The required disclosures were included in the consolidated financial statements. For further details see note 21, regarding financial instruments. |
|--------|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

| A. | Basis of consolidation |
|----|------------------------|

|   | 1. | Business combinations |
|--------|----|-----------------------|

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----

|   | 2. | Subsidiaries |
|--------|----|--------------|

| B. | Foreign currency transactions |
|----|-------------------------------|

| C. | Financial instruments |
|----|-----------------------|

|   | 1.   | Non derivative financial instruments |
|--------|----------------|--------------------------------------|

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|   | 2.   | Derivative financial instruments |
|--------|----------------|----------------------------------|

|   | 3.   | Financial instruments linked to the Israeli CPI that are not measured at fair value |
|--------|----------------|-------------------------------------------------------------------------------------|

|   | 4.   | Share capital |
|--------|----------------|---------------|

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| D. | Property, plant and equipment |
|----|-------------------------------|

|                           | %     |
|--------------------------------|-------|
| Communication network          | 5-20  |
| Control and testing equipment  | 15-25 |
| Vehicles                       | 15-33 |
| Computers and hardware         | 15-33 |
| Furniture and office equipment | 6-15  |

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| E.   | Rights of use of communication lines |
|----------------|--------------------------------------|

| F.   | Intangible assets |
|----------------|-------------------|

|   | 1.   | Goodwill that arises upon the acquisition of subsidiaries is presented as part of intangible assets. For information on measurement of goodwill at initial recognition, see paragraph A(1) of this note.  In subsequent periods goodwill is measured at cost less accumulated impairment losses. |
|--------|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2.   | Other intangible assets are measured at cost less accumulated amortization and accumulated impairment losses and including direct costs necessary to prepare the asset for its intended use. |
|--------|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.   | Certain direct and indirect development costs associated with internally developed information system software, and payroll costs for employees devoting time to the software projects, incurred during the application development stage, are capitalized. The costs are amortized using the straight-line method beginning when the asset is substantially ready for use. Costs incurred during the research stage and after the asset is substantially ready for use are expensed as incurred. |
|--------|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4.   | Deferred expenses in respect of commissions and handset subsidies regarding the acquisition of new subscribers are recognized as intangible assets, if the costs can be measured reliably, are incremental to the contract, there is a control over resources and the existence of future economic benefits and directly attributable to obtaining a specific subscriber. If the costs do not meet the aforementioned criteria, they are recognized immediately as expenses. |
|--------|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5.   | Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred. |
|--------|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6.   | Amortization is calculated using the straight-line method, except for a certain intangible asset recognized during business combination, which is amortized according to the economic benefit expected from this asset each period. If the intangible assets consist of several components with different estimated useful lives, the individual significant components are amortized over their individual useful lives. The annual amortization rates are as follows: |
|--------|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Licenses              | 5-6%                  | (mainly 6%) |
|-----------------------|-----------------------|-------------|
| Information systems   | 25%                   |        |
| Software              | 15-25%                |        |
| Customer relationship | approximately 6 years |        |

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----

| G.   | Non-current assets and disposal groups held for sale or distribution |
|----------------|----------------------------------------------------------------------|

| H.   | Inventory |
|----------------|-----------|

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----

| I.   | Impairment |
|----------------|------------|

|   | 1.   | Non-derivative financial assets |
|--------|----------------|---------------------------------|

|   | 2.   | Property, plant and equipment and intangible assets |
|--------|----------------|-----------------------------------------------------|

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----

| J.   | Employee benefits |
|----------------|-------------------|

|   | 1.   | Post employment benefits |
|--------|----------------|--------------------------|

|   | 2.   | Short term benefits |
|--------|----------------|---------------------|

| 3.   | Share based payments |
|----------------|----------------------|

| K.   | Provisions |
|----------------|------------|

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----

| L.   | Revenue |
|----------------|---------|

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----

| M.   | Lease payments |
|----------------|----------------|

| N.   | Financing income and expenses |
|----------------|-------------------------------|

| O.   | Income tax expense |
|----------------|--------------------|

| P.   | Earnings per share |
|----------------|--------------------|

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----

| Q.   | Advertising expenses |
|----------------|----------------------|

| R.   | New standards and interpretations not yet adopted |
|----------------|---------------------------------------------------|

|   | 1.   | IFRS 10 Consolidated Financial Statements (hereinafter – “IFRS 10”). IFRS 10 replaces the requirements of IAS 27 Consolidated and Separate Financial Statements and the requirements of SIC-12 Consolidation – Special Purpose Entities with respect to the consolidation of financial statements, so that the requirements of IAS 27 will continue to be valid only for separate financial statements. |
|--------|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2.  | IFRS 11 Joint Arrangements (hereinafter – “IFRS 11”). IFRS 11 replaces the requirements of IAS 31  Interests in Joint Ventures (hereinafter – IAS 31) and amends part of the requirements in IAS 28  Investments in Associates. |
|--------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.   | IFRS 12 Disclosure of Involvement with Other Entities (hereinafter – “IFRS 12”). IFRS 12 contains extensive disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and unconsolidated structured entities. |
|--------|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

|   | 4.   | IFRS 13 Fair Value Measurement (hereinafter – “IFRS 13”). IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value. |
|--------|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5.   | Amendment to IAS 1, Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income (hereinafter - “the Amendment”). The Amendment changes the presentation of items of other comprehensive income (hereinafter – “OCI”) in the financial statements, so that items of OCI that may be reclassified to profit or loss in the future, would be presented separately from those that would never be reclassified to profit or loss. Additionally, the Amendment changes the title of the Statement of Comprehensive Income to Statement of Profit or Loss and Other Comprehensive Income. However, entities are still allowed to use other titles. The Amendment is effective for annual periods beginning on or after July 1, 2012. The amendment will be applied retrospectively. Early adoption is permitted providing that disclosure is provided. The Group is examining the effect of adopting the Amendment on its financial statements. |
|--------|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6.   | Amendment to IAS 19, Employee Benefits (hereinafter – “the Amendment”). The Amendment introduces a number of changes to the accounting treatment of employee benefits. |
|--------|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | •   | The Amendment requires immediate recognition of past service costs regardless of whether the benefits have vested or not. |
|--------|---------------------|---------------------------------------------------------------------------------------------------------------------------|

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|   | •  | The calculation of net financing income or expense will be determined by applying the discount rate used to measure the defined benefit obligation to the net defined benefit liability (asset). Accordingly, calculation of actuarial gains or losses will also change. |
|--------|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | •  | The Amendment changes the definitions of short-term employee benefits and of other long term employee benefits, so that the distinction between the two will depend on when the entity expects the benefits to be wholly settled, rather than when settlement is due. |
|--------|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | •   | The Amendment enhances the disclosure requirements for defined benefit plans, in an effort to provide better information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans. |
|--------|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | •   | The definition of termination benefits has been clarified in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, so that termination benefits are recognized at the earlier of when the entity recognizes costs for a restructuring that includes the payment of termination benefits, and when the entity can no longer withdraw the offer of the termination benefits. |
|--------|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | Amendment to IFRS 7 Financial Instruments: Disclosures, Transfers of Financial Assets(hereinafter - “the Amendment”) - The Amendment introduces new disclosure requirements regarding transfers of financial assets, including disclosures for: |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ●   | Financial assets that were not derecognized in their entirety, including disclosures of the risks and rewards associated with these assets, the relationship between the transferred assets and the associated liabilities, the restrictions on the Group’s use of the assets and so forth; and |
|--------|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ●   | Financial assets that were derecognized in their entirety but the entity has a continuing involvement in them, including the carrying amount and fair value that represents the Group’s involvement in these assets, the Group’s maximum exposure to losses from these assets, an analysis of the undiscounted cash flows as well as the gain or loss from the transfer of the asset and the income or expense arising from the Group’s continuing involvement in the asset. |
|--------|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 8.   | Amendment to IFRS 7 Financial Instruments: Disclosures and to IAS 32 Financial Instruments: Presentation - Offsetting of Financial Assets and Financial Liabilities (hereinafter - “the Amendment to IFRS 7” and “the Amendment to IAS 32”, respectively). The Amendment to IAS 32 clarifies that an entity currently has a legally enforceable right to set-off amounts that were recognized if that right is not contingent on a future event; and it is enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all its counterparties. The Amendment to IFRS 7 contains new disclosure requirements for financial assets and liabilities that are offset in the statement of financial position; or are subject to master netting agreements or similar agreements. |
|--------|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

|   | 9. | IFRS 9 (2010), Financial Instruments (hereinafter – “the Standard”) – This Standard is one of the stages in a comprehensive project to replace IAS 39 Financial Instruments: Recognition and Measurement (hereinafter - IAS 39) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets and financial liabilities. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

| A. | Fixed assets |
|----|--------------|

| B. | Intangible assets |
|----|-------------------|

| C. | Inventories |
|----|-------------|

| D.  | Trade and other receivables |
|----------|-----------------------------|

| E.  | Current investments and derivatives |
|----------|-------------------------------------|

| F.  | Non-derivative financial liabilities |
|----------|--------------------------------------|

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----

| G.  | Share- based payment transactions Fair value of employee stock options is measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behavior), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. |
|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | — | Cellcom – the segment includes Cellcom Israel Ltd. and its subsidiaries, excluding Netvision Ltd. and its subsidiaries. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------|

|   | — | Netvision – the segment includes Netvision Ltd. and its subsidiaries. |
|--------|---------|-----------------------------------------------------------------------------|

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|                                  |   |    |   |   | Year ended December 31, 2011 |   |   |           |   |
|---------------------------------------|--------|---------|--------|--------|------------------------------|--------|--------|----------------|--------|
|                                  |   |    |   |   | NIS millions                 |   |   |           |   |
|                                  |   |    |   |   |                         |   |   | Reconciliation |   |   |   |   |
|                                  |   |    |   |   |                         |   |   | for            |   |   |   |   |
|                                  |   | Cellcom |   |   | Netvision*                   |   |   | consolidation  |   |   | Consolidated |   |
|                                  |   |    |   |   |                         |   |   |           |   |   |   |   |
| Revenues                              |   |    | 6,125  |   |                         |   | 381    |           |   |   | - |   |   |   | 6,506 |   |
| Inter-segment revenues                |   |    | 7      |   |                         |   | 19     |           |   |   | (26 | ) |   |   | - |   |
| Interest income                       |   |    | 92     |   |                         |   | 1      |           |   |   | - |   |   |   | 93 |   |
|                                  |   |    |   |   |                         |   |   |           |   |   |   |   |   |   |   |   |
| Interest expenses                     |   |    | (286   | )      |                         |   | -      |           |   |   | - |   |   |   | (286 | ) |
| EBITDA**                              |   |    | 2,084  |   |                         |   | 83     |           |   |   | - |   |   |   | 2,167 |   |
| Reconciliation of reoportable segment |   |    |   |   |                         |   |   |           |   |   |   |   |   |   |   |   |
| EBITDA to net profit                  |   |    |   |   |                         |   |   |           |   |   |   |   |   |   |   |   |
| Depreciation and amortization         |   |    | (652   | )      |                         |   | (40    | )              |   |   | (46 | ) |   |   | (738 | ) |
| Taxes on income                       |   |    | (313   | )      |                         |   | (2     | )              |   |   | 11 |   |   |   | (304 | ) |
|                                  |   |    |   |   |                         |   |   |           |   |   |   |   |   |   |   |   |
| Financing income                      |   |    |   |   |                         |   |   |           |   |   |   |   |   |   | 116 |   |
|                                  |   |    |   |   |                         |   |   |           |   |   |   |   |   |   |   |   |
| Financing expenses                    |   |    |   |   |                         |   |   |           |   |   |   |   |   |   | (409 | ) |
|                                  |   |    |   |   |                         |   |   |           |   |   |   |   |   |   |   |   |
| Other expenses                        |   |    |   |   |                         |   |   |           |   |   |   |   |   |   | (1 | ) |
|                                  |   |    |   |   |                         |   |   |           |   |   |   |   |   |   |   |   |
| Share based payments                  |   |    |   |   |                         |   |   |           |   |   |   |   |   |   | (6 | ) |
|                                  |   |    |   |   |                         |   |   |           |   |   |   |   |   |   |   |   |
| Net profit                            |   |    | 821    |   |                         |   | 39     |           |   |   | (35 | ) |   |   | 825 |   |

| *  | Netvision segment represents results of operations for the four month period commencing September 1, 2011 (see note 7). |
|---------|-------------------------------------------------------------------------------------------------------------------------|

| ** | EBITDA as reviewed by the CODM, represents earnings before interest (financing expenses, net), taxes, other income and expenses, depreciation and amortization and share based payments, as a measure of operating profit. EBITDA is not a financial measure under IFRS and cannot be compared to other similarly titled measures in other companies. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

|                                      |   | NIS millions |   |
|-------------------------------------------|--------|--------------|--------|
| Cash                                      |   |         | 1,570  |   |
| Share-based awards - cost of past service |   |         | 8      |   |
| Total consideration transferred           |   |         | 1,578  |   |

|                            |   | NIS millions |   |
|---------------------------------|--------|--------------|--------|
|                            |   |         |   |
| Trade and other receivables     |   |         | 599    |   |
| Inventory                       |   |         | 5      |   |
| Intangible assets               |   |         | 1,099  |   |
| Deferred tax liabilities        |   |         | (44    | ) |
| Property, plant and equipment   |   |         | 180    |   |
| Trade and other payables        |   |         | (326   | ) |
| Credit and loans                |   |         | (45    | ) |
| Provisions                      |   |         | (10    | ) |
| Net assets acquired             |   |         | 1,458  |   |
|                            |   |         |   |   |
| Cash acquired                   |   |         | 120    |   |
|                            |   |         |   |   |
| Total consideration transferred |   |         | 1,578  |   |

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----

|          |   | December 31, |   |
|---------------|--------|--------------|--------|
|          |   | 2010         |   |   | 2011 |   |
|          |   | NIS millions |   |   | NIS millions |   |
|          |   |         |   |   |   |   |
| Bank balances |   |         | 32     |   |   |   | 14 |   |
| Call deposits |   |         | 501    |   |   |   | 906 |   |
|          |   |         | 533    |   |   |   | 920 |   |

|                                      |   | December 31  |   |
|-------------------------------------------|--------|--------------|--------|
| Current                                   |   | 2010         |   |   | 2011 |   |
| Trade Receivables*                        |   | NIS millions |   |   | NIS millions |   |
| Open accounts                             |   |         | 486    |   |   |   | 524 |   |
| Checks and credit cards receivables       |   |         | 221    |   |   |   | 250 |   |
| Accrued income                            |   |         | 115    |   |   |   | 148 |   |
| Current maturity of long-term receivables |   |         | 656    |   |   |   | 937 |   |
|                                      |   |         | 1,478  |   |   |   | 1,859 |   |
| Other Receivables                         |   |         |   |   |   |   |   |   |
| Prepaid expenses                          |   |         | 49     |   |   |   | 60 |   |
| Other                                     |   |         | 15     |   |   |   | 6 |   |
| Assets held for sale                      |   |         | -      |   |   |   | 27 |   |
|                                      |   |         | 64     |   |   |   | 93 |   |
|                                      |   |         | 1,542  |   |   |   | 1,952 |   |
| Non-current                               |   |         |   |   |   |   |   |   |
| Trade receivables*                        |   |         | 523    |   |   |   | 980 |   |
| Rights of use of communication lines      |   |         | -      |   |   |   | 259 |   |
| Deposits and other receivables            |   |         | 55     |   |   |   | 56 |   |
| Other                                     |   |         | 19     |   |   |   | 42 |   |
|                                      |   |         | 597    |   |   |   | 1,337 |   |
|                                      |   |         | 2,139  |   |   |   | 3,289 |   |

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|   | A.  | Composition |
|--------|----------|-------------|

|        |   | December 31, |   |
|-------------|--------|--------------|--------|
|        |   | 2010         |   |   | 2011 |   |
|        |   | NIS millions |   |   | NIS millions |   |
| Handsets    |   |         | 68     |   |   |   | 137 |   |
| Accessories |   |         | 14     |   |   |   | 14 |   |
| Spare parts |   |         | 22     |   |   |   | 19 |   |
|        |   |         | 104    |   |   |   | 170 |   |

|   | B. | Inventories of handsets, accessories and spare-parts as at December 31, 2011 and December 31, 2010 are presented net of a provision for impairment and inventory write off in the amount of NIS 19 million and NIS 8 million, respectively. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     |   |   Communication network |   |   |   Control and testing equipment |   |   |   Vehicles |   |   |   Computers, furniture and office equipment |   |   |   Leasehold improvements |   |   |   Total |   |
|------------------------------------------|--------|------------------------------|--------|--------|--------------------------------------|--------|--------|-----------------|--------|--------|--------------------------------------------------|--------|--------|-------------------------------|--------|--------|--------------|--------|
|                                     |   | NIS millions                 |   |   | NIS millions                         |   |   | NIS millions    |   |   | NIS millions                                     |   |   | NIS millions                  |   |   | NIS millions |   |
| Cost                                     |   |                         |   |   |                                 |   |   |            |   |   |                                             |   |   |                          |   |   |         |   |
|                                     |   |                         |   |   |                                 |   |   |            |   |   |                                             |   |   |                          |   |   |         |   |
| Balance at January 1, 2010               |   |                         | 5,927  |   |                                 |   | 342    |            |   |   | 32                                               |   |   |                          | 863    |   |         |   | 216 |   |   |   | 7,380 |   |
|                                     |   |                         |   |   |                                 |   |   |            |   |   |                                             |   |   |                          |   |   |         |   |   |   |   |   |   |   |
| Additions                                |   |                         | 319    |   |                                 |   | 20     |            |   |   | 14                                               |   |   |                          | 47     |   |         |   | 20 |   |   |   | 420 |   |
| Disposals                                |   |                         | (121   | )      |                                 |   | -      |            |   |   | (4                                               | )      |   |                          | (14    | )      |         |   | - |   |   |   | (139 | ) |
| Balance at December 31, 2010             |   |                         | 6,125  |   |                                 |   | 362    |            |   |   | 42                                               |   |   |                          | 896    |   |         |   | 236 |   |   |   | 7,661 |   |
|                                     |   |                         |   |   |                                 |   |   |            |   |   |                                             |   |   |                          |   |   |         |   |   |   |   |   |   |   |
| Business combination*                    |   |                         | 577    |   |                                 |   | -      |            |   |   | 19                                               |   |   |                          | 444    |   |         |   | 60 |   |   |   | 1,100 |   |
| Additions                                |   |                         | 291    |   |                                 |   | 14     |            |   |   | 7                                                |   |   |                          | 69     |   |         |   | 5 |   |   |   | 386 |   |
| Disposals                                |   |                         | (17    | )      |                                 |   | (1     | )               |   |   | (4                                               | )      |   |                          | (11    | )      |         |   | - |   |   |   | (33 | ) |
| Reclassification to assets held for sale |   |                         | (1     | )      |                                 |   | -      |            |   |   | -                                                |   |   |                          | (4     | )      |         |   | - |   |   |   | (5 | ) |
| Balance at December 31, 2011             |   |                         | 6,975  |   |                                 |   | 375    |            |   |   | 64                                               |   |   |                          | 1,394  |   |         |   | 301 |   |   |   | 9,109 |   |
|                                     |   |                         |   |   |                                 |   |   |            |   |   |                                             |   |   |                          |   |   |         |   |   |   |   |   |   |   |
| Accumulated Depreciation                 |   |                         |   |   |                                 |   |   |            |   |   |                                             |   |   |                          |   |   |         |   |   |   |   |   |   |   |
|                                     |   |                         |   |   |                                 |   |   |            |   |   |                                             |   |   |                          |   |   |         |   |   |   |   |   |   |   |
| Balance at January 1, 2010               |   |                         | 4,202  |   |                                 |   | 261    |            |   |   | 10                                               |   |   |                          | 661    |   |         |   | 150 |   |   |   | 5,284 |   |
| Depreciation for the year                |   |                         | 342    |   |                                 |   | 21     |            |   |   | 4                                                |   |   |                          | 64     |   |         |   | 15 |   |   |   | 446 |   |
| Disposals                                |   |                         | (119   | )      |                                 |   | -      |            |   |   | (2                                               | )      |   |                          | (11    | )      |         |   | - |   |   |   | (132 | ) |
| Balance at December 31, 2010             |   |                         | 4,425  |   |                                 |   | 282    |            |   |   | 12                                               |   |   |                          | 714    |   |         |   | 165 |   |   |   | 5,598 |   |
|                                     |   |                         |   |   |                                 |   |   |            |   |   |                                             |   |   |                          |   |   |         |   |   |   |   |   |   |   |
| Business combination*                    |   |                         | 493    |   |                                 |   | -      |            |   |   | 6                                                |   |   |                          | 376    |   |         |   | 45 |   |   |   | 920 |   |
| Depreciation for the year                |   |                         | 343    |   |                                 |   | 20     |            |   |   | 7                                                |   |   |                          | 71     |   |         |   | 16 |   |   |   | 457 |   |
| Disposals                                |   |                         | (15    | )      |                                 |   | (1     | )               |   |   | (3                                               | )      |   |                          | (11    | )      |         |   | - |   |   |   | (30 | ) |
| Reclassification to assets held for sale |   |                         | (1     | )      |                                 |   | -      |            |   |   | -                                                |   |   |                          | (3     | )      |         |   | - |   |   |   | (4 | ) |
| Balance at December 31, 2011             |   |                         | 5,245  |   |                                 |   | 301    |            |   |   | 22                                               |   |   |                          | 1,147  |   |         |   | 226 |   |   |   | 6,941 |   |
|                                     |   |                         |   |   |                                 |   |   |            |   |   |                                             |   |   |                          |   |   |         |   |   |   |   |   |   |   |
| Carrying amounts                         |   |                         |   |   |                                 |   |   |            |   |   |                                             |   |   |                          |   |   |         |   |   |   |   |   |   |   |
|                                     |   |                         |   |   |                                 |   |   |            |   |   |                                             |   |   |                          |   |   |         |   |   |   |   |   |   |   |
| At January 1, 2010                       |   |                         | 1,725  |   |                                 |   | 81     |            |   |   | 22                                               |   |   |                          | 202    |   |         |   | 66 |   |   |   | 2,096 |   |
| At December 31, 2010                     |   |                         | 1,700  |   |                                 |   | 80     |            |   |   | 30                                               |   |   |                          | 182    |   |         |   | 71 |   |   |   | 2,063 |   |
| At December 31, 2011                     |   |                         | 1,730  |   |                                 |   | 74     |            |   |   | 42                                               |   |   |                          | 247    |   |         |   | 75 |   |   |   | 2,168 |   |

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| Cost                                     |   | Licenses     |   |   | Information Systems |   |   | Software     |   |   | Deferred Expenses |   |   | Goodwill     |   |   | Customer Relationship and Other |   |   | Total        |   |
|------------------------------------------|--------|--------------|--------|--------|---------------------|--------|--------|--------------|--------|--------|-------------------|--------|--------|--------------|--------|--------|---------------------------------|--------|--------|--------------|--------|
|                                     |   | NIS millions |   |   | NIS millions        |   |   | NIS millions |   |   | NIS millions      |   |   | NIS millions |   |   | NIS millions                    |   |   | NIS millions |   |
| Balance at January 1, 2010               |   |         | 550    |   |                |   | 684    |         |   |   | 336               |   |   |         | 350    |   |                            |   | -      |         |   |   | - |   |   |   | 1,920 |   |
|                                     |   |         |   |   |                |   |   |         |   |   |              |   |   |         |   |   |                            |   |   |         |   |   |   |   |   |   |   |   |
| Additions                                |   |         | -      |   |                |   | 80     |         |   |   | 19                |   |   |         | 114    |   |                            |   | 77     |         |   |   | 25 |   |   |   | 315 |   |
| Disposals                                |   |         | -      |   |                |   | -      |         |   |   | -                 |   |   |         | (122   | )      |                            |   | -      |         |   |   | - |   |   |   | (122 | ) |
| Balance at December 31, 2010             |   |         | 550    |   |                |   | 764    |         |   |   | 355               |   |   |         | 342    |   |                            |   | 77     |         |   |   | 25 |   |   |   | 2,113 |   |
|                                     |   |         |   |   |                |   |   |         |   |   |              |   |   |         |   |   |                            |   |   |         |   |   |   |   |   |   |   |   |
| Business combination*                    |   |         | 6      |   |                |   | 40     |         |   |   | -                 |   |   |         | -      |   |                            |   | 753    |         |   |   | 322 |   |   |   | 1,121 |   |
| Additions                                |   |         | -      |   |                |   | 69     |         |   |   | 13                |   |   |         | 6      |   |                            |   | -      |         |   |   | - |   |   |   | 88 |   |
| Disposals                                |   |         | -      |   |                |   | (18    | )            |   |   | -                 |   |   |         | (296   | )      |                            |   | -      |         |   |   | - |   |   |   | (314 | ) |
| Reclassification to assets held for sale |   |         | -      |   |                |   | (3     | )            |   |   | -                 |   |   |         | -      |   |                            |   | -      |         |   |   | - |   |   |   | (3 | ) |
| Balance at December 31, 2011             |   |         | 556    |   |                |   | 852    |         |   |   | 368               |   |   |         | 52     |   |                            |   | 830    |         |   |   | 347 |   |   |   | 3,005 |   |
|                                     |   |         |   |   |                |   |   |         |   |   |              |   |   |         |   |   |                            |   |   |         |   |   |   |   |   |   |   |   |
| Accumulated Amortization                 |   |         |   |   |                |   |   |         |   |   |              |   |   |         |   |   |                            |   |   |         |   |   |   |   |   |   |   |   |
|                                     |   |         |   |   |                |   |   |         |   |   |              |   |   |         |   |   |                            |   |   |         |   |   |   |   |   |   |   |   |
| Balance at January 1, 2010               |   |         | 197    |   |                |   | 512    |         |   |   | 260               |   |   |         | 240    |   |                            |   | -      |         |   |   | - |   |   |   | 1,209 |   |
|                                     |   |         |   |   |                |   |   |         |   |   |              |   |   |         |   |   |                            |   |   |         |   |   |   |   |   |   |   |   |
| Amortization for the year                |   |         | 30     |   |                |   | 69     |         |   |   | 30                |   |   |         | 139    |   |                            |   | -      |         |   |   | 5 |   |   |   | 273 |   |
| Disposals                                |   |         | -      |   |                |   | -      |         |   |   | -                 |   |   |         | (122   | )      |                            |   | -      |         |   |   | - |   |   |   | (122 | ) |
| Balance at December 31, 2010             |   |         | 227    |   |                |   | 581    |         |   |   | 290               |   |   |         | 257    |   |                            |   | -      |         |   |   | 5 |   |   |   | 1,360 |   |
|                                     |   |         |   |   |                |   |   |         |   |   |              |   |   |         |   |   |                            |   |   |         |   |   |   |   |   |   |   |   |
| Business combination*                    |   |         | 3      |   |                |   | 19     |         |   |   | -                 |   |   |         | -      |   |                            |   | -      |         |   |   | - |   |   |   | 22 |   |
| Amortization for the year                |   |         | 28     |   |                |   | 80     |         |   |   | 25                |   |   |         | 79     |   |                            |   | -      |         |   |   | 48 |   |   |   | 260 |   |
| Disposals                                |   |         | -      |   |                |   | (18    | )            |   |   | -                 |   |   |         | (296   | )      |                            |   | -      |         |   |   | - |   |   |   | (314 | ) |
| Reclassification to assets held for sale |   |         | -      |   |                |   | (3     | )            |   |   | -                 |   |   |         | -      |   |                            |   | -      |         |   |   | - |   |   |   | (3 | ) |
| Balance at December 31, 2011             |   |         | 258    |   |                |   | 659    |         |   |   | 315               |   |   |         | 40     |   |                            |   | -      |         |   |   | 53 |   |   |   | 1,325 |   |
|                                     |   |         |   |   |                |   |   |         |   |   |              |   |   |         |   |   |                            |   |   |         |   |   |   |   |   |   |   |   |
| Carrying amounts                         |   |         |   |   |                |   |   |         |   |   |              |   |   |         |   |   |                            |   |   |         |   |   |   |   |   |   |   |   |
|                                     |   |         |   |   |                |   |   |         |   |   |              |   |   |         |   |   |                            |   |   |         |   |   |   |   |   |   |   |   |
| At January 1, 2010                       |   |         | 353    |   |                |   | 172    |         |   |   | 76                |   |   |         | 110    |   |                            |   | -      |         |   |   | - |   |   |   | 711 |   |
| At December 31, 2010                     |   |         | 323    |   |                |   | 183    |         |   |   | 65                |   |   |         | 85     |   |                            |   | 77     |         |   |   | 20 |   |   |   | 753 |   |
| At December 31, 2011                     |   |         | 298    |   |                |   | 193    |         |   |   | 53                |   |   |         | 12     |   |                            |   | 830    |         |   |   | 294 |   |   |   | 1,680 |   |

| A.   | Impairment testing for cash-generating unit containing goodwill |
|----------------|-----------------------------------------------------------------|

|      |   | December 31  |   |
|-----------|--------|--------------|--------|
|      |   | 2011         |   |
|      |   | NIS millions |   |
|      |   |         |   |
| Netvision |   |         | 753    |   |

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| B.   | Key assumptions used in calculation of recoverable amount |
|----------------|-----------------------------------------------------------|

|      | After-tax discount rate |   | Terminal value growth rate |
|-----------|-------------------------|--------|----------------------------|
|      |                    |   | 2011                       |
| Netvision | 13.0%                   |   | 1.5%                       |

| (1)  | After-tax discount rate |
|-----------|-------------------------|

|                       | 2011 |
|----------------------------|------|
|                       | %    |
| After-tax discount rate    | 13.1 |
| Terminal value growth rate | 1.4  |

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|             |   | December 31  |   |
|------------------|--------|--------------|--------|
|             |   | 2010         |   |   | 2011 |   |
|             |   | NIS millions |   |   | NIS millions |   |
| Trade payables   |   |         | 267    |   |   |   | 554 |   |
| Accrued expenses |   |         | 449    |   |   |   | 472 |   |
|             |   |         |   |   |   |   |   |   |
|             |   |         | 716    |   |   |   | 1,026 |   |

|                                  |   | Dismantlingand restoringsites |   |   | Litigations  |   |   | Other legalobligations |   |   | Other        |   |   | Total        |   |
|---------------------------------------|--------|-------------------------------|--------|--------|--------------|--------|--------|------------------------|--------|--------|--------------|--------|--------|--------------|--------|
|                                  |   | NIS millions                  |   |   | NIS millions |   |   | NIS millions           |   |   | NIS millions |   |   | NIS millions |   |
| Balance as at January 1, 2011         |   |                          | 17     |   |         |   | 22     |                   |   |   | 58           |   |   |         | 4      |   |   |   | 101 |   |
| Businesss combination                 |   |                          | -      |   |         |   | 10     |                   |   |   | -            |   |   |         | -      |   |   |   | 10 |   |
| Provisions made during the period     |   |                          | 4      |   |         |   | 39     |                   |   |   | 19           |   |   |         | -      |   |   |   | 62 |   |
| Provisions reversed during the period |   |                          | (1     | )      |         |   | (4     | )                      |   |   | -            |   |   |         | -      |   |   |   | (5 | ) |
| Unwind of discount                    |   |                          | 1      |   |         |   | -      |                   |   |   | -            |   |   |         | -      |   |   |   | 1 |   |
| Balance as at December 31, 2011       |   |                          | 21     |   |         |   | 67     |                   |   |   | 77           |   |   |         | 4      |   |   |   | 169 |   |
|                                  |   |                          |   |   |         |   |   |                   |   |   |         |   |   |         |   |   |   |   |   |   |
| Non-current                           |   |                          | 21     |   |         |   | -      |                   |   |   | -            |   |   |         | -      |   |   |   | 21 |   |
| Current                               |   |                          | -      |   |         |   | 67     |                   |   |   | 77           |   |   |         | 4      |   |   |   | 148 |   |
|                                  |   |                          | 21     |   |         |   | 67     |                   |   |   | 77           |   |   |         | 4      |   |   |   | 169 |   |

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|                               |   | December 31  |   |
|------------------------------------|--------|--------------|--------|
|                               |   |         |   |   | 2011 |   |
|                               |   | NIS millions |   |   | NIS millions |   |
|                               |   |         |   |   |   |   |
| Employees and related liabilities  |   |         | 110    |   |   |   | 182 |   |
| Government institutions            |   |         | 38     |   |   |   | 17 |   |
| Interest payable                   |   |         | 163    |   |   |   | 248 |   |
| Accrued expenses                   |   |         | -      |   |   |   | 26 |   |
| Deferred revenue                   |   |         | 50     |   |   |   | 44 |   |
| Derivative financial instruments   |   |         | 18     |   |   |   | 11 |   |
| Liability for assets held for sale |   |         | -      |   |   |   | 19 |   |
|                               |   |         |   |   |   |   |   |   |
|                               |   |         | 379    |   |   |   | 547 |   |

|                                                                |   | December 31  |   |
|---------------------------------------------------------------------|--------|--------------|--------|
|                                                                |   | 2010         |   |   | 2011 |   |
|                                                                |   | NIS millions |   |   | NIS millions |   |
|                                                                |   |         |   |   |   |   |
| Long-term liabilities to trade payables                             |   |         | -      |   |   |   | 24 |   |
| Deferred revenue in respect of rights of use of communication lines |   |         | -      |   |   |   | 6 |   |
| Derivative financial instruments                                    |   |         | -      |   |   |   | 11 |   |
|                                                                |   |         |   |   |   |   |   |   |
|                                                                |   |         | -      |   |   |   | 41 |   |

|                                             |   | December 31  |   |
|--------------------------------------------------|--------|--------------|--------|
|                                             |   | 2010         |   |   | 2011 |   |
|                                             |   | NIS millions |   |   | NIS millions |   |
|                                             |   |         |   |   |   |   |
| Non- current liabilities                         |   |         |   |   |   |   |
| Debentures                                       |   |         | 3,913  |   |   |   | 5,452 |   |
| Loans from banks                                 |   |         | -      |   |   |   | 19 |   |
|                                             |   |         | 3,913  |   |   |   | 5,471 |   |
| Current liabilities                              |   |         |   |   |   |   |   |   |
| Current maturities of debentures                 |   |         | 348    |   |   |   | 658 |   |
| Current maturities of long-term loans from banks |   |         | -      |   |   |   | 16 |   |
|                                             |   |         | 348    |   |   |   | 674 |   |

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|                                              |           |   |                  |      |   |             |   |      | December, 31 2010 |   |   | December, 31 2011 |   |
|---------------------------------------------------|----------------|--------|-----------------------|-----------|--------|------------------|--------|-----------|-------------------|--------|--------|-------------------|--------|
|                                              |           |   |                  |      |   |             |   |      | NIS millions      |   |   | NIS millions      |   |
|                                              |  Currency |   | Nominal interest rate |      |   | Year of maturity |   |      | Face value        |   |   | carrying amount   |   |   | Face value |   |   | carrying amount |   |
| Loans from banks                                  |  NIS      |   |                  | 4.80-6.00 | %      |             |   | 2012-2015 |              |   |   | -                 |   |   |   | - |   |   |   | 35 |   |   |   | 35 |   |
| Debentures (Series A) - linked to the Israeli CPI |  NIS      |   |                  | 5.00      | %      |             |   | 2012      |              |   |   | 473               |   |   |   | 537 |   |   |   | 237 |   |   |   | 276 |   |
| Debentures (Series B) - linked to the Israeli CPI |  NIS      |   |                  | 5.30      | %      |             |   | 2017      |              |   |   | 925               |   |   |   | 1,052 |   |   |   | 925 |   |   |   | 1,079 |   |
| Debentures (Series C) - linked to the Israeli CPI |  NIS      |   |                  | 4.60      | %      |             |   | 2013      |              |   |   | 181               |   |   |   | 202 |   |   |   | 108 |   |   |   | 124 |   |
| Debentures (Series D) - linked to the Israeli CPI |  NIS      |   |                  | 5.19      | %      |             |   | 2017      |              |   |   | 1,507             |   |   |   | 1,685 |   |   |   | 2,423 |   |   |   | 2,824 |   |
| Debentures (Series E) - unlinked                  |  NIS      |   |                  | 6.25      | %      |             |   | 2017      |              |   |   | 789               |   |   |   | 785 |   |   |   | 1,799 |   |   |   | 1,807 |   |
| Total interest- bearing liabilities               |           |   |                  |      |   |             |   |      |              |   |   | 3,875             |   |   |   | 4,261 |   |   |   | 5,527 |   |   |   | 6,145 |   |

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|   | A. | Defined contribution plan |
|--------|----|---------------------------|

|   | 1.   | The Group’s liability for severance pay for its Israeli employees is calculated pursuant to Israeli Severance Pay Law. The Group’s liability is mostly covered by monthly deposits with severance pay funds, insurance policies and by an accrual on the consolidated statements of financial position. For most of the Group's employees, the payments to pension funds and to insurance companies exempt the Group from any obligation towards its employees, in accordance with Section 14 of the Severance Pay Law. Accumulated amounts in pension funds and in insurance companies are not under the Group's control or management and accordingly, neither those amounts nor the corresponding accrual for severance pay are presented in the consolidated statement of financial position. The obligation of the Group, under law and labor agreements, to pay severance pay employees who are not covered by the pension or insurance plans as mentioned above, is NIS 10 million and NIS 1 million for the years ended December 31, 2011 and 2010, respectively, as included in the consolidated statement of financial position, under Liability for employee rights upon retirement, net. The calculation for this liability is based on salary components that according to management's estimation create the liability for severance pay. |
|--------|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2.   | The severance pay expenses for the years ended December 31, 2011, 2010 and 2009 were approximately NIS 36 million, NIS 35 million and NIS 32 million, respectively. |
|--------|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | In January 2008, under an expansion order issued by the Israeli Ministry of Industry, Commerce and Labor, all Israeli employers are obligated to contribute to pension plans amounts equal to a certain percentage of the employee's wages, for all employees, after a certain minimum employment period. The Group complies with this order. Other employees are entitled to contribution to a pension plan, which shall increase gradually until 2014 and up to 6% of the employee’s wages, and additional identical contribution for severance pay. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | B.  | Defined benefit plan |
|--------|----------|----------------------|

|                           |   |   |    |   |   |   |    |   |   |
|--------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                           |   | 2009   |    |   | 2010   |   |    | 2011   |   |
|                           |   | NIS    |    |
| Issued and paid at January 1   |   |   | 983,493 |   |   |   | 988,957 |   |   |   | 994,647 |   |
| Exercise of share options      |   |   | 5,464   |   |   |   | 5,690   |   |   |   | 167 |   |
|                           |   |   |    |   |   |   |    |   |   |   |   |   |
| Issued and paid at December 31 |   |   | 988,957 |   |   |   | 994,647 |   |   |   | 994,814 |   |

|                                         |   |         |
|----------------------------------------------|--------|--------------|
|                                         |   | 2011         |   |
|                                         |   | NIS millions |   |
| 2.60 NIS per share paid in April 2011        |   |         | 303 |   |
| 3.05 NIS per share paid in July 2011         |   |         | 292 |   |
| 2.93 NIS per share paid in October 2011      |   |         | 232 |   |
| 2.33 NIS per share declared in November 2011 |   |         | 189 |   |
|                                         |   |         | 1,016 |   |

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|                                     |   |         | 2010   |   |
|------------------------------------------|--------|--------------|--------|--------|
|                                     |   | NIS millions |   |
| 2.60 NIS per share paid in March 2010    |   |         | 257    |   |
| 3.64 NIS per share paid in June 2010     |   |         | 360    |   |
| 3.13 NIS per share paid in October 2010  |   |         | 310    |   |
| 4.03 NIS per share paid in December 2010 |   |         | 400    |   |
|                                     |   |         | 1,327  |   |

|                                      |   | 2009         |   |
|-------------------------------------------|--------|--------------|--------|
|                                      |   | NIS millions |   |
| 2.75 NIS per share paid in March 2009     |   |         | 270    |   |
| 3.36 NIS per share paid in June 2009      |   |         | 330    |   |
| 3.05 NIS per share paid in September 2009 |   |         | 300    |   |
| 2.90 NIS per share paid in December 2009  |   |         | 287    |   |
|                                      |   |         | 1,187  |   |

|   | A. | In September 2006, the Company's Board of Directors approved a share based incentive plan ("the plan") for employees, directors, consultants and sub-contractors of the Company and the Company’s affiliates. The plan has an initial pool of 2,500,000 shares from which options and restricted stock units (RSUs) could be granted. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | In October and November 2006, the Company granted options to purchase an aggregate of 2,414,143 ordinary shares at an exercise price of $12.60 per share.  Among those grants were options to purchase up to 450,000 ordinary shares granted to the Chairman of the Company’s Board of Directors and an additional 450,000 options to the Company’s Chief Executive Officer.  The remainder of the option grants was made to other Company senior employees. Options not exercised within 6 years of the grant date, will expire. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| C.   | In March 2007, the Company granted to senior employees options to purchase an aggregate of 30,786 ordinary shares at an exercise price of $12.60 per share according to the terms of the Plan. As a result of a dividend adjustment mechanism, the exercise price for all these options was adjusted to $0 per share as of December 31, 2011 ($0 per share as of December 31, 2010). |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| D.   | In August 2008, the Company granted to senior employees options to purchase an aggregate of 27,500 ordinary shares at an exercise price of $25 per share according to the terms of the Plan. As a result of a dividend adjustment mechanism, the exercise price for these options was adjusted to $13.89 per share as of December 31, 2011 ($16.77 as of December 31, 2010). |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | E. | In August 2009, the Company granted to senior employees options to purchase an aggregate of 74,164 ordinary shares at an exercise price of $24.65 per share according to the terms of the plan. As a result of a dividend adjustment mechanism, the exercise price for these options was adjusted to $16.61 per share as of December 31, 2011 ($19.49 as of December 31, 2010). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | F. | In November 2010, the Company granted to a senior employee options to purchase an aggregate of 12,000 ordinary shares at an exercise price of $27.92 per share under the terms of the plan. As a result of a dividend adjustment mechanism, the exercise price for these options was adjusted to $23.92 per share as of December 31, 2011 ($26.8 as of December 31, 2010). |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | G. | In May 2011, the Company's board of directors resolved to enlarge the initial pool of options or RSUs of the Company's 2006 Share Incentive Plan from 2,500,000, by 1,400,000 options or RSUs and the Company granted to senior employees options to purchase an aggregate of 1,060,000 ordinary shares at an exercise price of $31.74 per share according to the terms of the plan. As a result of a dividend adjustment mechanism, the exercise price for these options was adjusted to $29.72 per share as of December 31, 2011. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Grant date/employees entitled                                                   |   | Number ofinstrumentsIn thousands |   | Vesting conditions                                                 |   | Contractuallife ofoptions |
|---------------------------------------------------------------------------------|--------|----------------------------------|--------|--------------------------------------------------------------------|--------|---------------------------|
| Share options granted in October-November 2006 to managers and senior employees |   | 2,414                            |   | Four equal installments over four years of employment              |   | 6 years                   |
|                                                                            |   |                             |   |                                                               |   |                      |
| Share options granted in March 2007 to senior employees                         |   | 31                               |   | Four equal installments over four years of employment              |   | 6 years                   |
|                                                                            |   |                             |   |                                                               |   |                      |
| Share options granted in August 2008 to senior employees                        |   | 27                               |   | Four equal installments over four years of employment              |   | 6 years                   |
|                                                                            |   |                             |   |                                                               |   |                      |
| Share options granted in August 2009 to senior employees                        |   | 74                               |   | Four equal installments over four years of employment              |   | 6 years                   |
|                                                                            |   |                             |   |                                                               |   |                      |
| Share options granted in November 2010 to senior employees                      |   | 12                               |   | Four equal installments over four years of employment              |   | 6 years                   |
|                                                                            |   |                             |   |                                                               |   |                      |
| Share options granted in May 2011 to senior employees                           |   | 1,060                            |   | Three equal installments over three  years of employment |   | 4.5 years                 |

|                                           |   | Number ofoptions |      |   | Weighted averageof exercise price(US Dollars) |   |   | Number ofoptions |   |   | Weighted averageof exercise price(US Dollars) |   |   | Number ofoptions |   |   | Weighted averageof exercise price(US Dollars) |   |
|------------------------------------------------|--------|------------------|-----------|--------|----------------------------------------------------|--------|--------|------------------|--------|--------|----------------------------------------------------|--------|--------|------------------|--------|--------|----------------------------------------------------|--------|
|                                           |   | 2009             |      |   | 2010                                               |   |   | 2011             |   |
|                                           |   |             |      |   |                                               |   |   |             |   |   |                                               |   |   |             |   |   |                                               |   |
| Balance as at January 1                        |   |             | 1,274,863 |   |                                               |   | 6.86   |             |   |   | 704,674                                            |   |   |             | 6.19   |   |                                               |   | 116,132 |   |   |   | 17.20 |   |
|                                           |   |             |      |   |                                               |   |   |             |   |   |                                               |   |   |             |   |   |                                               |   |   |   |   |   |   |   |
| Granted during the year                        |   |             | 74,164    |   |                                               |   | 23.86  |             |   |   | 12,000                                             |   |   |             | 27.36  |   |                                               |   | 1,060,000 |   |   |   | 30.65 |   |
|                                           |   |             |      |   |                                               |   |   |             |   |   |                                               |   |   |             |   |   |                                               |   |   |   |   |   |   |   |
| Forfeited during the year                      |   |             | (7,759    | )      |                                               |   | 5.59   |             |   |   | (7,395                                             | )      |   |             | 2.74   |   |                                               |   | (100,125 | ) |   |   | 29.90 |   |
|                                           |   |             |      |   |                                               |   |   |             |   |   |                                               |   |   |             |   |   |                                               |   |   |   |   |   |   |   |
| Exercised during the year                      |   |             | (636,594  | )      |                                               |   | 4.26   |             |   |   | (593,147                                           | )      |   |             | 1.11   |   |                                               |   | (19,111 | ) |   |   | 2.70 |   |
|                                           |   |             |      |   |                                               |   |   |             |   |   |                                               |   |   |             |   |   |                                               |   |   |   |   |   |   |   |
| Total options outstanding as at December 31    |   |             | 704,674   |   |                                               |   | 6.19   |             |   |   | 116,132                                            |   |   |             | 17.20  |   |                                               |   | 1,056,896 |   |   |   | 29.10 |   |
|                                           |   |             |      |   |                                               |   |   |             |   |   |                                               |   |   |             |   |   |                                               |   |   |   |   |   |   |   |
| Total of exercisable options as at December 31 |   |             | 11,450    |   |                                               |   | 12.59  |             |   |   | 26,936                                             |   |   |             | 13.40  |   |                                               |   | 43,189 |   |   |   | 16.68 |   |

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|                                                    |   | 2009       |   |   | 2010       |   |   | 2011      |   |
|---------------------------------------------------------|--------|------------|--------|--------|------------|--------|--------|-----------|--------|
|                                                    |   |       |   |   |       |   |   |      |   |
| Fair  value of share options and assumptions: |   |       |   |   |       |   |   |      |   |
|                                                    |   |       |   |   |       |   |   |      |   |
| Fair value at grant date                                |   | $          | 8.82   |   |       | $      | 10.83  |      |   | $ | 4.84 |   |
|                                                    |   |       |   |   |       |   |   |      |   |   |   |   |
| Fair  value assumptions:                      |   |       |   |   |       |   |   |      |   |   |   |   |
|                                                    |   |       |   |   |       |   |   |      |   |   |   |   |
| Share price at grant date                               |   | $          | 27.88  |   |       | $      | 33.27  |      |   | $ | 31.58 |   |
|                                                    |   |       |   |   |       |   |   |      |   |   |   |   |
| Exercise price                                          |   | $          | 24.65  |   |       | $      | 27.92  |      |   | $ | 31.74 |   |
|                                                    |   |       |   |   |       |   |   |      |   |   |   |   |
| Expected volatility (weighted average life)             |   |       | 30.28  | %      |       |   | 28.85  | %         |   |   | 24.35 | % |
|                                                    |   |       |   |   |       |   |   |      |   |   |   |   |
| Option life (expected weighted average life)            |   | 4.25 years |   |   | 3.75 years |   |   | 2.3 years |   |
|                                                    |   |       |   |   |       |   |   |      |   |   |   |   |
| Risk free interest rate                                 |   |       | 2.5    | %      |       |   | 3.42   | %         |   |   | 0.7 | % |

|                                                    |   | December 31  |   |   | December 31  |   |
|---------------------------------------------------------|--------|--------------|--------|--------|--------------|--------|
|                                                    |   | 2010         |   |   | 2011         |   |
|                                                    |   | NIS millions |   |   | NIS millions |   |
|                                                    |   |         |   |   |         |   |
| Trade receivables including long term amounts           |   |         | 1,999  |   |         |   | 2,839 |   |
| Loans and other receivables including long term amounts |   |         | 76     |   |         |   | 96 |   |
| Investment in debt securities                           |   |         | 386    |   |         |   | 266 |   |
| Cash and cash equivalents                               |   |         | 533    |   |         |   | 920 |   |
| Forward exchange contracts on foreign currencies        |   |         | 5      |   |         |   | 24 |   |
| Forward exchange contracts on CPI                       |   |         | 13     |   |         |   | - |   |
|                                                    |   |         |   |   |         |   |   |   |
|                                                    |   |         | 3,012  |   |         |   | 4,145 |   |

|                                               |   | December 31  |   |   | December 31  |   |
|----------------------------------------------------|--------|--------------|--------|--------|--------------|--------|
|                                               |   | 2010         |   |   | 2011         |   |
|                                               |   | NIS millions |   |   | NIS millions |   |
|                                               |   |         |   |   |         |   |
| Receivables from subscribers                       |   |         | 1,894  |   |         |   | 2,793 |   |
| Receivables from distributors and other operators  |   |         | 105    |   |         |   | 44 |   |
| Investment in government of Israel debt securities |   |         | 244    |   |         |   | 143 |   |
| Investment in institutional debt securities        |   |         | 142    |   |         |   | 123 |   |
| Cash and cash equivalents                          |   |         | 533    |   |         |   | 920 |   |
| Other                                              |   |         | 94     |   |         |   | 122 |   |
|                                               |   |         |   |   |         |   |   |   |
|                                               |   |         | 3,012  |   |         |   | 4,145 |   |

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|                        |   | Gross        |   |   | Impairment   |   |   | Gross        |   |   | Impairment   |   |
|-----------------------------|--------|--------------|--------|--------|--------------|--------|--------|--------------|--------|--------|--------------|--------|
|                        |   | 2010         |   |   | 2011         |   |
|                        |   | NIS millions |   |   | NIS millions |   |   | NIS millions |   |   | NIS millions |   |
|                        |   |         |   |   |         |   |   |         |   |   |         |   |
| Not past due                |   |         | 2,822  |   |         |   | 4      |         |   |   | 3,977        |   |   |   | 9 |   |
| Past due less than one year |   |         | 180    |   |         |   | 71     |         |   |   | 202          |   |   |   | 69 |   |
| Past due more than one year |   |         | 299    |   |         |   | 214    |         |   |   | 277          |   |   |   | 233 |   |
|                        |   |         |   |   |         |   |   |         |   |   |         |   |   |   |   |   |
|                        |   |         | 3,301  |   |         |   | 289    |         |   |   | 4,456        |   |   |   | 311 |   |

|                               |   | 2010         |   |   | 2011         |   |
|------------------------------------|--------|--------------|--------|--------|--------------|--------|
|                               |   | NIS millions |   |   | NIS millions |   |
|                               |   |         |   |   |         |   |
| Balance at January 1               |   |         | 218    |   |         |   | 289 |   |
| Business combination               |   |         | -      |   |         |   | 38 |   |
| Impairment loss recognized         |   |         | (35    | )      |         |   | (97 | ) |
| Increase in doubtful debt expenses |   |         | 106    |   |         |   | 81 |   |
|                               |   |         |   |   |         |   |   |   |
| Balance at December 31             |   |         | 289    |   |         |   | 311 |   |

| December 31, 2011                            |   | Carrying     |   |   | Contractual |   |   |     |   |   |     |   |   |     |   |   |      |   |   | More than |   |
|----------------------------------------------|--------|--------------|--------|--------|-------------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|-----------|--------|--------|-----------|--------|
|                                         |   | amount       |   |   | Cash flows  |   |   | 1st year |   |   | 2nd year |   |   | 3rd year |   |   | 4-5 years |   |   | 5 years   |   |
|                                         |   | NIS millions |   |
|                                         |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |
| Debentures*                                  |   |         | (6,358 | )      |        |   | (7,246 | )        |   |   | (986     | )      |   |     | (1,403 | )      |      |   | (1,302 | )         |   |   | (2,429 | ) |   |   | (1,126 | ) |
| Trade and other payables                |   |         | (1,443 | )      |        |   | (1,443 | )        |   |   | (1,443   | )      |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
| Forward exchange  contracts on CPI |   |         | (22    | )      |        |   | (22    | )        |   |   | (11      | )      |   |     | (2     | )      |      |   | (7     | )         |   |   | (2 | ) |   |   | - |   |
| Credit and loans from banks                  |   |         | (35    | )      |        |   | (35    | )        |   |   | (16      | )      |   |     | (9     | )      |      |   | (5     | )         |   |   | (5 | ) |   |   | - |   |
| Long term liabilities to trade payables |   |         | (35    | )      |        |   | (35    | )        |   |   | (13      | )      |   |     | (12    | )      |      |   | (8     | )         |   |   | (2 | ) |   |   | - |   |
|                                         |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
|                                         |   |         | (7,893 | )      |        |   | (8,781 | )        |   |   | (2,469   | )      |   |     | (1,426 | )      |      |   | (1,322 | )         |   |   | (2,438 | ) |   |   | (1,126 | ) |

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| December 31, 2010                                                      |   | Carrying     |   |   | Contractual |   |   |     |   |   |     |   |   |     |   |   |      |   |   | More than |   |
|------------------------------------------------------------------------|--------|--------------|--------|--------|-------------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|-----------|--------|--------|-----------|--------|
|                                                                   |   | amount       |   |   | Cash flows  |   |   | 1st year |   |   | 2nd year |   |   | 3rd year |   |   | 4-5 years |   |   | 5 years   |   |
|                                                                   |   | NIS millions |   |
|                                                                   |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |
| Debentures                                                             |   |         | (4,424 | )      |        |   | (5,235 | )        |   |   | (573     | )      |   |     | (688   | )      |      |   | (901   | )         |   |   | (1,610 | ) |   |   | (1,463 | ) |
| Trade and other  payables                                    |   |         | (826   | )      |        |   | (826   | )        |   |   | (826     | )      |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
| Forward exchange  contracts on  foreign currencies |   |         | (17    | )      |        |   | (17    | )        |   |   | (17      | )      |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
| Forward exchange  contracts on CPI                           |   |         | (1     | )      |        |   | (1     | )        |   |   | (1       | )      |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
|                                                                   |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
|                                                                   |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
|                                                                   |   |         | (5,268 | )      |        |   | (6,079 | )        |   |   | (1,417   | )      |   |     | (688   | )      |      |   | (901   | )         |   |   | (1,610 | ) |   |   | (1,463 | ) |

|                        |   | Carrying     |   |   | Contractual |   |   |     |   |   |     |   |   |     |   |   |      |   |   | More than |   |
|-----------------------------|--------|--------------|--------|--------|-------------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|-----------|--------|--------|-----------|--------|
|                        |   | amount       |   |   | Cash flows  |   |   | 1st year |   |   | 2nd year |   |   | 3rd year |   |   | 4-5 years |   |   | 5 years   |   |
|                        |   | NIS millions |   |
|                        |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |
| December 31, 2011           |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |
| Forward exchange contracts: |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |
| Assets                      |   |         | 19     |   |        |   | 19     |     |   |   | 19       |   |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
| Liabilities                 |   |         | -      |   |        |   | -      |     |   |   | -        |   |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
|                        |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
|                        |   |         | 19     |   |        |   | 19     |     |   |   | 19       |   |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
|                        |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
| December 31, 2010           |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
| Forward exchange contracts: |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
| Assets                      |   |         | -      |   |        |   | -      |     |   |   | -        |   |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
| Liabilities                 |   |         | (13    | )      |        |   | (13    | )        |   |   | (13      | )      |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
|                        |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
|                        |   |         | (13    | )      |        |   | (13    | )        |   |   | (13      | )      |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |

----

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|                        |   | Carrying     |   |   | Contractual |   |   |     |   |   |     |   |   |     |   |   |      |   |   | More than |   |
|-----------------------------|--------|--------------|--------|--------|-------------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|-----------|--------|--------|-----------|--------|
|                        |   | amount       |   |   | Cash flows  |   |   | 1st year |   |   | 2nd year |   |   | 3rd year |   |   | 4-5 years |   |   | 5 years   |   |
|                        |   | NIS millions |   |
|                        |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |
| December 31, 2011           |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |
| Forward exchange contracts: |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |
| Assets                      |   |         | 19     |   |        |   | 19     |     |   |   | 19       |   |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
| Liabilities                 |   |         | -      |   |        |   | -      |     |   |   | -        |   |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
|                        |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
|                        |   |         | 19     |   |        |   | 19     |     |   |   | 19       |   |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
|                        |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
| December 31, 2010           |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
| Forward exchange contracts: |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
| Assets                      |   |         | -      |   |        |   | -      |     |   |   | -        |   |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
| Liabilities                 |   |         | (13    | )      |        |   | (13    | )        |   |   | (13      | )      |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |
|                        |   |         |   |   |        |   |   |     |   |   |     |   |   |     |   |   |      |   |   |      |   |   |   |   |   |   |   |   |
|                        |   |         | (13    | )      |        |   | (13    | )        |   |   | (13      | )      |   |     | -      |   |      |   | -      |      |   |   | - |   |   |   | - |   |

|                                                 |   | December 31, 2010 |   |   | December 31, 2011 |   |
|------------------------------------------------------|--------|-------------------|--------|--------|-------------------|--------|
|                                                 |   | In or linked      |   |   |              |   |   |   |   |   | In or linked |   |   |   |   |   |   |   |
|                                                 |   | to foreign        |   |   |              |   |   |   |   |   | to foreign |   |   |   |   |   |   |   |
|                                                 |   | currencies        |   |   | linked            |   |   |   |   |   | currencies |   |   | linked |   |   |   |   |
|                                                 |   | (mainly USD)      |   |   | to CPI            |   |   | unlinked |   |   | (mainly USD) |   |   | to CPI |   |   | unlinked |   |
|                                                 |   | NIS millions      |   |   | NIS millions      |   |
| Current assets                                       |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                            |   |              | 13     |   |              |   | - |   |   |   | 520 |   |   |   | 13 |   |   |   | - |   |   |   | 907 |   |
| Current investments, including derivatives           |   |              | -      |   |              |   | 230 |   |   |   | 174 |   |   |   | 24 |   |   |   | 159 |   |   |   | 107 |   |
| Trade receivables                                    |   |              | -      |   |              |   | - |   |   |   | 1,478 |   |   |   | 38 |   |   |   | - |   |   |   | 1,821 |   |
| Other receivables, including derivatives             |   |              | -      |   |              |   | 14 |   |   |   | - |   |   |   | - |   |   |   | 2 |   |   |   | 31 |   |
|                                                 |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non- current assets                                  |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term receivables                                |   |              | -      |   |              |   | 19 |   |   |   | 564 |   |   |   | - |   |   |   | 20 |   |   |   | 1,023 |   |
|                                                 |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities                                  |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current maturities of debentures and long-term loans |   |              | -      |   |              |   | (348 | ) |   |   | - |   |   |   | - |   |   |   | (358 | ) |   |   | (316 | ) |
| Trade payables and accrued expenses                  |   |              | (101   | )      |              |   | - |   |   |   | (615 | ) |   |   | (284 | ) |   |   | - |   |   |   | (742 | ) |
| Other current liabilities, including derivatives     |   |              | -      |   |              |   | (114 | ) |   |   | (177 | ) |   |   | - |   |   |   | (148 | ) |   |   | (539 | ) |
|                                                 |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non- current liabilities                             |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term loans from banks                           |   |              | -      |   |              |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (19 | ) |
| Debentures                                           |   |              | -      |   |              |   | (3,128 | ) |   |   | (785 | ) |   |   | - |   |   |   | (3,945 | ) |   |   | (1,507 | ) |
| Non- current other  liabilities            |   |              | -      |   |              |   | - |   |   |   | - |   |   |   | (21 | ) |   |   | (11 | ) |   |   | (3 | ) |
|                                                 |   |              | (88    | )      |              |   | (3,327 | ) |   |   | 1,159 |   |   |   | (230 | ) |   |   | (4,281 | ) |   |   | 763 |   |

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|   | December 31, 2011            |
|--------|------------------------------|
|   | Currency/ linkage receivable | Currency/ linkage payable | NotionalValue | Fair value |
|   | NIS millions                 |

| Instruments not used for hedging                 |   |   |   |   |
|--------------------------------------------------|--------|--------|--------|--------|
| Forward exchange contracts on foreign currencies | USD    | NIS    | 204    | 5      |
| Forward exchange contracts on CPI                | CPI    | NIS    | 1,825  | (22)   |
| Foreign currency purchase options                | USD    | NIS    | 150    | 1      |
| Foreign currency sell options                    | NIS    | USD    | 227    | -      |
|                                             |   |   |   |   |
| Instruments used for hedging                     |   |   |   |   |
| Forward exchange contracts on foreign currencies | USD    | NIS    | 293    | 19     |

|                                             | December 31, 2011            |
|--------------------------------------------------|------------------------------|
|                                             | Currency/ linkage receivable | Currency/ linkage payable | NotionalValue | Fair value |
|                                             | NIS millions                 |
|                                             |                         |   |   |   |
| Instruments not used for hedging                 |                         |   |   |   |
| Forward exchange contracts on foreign currencies | USD                          | NIS | 169 | (1) |
| Forward exchange contracts on CPI                | CPI                          | NIS | 1,325 | 12 |
| Foreign currency purchase options                | USD                          | NIS | 444 | 2 |
| Foreign currency sell options                    | NIS                          | USD | 56 | - |
|                                             |                         |   |   |   |
| Instruments used for hedging                     |                         |   |   |   |
| Forward exchange contracts on foreign currencies | USD                          | NIS | 270 | (13) |

|                        |   | December 31 |   |   | December 31 |   |   | December 31 |   |
|-----------------------------|--------|-------------|--------|--------|-------------|--------|--------|-------------|--------|
|                        |   | 2009        |   |   | 2010        |   |   | 2011        |   |
|                        |   |        |   |   |        |   |   |        |   |
| CPI (in points)             |   |        | 206.2  |   |        |   | 211.7  |        |   |   | 216.3 |   |
| Exchange rate of US$ in NIS |   |        | 3.775  |   |        |   | 3.549  |        |   |   | 3.821 |   |
|                        |   |        |   |   |        |   |   |        |   |   |   |   |
|                        |   |        | 2009   |   |        |   | 2010   |        |   |   | 2011 |   |
| Change in %                 |   |        |   |   |        |   |   |        |   |   |   |   |
|                        |   |        |   |   |        |   |   |        |   |   |   |   |
| CPI                         |   |        | 3.9    | %      |        |   | 2.7    | %           |   |   | 2.2 | % |
| Exchange rate of US$ to NIS |   |        | (0.7   | %)     |        |   | (6.0   | %)          |   |   | 7.7 | % |

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|                   |   |   |   |         | Equity |   |         | Net income |   |
|------------------------|--------|--------|--------|--------------|--------|--------|--------------|------------|--------|
|                   |   | Change |   | NIS millions |   |   | NIS millions |       |
|                   |   |   |   |         |   |   |         |       |   |
| December 31, 2011      |   |   |   |         |   |   |         |       |   |
| Increase in the CPI of |   |   | 2.0    | %            |   |   | (37          | )          |   |   | (37 | ) |
| Increase in the CPI of |   |   | 1.0    | %            |   |   | (18          | )          |   |   | (18 | ) |
| Decrease in the CPI of |   |   | (1.0   | %)           |   |   | 18           |       |   |   | 18 |   |
| Decrease in the CPI of |   |   | (2.0   | %)           |   |   | 37           |       |   |   | 37 |   |
|                   |   |   |   |         |   |   |         |       |   |   |   |   |
| December 31, 2010      |   |   |   |         |   |   |         |       |   |   |   |   |
| Increase in the CPI of |   |   | 2.0    | %            |   |   | (30          | )          |   |   | (30 | ) |
| Increase in the CPI of |   |   | 1.0    | %            |   |   | (15          | )          |   |   | (15 | ) |
| Decrease in the CPI of |   |   | (1.0   | %)           |   |   | 15           |       |   |   | 15 |   |
| Decrease in the CPI of |   |   | (2.0   | %)           |   |   | 30           |       |   |   | 30 |   |

|                      |   | Carrying amount |   |
|---------------------------|--------|-----------------|--------|
|                      |   | 2010            |   |   | 2011 |   |
|                      |   | NIS millions    |   |   | NIS millions |   |
| Fixed rate instruments    |   |            |   |   |   |   |
| Financial assets          |   |            | 899    |   |   |   | 1,188 |   |
| Financial liabilities     |   |            | (4,261 | ) |   |   | (6,141 | ) |
|                      |   |            | (3,362 | ) |   |   | (4,953 | ) |
| Variable rate instruments |   |            |   |   |   |   |   |   |
| Financial assets          |   |            | 28     |   |   |   | 6 |   |
| Financial liabilities     |   |            | -      |   |   |   | (3 | ) |
|                      |   |            | 28     |   |   |   | 3 |   |

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|                        |   | Equity        |   |   | Profit or loss |   |
|-----------------------------|--------|---------------|--------|--------|----------------|--------|
|                        |   | 1.0% increase |   |   | 1.0% decrease  |   |   | 0.5% increase |   |   | 0.5% decrease |   |   | 1.0% increase |   |   | 1.0% decrease |   |   | 0.5% increase |   |   | 0.5% decrease |   |
|                        |   | NIS millions  |   |   | NIS millions   |   |
| December 31, 2011           |   |          |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed rate instruments      |   |          | (7     | )      |           |   | 7 |   |   |   | (4 | ) |   |   | 4 |   |   |   | (7 | ) |   |   | 7 |   |   |   | (4 | ) |   |   | 4 |   |
| Cash flow sensitivity (net) |   |          | (7     | )      |           |   | 7 |   |   |   | (4 | ) |   |   | 4 |   |   |   | (7 | ) |   |   | 7 |   |   |   | (4 | ) |   |   | 4 |   |

|                        |   | Equity        |   |   | Profit or loss |   |
|-----------------------------|--------|---------------|--------|--------|----------------|--------|
|                        |   | 1.0% increase |   |   | 1.0% decrease  |   |   | 0.5% increase |   |   | 0.5% decrease |   |   | 1.0% increase |   |   | 1.0% decrease |   |   | 0.5% increase |   |   | 0.5% decrease |   |
|                        |   | NIS millions  |   |   | NIS millions   |   |
| December 31, 2010           |   |          |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed rate instruments      |   |          | (9     | )      |           |   | 9 |   |   |   | (4 | ) |   |   | 4 |   |   |   | (9 | ) |   |   | 9 |   |   |   | (4 | ) |   |   | 4 |   |
| Cash flow sensitivity (net) |   |          | (9     | )      |           |   | 9 |   |   |   | (4 | ) |   |   | 4 |   |   |   | (9 | ) |   |   | 9 |   |   |   | (4 | ) |   |   | 4 |   |

|                        |   | Equity        |   |   | Profit or loss |   |
|-----------------------------|--------|---------------|--------|--------|----------------|--------|
|                        |   | 1.0% increase |   |   | 1.0% decrease  |   |   | 0.5% increase |   |   | 0.5% decrease |   |   | 1.0% increase |   |   | 1.0% decrease |   |   | 0.5% increase |   |   | 0.5% decrease |   |
|                        |   | NIS millions  |   |   | NIS millions   |   |
|                        |   |          |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2011           |   |          |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Variable rate instruments   |   |          | 1      |   |           |   | (1 | ) |   |   | - |   |   |   | - |   |   |   | 1 |   |   |   | (1 | ) |   |   | - |   |   |   | - |   |
| Interest rate swaps         |   |          | -      |   |           |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Cash flow sensitivity (net) |   |          | 1      |   |           |   | (1 | ) |   |   | - |   |   |   | - |   |   |   | 1 |   |   |   | (1 | ) |   |   | - |   |   |   | - |   |
|                        |   |          |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2010           |   |          |   |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Variable rate instruments   |   |          | -      |   |           |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Interest rate swaps         |   |          | -      |   |           |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Cash flow sensitivity (net) |   |          | -      |   |           |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |

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|                                                         |   | December 31, 2010 |   |   | December 31, 2011 |   |
|--------------------------------------------------------------|--------|-------------------|--------|--------|-------------------|--------|
|                                                         |   |              |   |   |              |   |   | Interest rates |   |   |   |   |   |   |   |   | Interest rates |   |
|                                                         |   |              |   |   |              |   |   | used for |   |   |   |   |   |   |   |   | used for |   |
|                                                         |   | Carrying          |   |   | Fair              |   |   | determining |   |   | Carrying |   |   | Fair |   |   | determining |   |
|                                                         |   | amount            |   |   | value             |   |   | Fair value |   |   | amount |   |   | value |   |   | Fair value |   |
|                                                         |   | NIS millions      |   |   | NIS millions      |   |
| Assets                                                       |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                    |   |              | 533    |   |              |   | 533 |   |   |   |   |   |   | 920 |   |   |   | 920 |   |   |   |   |
| Current investments, Including derivatives                   |   |              | 404    |   |              |   | 404 |   |   |   |   |   |   | 290 |   |   |   | 290 |   |   |   |   |
| Trade receivables, net                                       |   |              | 1,478  |   |              |   | 1,478 |   |   |   |   |   |   | 1,859 |   |   |   | 1,859 |   |   |   |   |
| Other receivables                                            |   |              | 14     |   |              |   | 14 |   |   |   |   |   |   | 33 |   |   |   | 33 |   |   |   |   |
| Long-term receivables                                        |   |              | 583    |   |              |   | 583 |   |   |   | 3.5 | % |   |   | 1,043 |   |   |   | 1,043 |   |   |   | 5.2 | % |
|                                                         |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities                                          |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Credit and current maturities of long-term loans             |   |              | -      |   |              |   | - |   |   |   |   |   |   |   | (16 | ) |   |   | (16 | ) |   |   |   |   |
| Trade payables and accrued expenses                          |   |              | (716   | )      |              |   | (716 | ) |   |   |   |   |   |   | (1,026 | ) |   |   | (1,026 | ) |   |   |   |   |
| Other current liabilities, including derivatives             |   |              | (128   | )      |              |   | (128 | ) |   |   |   |   |   |   | (439 | ) |   |   | (439 | ) |   |   |   |   |
| Long-term loans from banks                                   |   |              | -      |   |              |   | - |   |   |   |   |   |   |   | (19 | ) |   |   | (19 | ) |   |   |   |   |
|                                                         |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non- current liabilities                                     |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debentures including current maturities and accrued interest |   |              | (4,424 | )      |              |   | (4,585 | ) |   |   |   |   |   |   | (6,358 | ) |   |   | *(6,001) |   |   |   |   |   |
| Other long- term liabilities                                 |   |              | -      |   |              |   | - |   |   |   |   |   |   |   | (35 | ) |   |   | (35 | ) |   |   |   |   |
|                                                         |   |              | (2,256 | )      |              |   | (2,417 | ) |   |   |   |   |   |   | (3,748 | ) |   |   | (3,391 | ) |   |   |   |   |

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| Level 1: | quoted prices (unadjusted) in active markets for identical instruments.                                                |
|----------|------------------------------------------------------------------------------------------------------------------------|
| Level 2: | inputs other than quoted prices included within Level 1 that are observable, either directly or  indirectly. |
| Level 3: | inputs that are not based on observable market data (unobservable inputs).                                             |

|                                                       |   | December 31, 2011 |   |
|------------------------------------------------------------|--------|-------------------|--------|
|                                                       |   | Level 1           |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
|                                                       |   | NIS millions      |   |   | NIS millions |   |   | NIS millions |   |   | NIS millions |   |
| Financial assets at fair value through profit or loss      |   |              |   |   |   |   |   |   |   |   |   |   |
| Current investments in debt securities                     |   |              | 266    |   |   |   | - |   |   |   | - |   |   |   | 266 |   |
| Derivatives                                                |   |              | -      |   |   |   | 24 |   |   |   | - |   |   |   | 24 |   |
| Total assets                                               |   |              | 266    |   |   |   | 24 |   |   |   | - |   |   |   | 290 |   |
|                                                       |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities at fair value through profit or loss |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Derivatives                                                |   |              | -      |   |   |   | (22 | ) |   |   | - |   |   |   | (22 | ) |
| Total liabilities                                          |   |              | -      |   |   |   | (22 | ) |   |   | - |   |   |   | (22 | ) |

|                                                       |   | December 31, 2010 |   |
|------------------------------------------------------------|--------|-------------------|--------|
|                                                       |   | Level 1           |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
|                                                       |   | NIS millions      |   |   | NIS millions |   |   | NIS millions |   |   | NIS millions |   |
| Financial assets at fair value through profit or loss      |   |              |   |   |   |   |   |   |   |   |   |   |
| Current investments in debt securities                     |   |              | 386    |   |   |   | - |   |   |   | - |   |   |   | 386 |   |
| Derivatives                                                |   |              | -      |   |   |   | 18 |   |   |   | - |   |   |   | 18 |   |
| Total assets                                               |   |              | 386    |   |   |   | 18 |   |   |   | - |   |   |   | 404 |   |
|                                                       |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities at fair value through profit or loss |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Derivatives                                                |   |              | -      |   |   |   | (18 | ) |   |   | - |   |   |   | (18 | ) |
| Total liabilities                                          |   |              | -      |   |   |   | (18 | ) |   |   | - |   |   |   | (18 | ) |

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|                                      |   | Year ended December 31 |   |
|-------------------------------------------|--------|------------------------|--------|
|                                      |   | 2009                   |   |   | 2010 |   |   | 2011 |   |
|                                      |   | NIS millions           |   |   | NIS millions |   |   | NIS millions |   |
| Revenues from equipment                   |   |                   | 751    |   |   |   | 802 |   |   |   | 1,747 |   |
| Revenues from services:                   |   |                   |   |   |   |   |   |   |   |   |   |   |
| Cellular voice services                   |   |                   | 4,471  |   |   |   | 4,391 |   |   |   | 2,879 |   |
| Cellular content and value added services |   |                   | 882    |   |   |   | 1,112 |   |   |   | 1,167 |   |
| Internet services                         |   |                   | -      |   |   |   | - |   |   |   | 216 |   |
| International long distance services      |   |                   | -      |   |   |   | - |   |   |   | 96 |   |
| Other services                            |   |                   | 379    |   |   |   | 357 |   |   |   | 401 |   |
| Total revenues from services              |   |                   | 5,732  |   |   |   | 5,860 |   |   |   | 4,759 |   |
| Total revenues                            |   |                   | 6,483  |   |   |   | 6,662 |   |   |   | 6,506 |   |

|                                 |   | Year ended December 31 |   |
|--------------------------------------|--------|------------------------|--------|
|                                 |   | 2009                   |   |   | 2010 |   |   | 2011 |   |
|                                 |   | NIS millions           |   |   | NIS millions |   |   | NIS millions |   |
| According to source of income:       |   |                   |   |   |   |   |   |   |   |
| Cost of revenues from handsets       |   |                   | 690    |   |   |   | 651 |   |   |   | 1,282 |   |
| Cost of revenues from services       |   |                   | 2,643  |   |   |   | 2,671 |   |   |   | 2,126 |   |
|                                 |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                 |   |                   | 3,333  |   |   |   | 3,322 |   |   |   | 3,408 |   |
| According to its components:         |   |                   |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues from handsets       |   |                   | 690    |   |   |   | 651 |   |   |   | 1,282 |   |
|                                 |   |                   |   |   |   |   |   |   |   |   |   |   |
| Rent and related expenses            |   |                   | 333    |   |   |   | 330 |   |   |   | 333 |   |
| Salaries and related expenses        |   |                   | 163    |   |   |   | 176 |   |   |   | 240 |   |
| Fees to other operators and others   |   |                   | 1,007  |   |   |   | 1,112 |   |   |   | 630 |   |
| Cost of value added services         |   |                   | 391    |   |   |   | 376 |   |   |   | 270 |   |
| Depreciation and amortization        |   |                   | 489    |   |   |   | 472 |   |   |   | 442 |   |
| Royalties and fees (see note 30(1)b) |   |                   | 154    |   |   |   | 110 |   |   |   | 133 |   |
| Other                                |   |                   | 106    |   |   |   | 95 |   |   |   | 78 |   |
|                                 |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                 |   |                   | 2,643  |   |   |   | 2,671 |   |   |   | 2,126 |   |
|                                 |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                 |   |                   | 3,333  |   |   |   | 3,322 |   |   |   | 3,408 |   |

|                             |   | Year ended December 31 |   |
|----------------------------------|--------|------------------------|--------|
|                             |   | 2009                   |   |   | 2010 |   |   | 2011 |   |
|                             |   | NIS millions           |   |   | NIS millions |   |   | NIS millions |   |
| Salaries and related expenses    |   |                   | 333    |   |   |   | 376 |   |   |   | 412 |   |
| Commissions                      |   |                   | 96     |   |   |   | 90 |   |   |   | 237 |   |
| Advertising and public relations |   |                   | 99     |   |   |   | 84 |   |   |   | 95 |   |
| Depreciation and amortization    |   |                   | 65     |   |   |   | 75 |   |   |   | 104 |   |
| Other                            |   |                   | 123    |   |   |   | 131 |   |   |   | 142 |   |
|                             |   |                   |   |   |   |   |   |   |   |   |   |   |
|                             |   |                   | 716    |   |   |   | 756 |   |   |   | 990 |   |

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|                                      |   | Year ended December 31 |   |
|-------------------------------------------|--------|------------------------|--------|
|                                      |   | 2009                   |   |   | 2010 |   |   | 2011 |   |
|                                      |   | NIS millions           |   |   | NIS millions |   |   | NIS millions |   |
| Salaries and related expenses             |   |                   | 145    |   |   |   | 147 |   |   |   | 169 |   |
| Depreciation and amortization             |   |                   | 200    |   |   |   | 177 |   |   |   | 192 |   |
| Rent and maintenance                      |   |                   | 75     |   |   |   | 68 |   |   |   | 72 |   |
| Data processing and professional services |   |                   | 56     |   |   |   | 55 |   |   |   | 76 |   |
| Allowance for doubtful accounts           |   |                   | 94     |   |   |   | 106 |   |   |   | 81 |   |
| Other                                     |   |                   | 90     |   |   |   | 88 |   |   |   | 95 |   |
|                                      |   |                   | 660    |   |   |   | 641 |   |   |   | 685 |   |

| Note 26 - Other Expenses, Net |
|-------------------------------|

|                                                    |   | Year ended December 31 |   |
|---------------------------------------------------------|--------|------------------------|--------|
|                                                    |   | 2009                   |   |   | 2010 |   |   | 2011 |   |
|                                                    |   | NIS millions           |   |   | NIS millions |   |   | NIS millions |   |
| Capital loss from sale of property, plant and equipment |   |                   | 6      |   |   |   | 5 |   |   |   | - |   |
| Other - net                                             |   |                   | -      |   |   |   | - |   |   |   | 1 |   |
| Other expenses, net                                     |   |                   | 6      |   |   |   | 5 |   |   |   | 1 |   |

| Note 27 - Financing Income and Expenses |
|-----------------------------------------|

|                                                                              |   | Year ended December 31 |   |
|-----------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                              |   | 2009                   |   |   | 2010 |   |   | 2011 |   |
|                                                                              |   | NIS millions           |   |   | NIS millions |   |   | NIS millions |   |
| Interest income on deposits                                                       |   |                   | 15     |   |   |   | 27 |   |   |   | 34 |   |
| Interest income from installment sale transactions                                |   |                   | 50     |   |   |   | 45 |   |   |   | 65 |   |
| Net foreign exchange gain                                                         |   |                   | 5      |   |   |   | 14 |   |   |   | - |   |
| Net change in fair value of financial assets at fair value through profit or loss |   |                   | 81     |   |   |   | 20 |   |   |   | 17 |   |
| Financing income                                                                  |   |                   | 151    |   |   |   | 106 |   |   |   | 116 |   |
|                                                                              |   |                   |   |   |   |   |   |   |   |   |   |   |
| Interest expenses on long term liabilities                                        |   |                   | (229   | ) |   |   | (232 | ) |   |   | (286 | ) |
| Linkage expenses to CPI on long term liabilities                                  |   |                   | (141   | ) |   |   | (78 | ) |   |   | (91 | ) |
| Net change in fair value of derivatives                                           |   |                   | -      |   |   |   | (26 | ) |   |   | (19 | ) |
| Net loss from exchange rate differences                                           |   |                   | -      |   |   |   | - |   |   |   | (13 | ) |
| Financing expenses                                                                |   |                   | (370   | ) |   |   | (336 | ) |   |   | (409 | ) |
|                                                                              |   |                   |   |   |   |   |   |   |   |   |   |   |
| Net financing expenses recognized in profit or loss                               |   |                   | (219   | ) |   |   | (230 | ) |   |   | (293 | ) |

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| A.  | Details regarding the tax environment of the Group |
|----------|----------------------------------------------------|

| (1)  | Amendments to the Income Tax Ordinance and the Land Appreciation Tax Law |
|-----------|--------------------------------------------------------------------------|

|   | (a) | On July 14, 2009, the Israeli parliament passed the Economic Efficiency Law (Legislation Amendments for Implementation of the 2009 and 2010 Economic Plan) - 2009, which provided, inter alia, an additional gradual reduction in the company tax rate to 18% as from the 2016 tax year. In accordance with the aforementioned amendments, the company tax rates applicable as from the 2009 tax year are as follows: In the 2009 tax year - 26%, in the 2010  tax year - 25%, in the 2011 tax year - 24%, in the 2012 tax year - 23%, in the 2013 tax year - 22%, in the 2014 tax year  - 21%, in the 2015 tax year - 20% and as from the 2016 tax year the company tax rate will be 18%. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | On February 4, 2010 Amendment 174 to the Income Tax Ordinance - Temporary Order for Tax Years 2007, 2008 and 2009 was published in the Official Gazette (hereinafter - "the Temporary Order"). In accordance with the Temporary Order, Israeli Accounting Standard No. 29 regarding the adoption of International Financial Reporting Standards (IFRS) (hereinafter - "Standard 29") shall not apply when determining the taxable income for the 2007-2009 tax years even if it was applied when preparing the financial statements. On January 12, 2012 Amendment 188 to the Income Tax Ordinance was published, which amended the Temporary Order, in a manner that Standard 29 shall not apply also when determining the taxable income for 2010 and 2011. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)  | Taxation under inflation |
|-----------|--------------------------|

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| B.  | Composition of income tax expense (income) |
|----------|--------------------------------------------|

|                                           |   | Year ended December 31, |   |
|------------------------------------------------|--------|-------------------------|--------|
|                                           |   | 2009                    |   |   | 2010 |   |   | 2011 |   |
|                                           |   | NIS millions            |   |   | NIS millions |   |   | NIS millions |   |
|                                           |
| Current tax expense (income)                   |   |                    |   |   |   |   |   |   |   |
| Current year                                   |   |                    | 423    |   |   |   | 462 |   |   |   | 288 |   |
| Adjustments for prior years, net               |   |                    | 6      |   |   |   | (18 | ) |   |   | - |   |
| Changes in accounting policy                   |   |                    | (1     | ) |   |   | - |   |   |   | - |   |
| Total current tax expenses                     |   |                    | 428    |   |   |   | 444 |   |   |   | 288 |   |
|                                           |
| Deferred tax expense (income)                  |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                           |
| Creation and reversal of temporary differences |   |                    | (20    | ) |   |   | (27 | ) |   |   | (17 | ) |
| Change in tax rate                             |   |                    | (41    | ) |   |   | - |   |   |   | 33 |   |
| Total deferred tax expenses (income)           |   |                    | (61    | ) |   |   | (27 | ) |   |   | 16 |   |
| Income tax expense                             |   |                    | 367    |   |   |   | 417 |   |   |   | 304 |   |

| C. | Income tax recognized directly in equity |
|----|------------------------------------------|

|                                          |   | Year ended December 31, 2011 |   |
|-----------------------------------------------|--------|------------------------------|--------|
|                                          |   | Before tax                   |   |   | Tax expenses |   |   | Net of tax |   |
|                                          |   | NIS millions                 |   |   | NIS millions |   |   | NIS millions |   |
|                                          |   |
| Hedging transactions – equity component |   |                         | 37     |   |   |   | (9 | ) |   |   | 28 |   |
|                                          |   |
|                                          |   |
|                                          |   | Year ended December 31, 2010 |   |
|                                          |   | Before tax                   |   |   | Tax expenses |   |   | Net of tax |   |
|                                          |   | NIS millions                 |   |   | NIS millions |   |   | NIS millions |   |
|                                          |   |
| Hedging transactions – equity component |   |                         | 3      |   |   |   | (1 | ) |   |   | 2 |   |

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|                                          |   |   Year ended December 31, 2009 |   |
|-----------------------------------------------|--------|-------------------------------------|--------|
|                                          |   | Before tax                          |   |   | Tax benefit |   |   | Net of tax |   |
|                                          |   | NIS millions                        |   |   | NIS millions |   |   | NIS millions |   |
| Hedging transactions – equity component |   |                                | (16    | ) |   |   | 4 |   |   |   | (12 | ) |

| D. | Reconciliation between the theoretical tax on the pre-tax profit and the tax expense: |
|----|---------------------------------------------------------------------------------------|

|                                                           |   | Year ended December 31, |   |
|----------------------------------------------------------------|--------|-------------------------|--------|
|                                                           |   | 2009                    |   |   | 2010 |   |   | 2011 |   |
|                                                           |   | NIS millions            |   |   | NIS millions |   |   | NIS millions |   |
|                                                           |
| Profit before taxes on income                                  |   |                    | 1,549  |   |   |   | 1,708 |   |   |   | 1,129 |   |
| Primary tax rate of the Group                                  |   |                    | 26     | % |   |   | 25 | % |   |   | 24 | % |
| Tax calculated according to the Group’s primary tax rate |   |                    | 403    |   |   |   | 427 |   |   |   | 271 |   |
|                                                           |
| Additional tax (tax saving) in respect of:                     |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                                           |
| Non-deductible expenses                                        |   |                    | 3      |   |   |   | 2 |   |   |   | 4 |   |
| Taxes in respect of previous years                             |   |                    | 6      |   |   |   | (18 | ) |   |   | - |   |
|                                                           |
| Effect of changes in tax rate                                  |   |                    | (41    | ) |   |   | - |   |   |   | 33 |   |
| Other differences, including inflation differences             |   |                    | (4     | ) |   |   | 6 |   |   |   | (4 | ) |
| Income tax expense                                             |   |                    | 367    |   |   |   | 417 |   |   |   | 304 |   |

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| E.  | Deferred tax assets and liabilities |
|----------|-------------------------------------|

| (1)  | Recognized deferred tax assets and liabilities |
|-----------|------------------------------------------------|

|                                                                              |   | Allowance for doubtful debts |   |   | Property, plant and equipment and intangible assets |   |   | Hedging transactions |   |   | Carry forward tax deductions and losses |   |   | Other        |   |   | Total        |   |
|-----------------------------------------------------------------------------------|--------|------------------------------|--------|--------|-----------------------------------------------------|--------|--------|----------------------|--------|--------|-----------------------------------------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                              |   | NIS millions                 |   |   | NIS millions                                        |   |   | NIS millions         |   |   | NIS millions                            |   |   | NIS millions |   |   | NIS millions |   |
| Balance of deferred tax asset (liability) as at January 1, 2011                   |   |                         | 64     |   |                                                |   | (164   | )                    |   |   | 7                                       |   |   |         | -      |   |         |   | 28 |   |   |   | (65 | ) |
| Changes recognized in profit or loss                                              |   |                         | (9     | )      |                                                |   | 17     |                 |   |   | -                                       |   |   |         | (5     | )      |         |   | 14 |   |   |   | 17 |   |
| Changes recognized in equity                                                      |   |                         | -      |   |                                                |   | -      |                 |   |   | (9                                      | )      |   |         | -      |   |         |   | - |   |   |   | (9 | ) |
| Effect of change in tax rate                                                      |   |                         | 10     |   |                                                |   | (55    | )                    |   |   | -                                       |   |   |         | 4      |   |         |   | 8 |   |   |   | (33 | ) |
| Business combinations (see note 7)                                           |   |                         | 13     |   |                                                |   | (80    | )                    |   |   | -                                       |   |   |         | 23     |   |         |   | - |   |   |   | (44 | ) |
|                                                                              |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   |   |   |
| Deferred tax asset (liability) as at December 31, 2011                            |   |                         | 78     |   |                                                |   | (282   | )                    |   |   | (2                                      | )      |   |         | 22     |   |         |   | 50 |   |   |   | (134 | ) |
| Deferred tax asset                                                                |   |                         | 78     |   |                                                |   | 18     |                 |   |   | -                                       |   |   |         | 22     |   |         |   | 50 |   |   |   | 168 |   |
| Offset of balances                                                                |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   | 128 |   |
|                                                                              |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   |   |   |
| Deferred tax asset in statement of financial position as at December 31, 2011     |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   | 40 |   |
|                                                                              |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   |   |   |
| Deferred tax liability                                                            |   |                         | -      |   |                                                |   | (300   | )                    |   |   | (2                                      | )      |   |         | -      |   |         |   | - |   |   |   | (302 | ) |
| Offset of balances                                                                |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   | (128 | ) |
|                                                                              |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   |   |   |
| Deferred tax liability in statement of financial position as at December 31, 2011 |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   | (174 | ) |

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|                                                                              |   | Allowance for doubtful debts |   |   | Property, plant and equipment and intangible assets |   |   | Hedging transactions |   |   | Carry forward tax deductions and losses |   |   | Other        |   |   | Total        |   |
|-----------------------------------------------------------------------------------|--------|------------------------------|--------|--------|-----------------------------------------------------|--------|--------|----------------------|--------|--------|-----------------------------------------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                              |   | NIS millions                 |   |   | NIS millions                                        |   |   | NIS millions         |   |   | NIS millions                            |   |   | NIS millions |   |   | NIS millions |   |
| Balance of deferred tax asset (liability) as at January 1, 2010                   |   |                         | 57     |   |                                                |   | (159   | )                    |   |   | 8                                       |   |   |         | -      |   |         |   | 3 |   |   |   | (91 | ) |
| Changes recognized in profit or loss                                              |   |                         | 7      |   |                                                |   | (5     | )                    |   |   | -                                       |   |   |         | -      |   |         |   | 25 |   |   |   | 27 |   |
| Changes recognized in equity                                                      |   |                         | -      |   |                                                |   | -      |                 |   |   | (1                                      | )      |   |         | -      |   |         |   | - |   |   |   | (1 | ) |
|                                                                              |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   |   |   |
| Balance of deferred tax asset (liability) as at December 31, 2010                 |   |                         | 64     |   |                                                |   | (164   | )                    |   |   | 7                                       |   |   |         | -      |   |         |   | 28 |   |   |   | (65 | ) |
|                                                                              |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   |   |   |
| Deferred tax asset                                                                |   |                         | 64     |   |                                                |   | -      |                 |   |   | 7                                       |   |   |         | -      |   |         |   | 28 |   |   |   | 99 |   |
| Offset of balances                                                                |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   | 99 |   |
|                                                                              |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   |   |   |
| Deferred tax asset in statement of financial position as at December 31, 2010     |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   | - |   |
|                                                                              |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   |   |   |
| Deferred tax liability                                                            |   |                         | -      |   |                                                |   | (164   | )                    |   |   | -                                       |   |   |         | -      |   |         |   | - |   |   |   | (164 | ) |
| Offset of balances                                                                |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   | (99 | ) |
|                                                                              |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   |   |   |
| Deferred tax liability in statement of financial position as at December 31, 2010 |   |                         |   |   |                                                |   |   |                 |   |   |                                    |   |   |         |   |   |         |   |   |   |   |   | (65 | ) |

| (2)  | Unrecognized deferred tax liability |
|-----------|-------------------------------------|

| F. | Tax loss carryforwards and other temporary differences |
|----|--------------------------------------------------------|

| G. | Tax assessments |
|----|-----------------|

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|                       |   | December 31  |   |
|----------------------------|--------|--------------|--------|
|                       |   | 2011         |   |
|                       |   | NIS millions |   |
| Less than one year         |   |         | 301    |   |
| Between one and five years |   |         | 752    |   |
| More than five years       |   |         | 395    |   |
|                       |   |         |   |   |
|                       |   |         | 1,448  |   |

|   | a. | Office buildings and warehouses - there are lease agreements for periods of up to 18 years. |
|--------|----|---------------------------------------------------------------------------------------------|

|   | b. | Switching stations - there are lease agreements for switching station locations for periods of up to 21 years and 7 months. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------|

|   | c. | Cell sites - there are lease agreements for cell sites for periods of up to 16 years. |
|--------|----|---------------------------------------------------------------------------------------|

|   | d. | Service centers, retail stores and stands - there are lease agreements for service and installation centers and stands for periods of up to 16 years and 8 months. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | Transmission services for cell sites and switches up to 6 years. |
|--------|----|------------------------------------------------------------------|

|   | f. | Motor vehicles - lease for a period of 3 years. |
|--------|----|-------------------------------------------------|

|   | g. | Rights of use of international communication lines - there are lease agreements for a period of up to 13 years. |
|--------|----|-----------------------------------------------------------------------------------------------------------------|

|   | 1. | The Group has commitments regarding the license it was granted in 1994, most of which are: |
|--------|----|--------------------------------------------------------------------------------------------|

|   | a. | Not to pledge any of the assets used to execute the license without the advance consent of the Ministry of Communications. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------|

|   | b. | To pay the State of Israel (the State) royalties equal (in 2011) to 1.75% of the Company’s revenues generated from cellular telecommunications services, less payments transferred to other license holders for interconnect fees or roaming services, sale of handsets and losses from bad debts in respect of royalty-bearing services and revenues collected for other license holder. The rate of these royalties has decreased in recent years, from 4.5% in 2002, to 4% in 2003, to 3.5% in 2004 and 2005, to 3% in 2006, to 2.5% in 2007, to 2% in 2008, to 1.5% in 2009 and to 1% in 2010. In January 2011, the applicable regulations |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | c. | Netvision's International Long Distance license determines that Netvision will have to pay royalties to the State from Netvision's revenues which derive from international Bezeq services, less payments that are transferred to other communication operators in respect of interconnect, payments to a foreign supplier in respect of outgoing calls, bad debt expenses in respect of royalty-bearing services and revenues which are collected for other license holder. In 2011, the rate of such royalties was 1% of the taxable income, as defined in the Communication Regulations (Bezeq and Transmissions)(Royalties), 2011. This rate is expected to apply in 2012 as well. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | The Company's shareholders' joint equity, combined with the Company's equity, shall not amount to less than $200 million. Regarding this stipulation, a shareholder holding less than 10% of the rights to the Company's equity is not taken into account. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | In September 2005, the Company signed an agreement with Ericsson Israel Ltd. according to which the Company will acquire a UMTS radio access network and ancillary products and services. The Company was obligated to purchase maintenance services for 5 years from the launch of the system (until 2011) and the Company has an option to purchase maintenance services for 20 years from the launch of the systems (until 2026), including all the required services for establishment and maintenance of the system (including receipt of updates and upgrades for the system). The aggregate scope of the agreement is USD 27.5 million payable over five years. In December 2011, the Company entered into an addendum to the agreement for the purchase of upgraded UMTS /HSPA products and related services, under similar terms. The Company obligated in such amendment to purchases of at least USD 12 million in 2012. Under the agreement the parties generally have limited liability for direct damages of up to 40% of the value of the agreement. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | In July 2001, the Company signed an agreement with Nokia Israel Communications Ltd., for the purchase of a GSM/GPRS system (the agreement was assigned to Nokia-Siemens Networks Israel Ltd., or Nokia Siemens, in 2007). The Company was also granted an option to purchase GSM 800, EDGE, UMTS and ancillary systems. In 2002, the Company exercised the option to purchase an EDGE system, and in 2005, the Company purchased a UMTS core system, under similar terms.  In May 2011, the Company entered into an addendum to the agreement for the purchase of radio equipment to the UMTS/HSPA network and related products and additional services to the network. Nokia Siemens is obligated to offer the Company maintenance services for 15 years from execution of the said addendum (until 2026).  Under the agreement, the parties generally have limited liability for direct damages of up to 10% of the value of the agreement. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 4. | Be’eri Printers provides the Company's printing supplies and invoices as well as the distribution, packaging and delivery of invoices and other mail to the postal service distribution centers. The Company entered into an agreement with Be’eri Printers - Limited Partnership and with Be’eri Technologies (1977) Ltd., or together Be’eri, for printing services in August 2003. Under the terms of the agreement, the Company committed to purchase from Be’eri a minimum monthly quantity of production and distribution services which may be reduced if the Company modifies its printed invoice delivery policy. The agreement is valid until December 2013. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | As at December 31, 2011, the Group has commitments to purchase equipment for the communication network, cellular telephone equipment and systems and software maintenance, at an amount estimated at NIS 413 million. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | In July 2010, the Company entered into an agreement with Amdocs (Israel) Limited, or Amdocs Israel, for the provision of operation, maintenance, management and development services for its billing system, which were previously performed partly by Amdocs UK and Amdocs Israel and partly by the Company's employees.  Amdocs Israel is obligated to provide the Company with such services for a period of eight years (until August 2018), and after 30 months from entering into this agreement the Company has the option to terminate the agreement subject to the provision of prior written notice and payment of certain amounts. Under the agreement, the parties generally have limited liability for direct damages of up to the value of the agreement for each year subject to certain additional exceptions to the limitation. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | In October 2010, the Company entered into a long-term agreement for the enlargement of the current techno-logistic center, including its new central laboratory, in Netanya, Israel, and the lease thereof.  The leased property covers approximately 11,000 square meters. The lease is for a term of ten years starting August 1, 2011 and is renewable for an additional period of 5 years, at the Company's option. In case the Company does not exercise the option it shall be required to pay approximately NIS 11 million. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 8. | In December 2010, the Company entered into an agreement with Ashdod Energy Ltd., expected to construct a private power plant fueled by natural gas in Israel, by the end of 2013. Under the agreement the Company committed to purchase electricity for the earlier of a period of 15 years from commencement of operations of the power plant or until January 2028, subject to the Company's right to terminate the agreement after 8 years from the commencement of operations of the power plant under certain conditions. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 9. | In the years 2003 through 2011, Netvision entered into a number of agreements with Mediterranean Nautilus Ltd. and Mediterranean Nautilus (Israel) Ltd., or together Med Nautilus. Pursuant to its agreements with Med Nautilus, Netvision purchased rights of use, or IRU, of certain telecommunications capacities on Med Nautilus' communication cables, as well as maintenance and operation services relating to these cables. The agreements include options pursuant to which Netvision may expand the purchased capacity. The term of the agreement with respect to part of the capacity purchased from MedNautilus is until May 2027. Netvision has the option to terminate agreements with respect to parts of the capacity in 2017 and 2022.  The remainder of the obligation to Med Nautilus in respect of rights of use of international communication lines from all existing agreements as of December 31, 2011 is NIS 243 million. |
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|   | 10. | In August 2010, Netvision entered into an agreement with Bezeq that regulates the provision of the internet connectivity services by Bezeq to Netvision internet network. In November 2011, the agreement was updated and was extended until the end of 2014. Under this agreement, Netvision obligated to purchase minimum bandwidth capacities which Bezeq undertook to provide Netvision, in consideration to a price that reflects a considerable decrease in comparison to the previous price per giga-byte unit. |
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|   | 1. | Consumer claims |
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| Claim amount                  | Number of claims | Total claims amount (NIS millions) |
|-------------------------------|------------------|------------------------------------|
| Up to NIS 100 million         | 32               | 1,083                              |
| NIS 100-500 million           | 11               | 2,251                              |
| NIS 500 million-NIS 1 billion | 1                | 817                                |
| Unquantified claims           | 7                | -                                  |

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|   | 2. | Environmental claims |
|--------|----|----------------------|

| Claim amount            | Number of claims |
|-------------------------|------------------|
| NIS 1 billion and above | 4                |

|   | a. | In December 2007, a purported class action lawsuit was filed against the Company (and two other cellular operators) in the District Court of Tel Aviv-Jaffa, by plaintiffs alleging to be residing next to cell sites of the defendants which the plaintiffs allege were built in violation of the law. The plaintiffs allege that the defendants have created environmental hazards by unlawfully building cell sites and therefore demand that the defendants will compensate the public for damages (other than personal damages, such as depreciation of property and/or health related damages which are excluded from the purported class action), dismantle existing unlawfully built cell sites and refrain from unlawfully building new cell sites. If the lawsuit is certified as a class action, the compensation claimed from the defendants is estimated by the plaintiffs to be NIS 1 billion. |
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|   | b. | In March 2010, a purported class action lawsuit was filed against the Company and another cellular operator, in the District Court of Tel-Aviv-Jaffa by two plaintiffs alleging to be subscribers of the defendants, in connection with allegations that the defendants breached their license by failing to purchase insurance against monetary liability which the defendants may suffer due to bodily damages that allegedly may be caused by cellular radiation. |
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|   | c. | In May 2010, a purported class action lawsuit was filed against the Company (and the three other Israeli cellular operators) in the District Court of Central Region, by four plaintiffs alleging to be subscribers of the defendants. The plaintiffs allege that the defendants unlawfully and in violation of their license and agreements with their subscribers fail to construct cell sites in a sufficient quantity, scope and coverage in order to provide cellular services in the requisite quality; fail to test, repair and notify the subscribers that non-ionizing radiation level for repaired handsets may exceed the manufacturer's specifications and the maximum level allowed by law; fail to inform and caution the subscribers of the risks related to the manner of carrying the handset and its distance from the subscriber's body; all of which allegedly increase the level of non-ionizing radiation and health risks to which the subscribers are exposed. In September 2010, at the Company and two other cellular operators' request, the Court instructed the transfer of this purported class action to the Tel-Aviv-Jaffa District Court, to be heard by the Judge hearing the purported class action filed against the Company in December 2007 (by plaintiffs alleging that the Company and the two other Israeli cellular operators have created environmental hazards by unlawfully building cell sites). If the lawsuit is certified as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 3.68 billion (the total amount claimed from the four defendants is estimated by the plaintiffs to be approximately NIS 12 billion). |
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|   | d. | In June 2011, a purported class action lawsuit was filed against the Company and three other cellular operators in the District Court of Tel-Aviv-Jaffa, by an Israeli citizen, in connection with the allegation that the defendants mislead customers who buy accessories for carryingcellular handsets or do not disclose to them  relevant data concerning radiation hazards associated with the usage of accessories for carrying cellular handsets, allegedly contrary to the cellular handsets manufacturers' instructions and warnings and the Israeli Ministry of Health' recommendations. |
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|   | 3. | Employees, subcontractors, suppliers, authorities and others claims |
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|   | a.  | To the Government of Israel (to guarantee performance of the License) - U.S. $10 million. |
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|   | b. | To the Government of Israel (to guarantee performance of the Licenses of the Group ) - NIS 31 million. |
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|   | c.  | To suppliers, government institutions and other - NIS 53 million. |
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|   | 1. | In September 2010, the Ministry of Communications announced its decision to amend the regulations which determine the interconnect fees paid to cellular operators in Israel, as follows: |
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|   | · | the maximum interconnect tariff payable by a landline operator or a cellular operator for the completion of a call on another cellular network was reduced from the previous tariff of NIS 0.251 per minute to NIS 0.0687 per minute from January 1, 2011; to 0.0634 per minute from January 1, 2012; to NIS 0.0591 per minute from January 1, 2013; and to NIS 0.0555 from January 1, 2014; |
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|   | · | the maximum interconnect tariff payable by a cellular operator for sending an SMS message to another cellular network was reduced from the previous tariff of NIS 0.0285 to NIS 0.0016 from January 1, 2011; to NIS 0.0015 from January 1, 2012; to NIS 0.0014 from January 1, 2013; and to NIS 0.0013 from January 1, 2014.  The tariffs do not include VAT and will be updated annually from January 1, 2011, based on the change in the Israeli CPI published in November of the year preceding the update date from the average annual Israeli CPI for 2009. The tariffs will also be increased by the percentage of royalties payable to the Ministry of Communications by the operator. As a result of these updates, including the increase of the royalties the Group pays to the Ministry of Communications, the current maximum interconnect tariffs are NIS 0.0728 per minute for the completion of a call on another cellular network and NIS 0.0017 for a completion of an SMS message to another cellular network. |
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|   | 2. | In July 2009, the Communications Law was amended to include an MVNO license. In January 2010, the regulations necessary for the grant of an MVNO license were promulgated. As of the balance sheet date the Ministry of Communications granted nine MVNO licenses one of which was returned. Under the Communications Law, in the event that a MVNO and the cellular operator, will not have reached an agreement as to the provision of service by way of MVNO within six months from the date the MVNO has approached the cellular operator, and if the Ministry of Communications together with the Ministry of  Finance determine that the failure to reach an agreement is due to unreasonable conditions imposed by the cellular operator, the Ministry of Communications may intervene in the terms of the agreement, including by setting the price of the service. The operation of MVNO operators in the cellular market and unfavorable terms and consideration for the service (such as equal or based on the Interconnect tariff), may result in material adverse effect on the Group's results of operations. In 2011 five MVNO's have entered into hosting agreements, one of which (Home Cellular) has entered into an agreement with the Company. |
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|   | 3.  | In March 2010 the Israeli Ministry of Interior Affairs submitted a draft regulation setting substantial limitations on the ability to construct radio access devices based on the exemption from obtaining a building permit, for the approval of the Economy Committee of the Israeli Parliament. The proposed limitations will render the construction of radio access devices based on the exemption practically impossible. In September 2010, the Israeli Supreme Court issued an interim order prohibiting further construction of radio access devices in cellular networks in reliance on the exemption (requested in two petitions filed in July 2008 and June 2009). The interim order, which was issued pursuant to the Israeli Attorney General's request, will be in effect until the enactment of the proposed regulations or other decision by the court. A further decision of the Supreme Court in February 2011, states that the order will not apply to the replacement of existing radio access devices under certain conditions. |
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|   | 4. | National Zoning Plan 36 includes guidelines for constructing cell sites in order to provide cellular broadcasting and reception communications coverage throughout Israel, while preventing radiation hazards and minimizing damage to the environment and landscape. However, National Zoning Plan 36 is in the process of being revised. Current proposed changes will impose additional restrictions and requirements on the construction and operation of cell sites. In June 2010, the proposed changes were approved by the National Council for Planning and Building and submitted for the approval of the Government of Israel. If the proposed changes are approved by the Israeli Government they will harm the Group's ability to construct new cell sites, make the process of obtaining building permits for the construction and operation of cell sites more cumbersome and costly, could adversely affect the Group's existing network  and may delay the future deployment of its network. |
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|   | 5. | In December 2010, the Communications Law was amended to reduce the early termination fees in pricing plans that include a commitment to a predefined period, in the cellular market.  In accordance with the amendment, as of February 1, 2011, early termination fees are calculated based on the subscriber's average monthly bill, resulting in a negligible fee. The reduced Early Termination Fees apply to customers with less than a certain amount of phone lines. The reduction applies to existing as well as new pricing plans.  In August 2011, the Communications Law was amended to annul early termination fees in all other communications markets. The reduction and annulment of early termination fees has led to the offering of packages at lower average revenue per minute and resulted in accelerated price erosion, materially increased churn rate and increased subscriber acquisition and retention costs due to materially increased rate of gross recruitment of subscribers. |
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|   |   |
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|   | 6. | In December 2010, the Communication Law was amended to allow national roaming for new operators and Mirs Communications Ltd. ("Mirs"), one of the existing four cellular companies. Following the amendment, if a new operator or Mirs and the hosting operator have not reached an agreement as to the terms of the service (including the consideration), for any reason, until the service is to commence (after certain criteria is met) the service will be provided for the then prevailing interconnect tariff (in case of a call and for data services - 65% of the interconnect tariff per 1 mega) and subsequently (but no later than February 1, 2012) shall be determined by the Ministry of Communications with the consent of the Minster of Finance and applied retroactively. In April 2011 and December 2011 Mirs and Golan, respectively, were awarded UMTS operator licenses including authorization for national roaming on the existing cellular networks.  In September 2011, Mirs entered a national roaming agreement with Pelephone and in October 2011, the Company entered a national roaming agreement with Golan. Additional UMTS operators and unfavorable terms and consideration for the service may result in material adverse effect on the Company's results of operations. |
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|   | 7. | In October 2011, the public committee appointed by the Ministry of communications to examine Bezeq's tariffs structure and tariffs for wireline wholesale services and to review the possible annulment of the structural limitations currently imposed on Bezeq and its subsidiaries, published its recommendations. The recommendations include: (1) The creation of an effective |
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|   | 8. | In January 2012, a bill proposing to set gradually increasing financial sanctions on communication operators, for breach of their licenses, the amount of which shall be calculated as a percentage of the operator's income and based on the gravity of the breach passed the preliminary enacting stage in the Israeli Parliament. Such bill, if adopted, is expected to substantially increase the Ministry of Communications' usage of such sanctions. Substantial sanctions will harm the Group's results of operations. |
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| A.  | Balance sheet |
|----------|---------------|

|                             |   | December 31  |   |   | December 31  |   |
|----------------------------------|--------|--------------|--------|--------|--------------|--------|
|                             |   | 2010         |   |   | 2011         |   |
|                             |   | NIS millions |   |   | NIS millions |   |
| Current assets                   |   |         | 1      |   |         |   | 150 |   |
| Current liabilities              |   |         | 5      |   |         |   | 2 |   |
| Long-term liability - debentures |   |         | 267    |   |         |   | 214 |   |

| B. | Transactions with related and interested parties executed in the ordinary course of business at regular commercial terms: |
|----|---------------------------------------------------------------------------------------------------------------------------|

|             |   | Year ended December 31 |   |
|------------------|--------|------------------------|--------|
|             |   | 2009                   |   |   | 2010 |   |   | 2011 |   |
|             |   | NIS millions           |   |   | NIS millions |   |   | NIS millions |   |
| Income:          |   |                   |   |   |   |   |   |   |   |
|             |   |                   |   |   |   |   |   |   |   |
| Revenues         |   |                   | 32     |   |   |   | 33 |   |   |   | 26 |   |
|             |   |                   |   |   |   |   |   |   |   |   |   |   |
| Expenses:        |   |                   |   |   |   |   |   |   |   |   |   |   |
|             |   |                   |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues |   |                   | 77     |   |   |   | 74 |   |   |   | 43 |   |
| Other            |   |                   | 16     |   |   |   | 8 |   |   |   | 18 |   |

| C.  | Key management personnel compensation (including directors) |
|----------|-------------------------------------------------------------|

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|                         |   | Year ended December 31 |   |
|------------------------------|--------|------------------------|--------|
|                         |   | 2009                   |   |   | 2010 |   |   | 2011 |   |
|                         |   | NIS millions           |   |   | NIS millions |   |   | NIS millions |   |
| Short-term employee benefits |   |                   | 5      |   |   |   | 6 |   |   |   | 11 |   |
| Share-based payments         |   |                   | -      |   |   |   | - |   |   |   | - |   |
|                         |   |                   |   |   |   |   |   |   |   |   |   |   |
|                         |   |                   | 5      |   |   |   | 6 |   |   |   | 11 |   |

| D. | An agreement with DIC |
|----|-----------------------|

| E. | An agreement with Netvision 013 Barak |
|----|---------------------------------------|

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