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		Per Share				Total
Initial public offering price		$	20.00			$	400,000,000
Underwriting discounts and commissions		$	1.30			$	26,000,000
Proceeds, before expenses, to the selling shareholders		$	18.70			$	374,000,000

Goldman, Sachs & Co.	Citigroup	Deutsche Bank Securities

Jefferies & Company	William Blair & Company

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		Page
Presentation of Financial Information			ii
Trademarks			ii
Industry and Market Data			ii
Prospectus Summary			1
Risk Factors			10
Special Note Regarding Forward-Looking Statements			24
Exchange Rate Information			25
Use of Proceeds			26
Dividend Policy			26
Capitalization			29
Dilution			30
Selected Consolidated Financial Data			31
Operating and Financial Review and Prospects			35
The Telecommunications Industry in Israel			67
Business			71
Regulatory Matters			91
Management			101
Certain Relationships and Related Party Transactions			113
Principal and Selling Shareholders			116
Description of Share Capital			119
Taxation			124
Shares Eligible for Future Sale			129
Underwriting			132
Expenses Related to the Offering			137
Validity of Ordinary Shares			137
Experts			137
Enforceability of Civil Liabilities			137
Where You Can Find More Information			138
Index to Consolidated Financial Statements			F-1

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	We operate in a heavily regulated industry, which can harm our results of operations.

	•	reduce tariffs, including interconnect and roaming tariffs, limit our ability to vary charging units or otherwise intervene in the pricing policies for our products and services;
	•	regulate the termination of predefined term agreements, including requiring us to disconnect subscribers once the initial term expires;
	•	impose new safety or health-related requirements;
	•	impose additional restrictions on the construction and operation of cell sites;
	•	impose restrictions on the provision of content services;
	•	limit or otherwise intervene with the services or products that we may sell; or
	•	set higher service standards.

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	We may face claims of being in violation of the law and our license requiring the implementation of number portability and the terms of our license governing the method of charging for SMS messages.

	We may not be able to obtain permits to construct and operate cell sites.

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	We may be required to indemnify certain local planning and building committees in respect of claims against them.

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	Alleged health risks relating to non-ionizing radiation generated from cell sites and cellular telecommunications devices may harm our prospects.

	We face intense competition in all aspects of our business.

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	•	the implementation of number portability, as it would eliminate one of the deterrents to switching between cellular operators;
	•	Pelephone’s offering of certain services jointly with its parent company, Bezeq, the incumbent landline operator; although Bezeq and Pelephone may not offer integrated or combined packages of cellular and landline telephone and other telecommunication services currently, the Ministry of Communications has stated that once Bezeq’s share of the Israeli landline telephone market falls below 85% (Bezeq does not publish its market share), it would be permitted to offer certain services jointly with its subsidiaries subject to regulatory limitations;
	•	the entry into the Israeli cellular market by mobile virtual network operators, or MVNOs, could increase competition and thus may adversely affect our revenues; the government has authorized an examination of the desirability of introducing MVNO operation in Israel; the findings and recommendations are expected to be published in May 2007; and
	•	a proposed amendment to the Israeli Restrictive Trade Practices Law, 1988 to grant the Commissioner of Restrictive Trade Practices broader authority to take action against oligopolies where there is insufficient competition, including the authority to issue orders to remove or to ease entry or transfer barriers, should the Commissioner conclude that this would increase competition; if the Commissioner were to decide that the Israeli cellular market was oligopolistic and insufficiently competitive, this could limit our freedom to manage our business, increase the competitive pressures that we face and adversely affect our results of operations.

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

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	We are exposed to, and currently are engaged in, a variety of legal proceedings, including class action lawsuits.

	We may be subject to increased regulation in respect of handset sales.

	We rely on interconnecting telecommunications providers and could be adversely affected if these providers fail to provide these services without disruption and on a consistent basis.

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	There are certain restrictions in our license relating to the ownership of our shares.

	•	our founding shareholder, DIC (or its transferee or transferees, if approved in advance by the Ministry of Communications as “founding shareholders”), must own at least 26% of each of our means of control;
	•	Israeli citizens and residents among our founding shareholders (or their approved transferees) must own at least 20% of our outstanding share capital and each of our other means of control (DIC has agreed to comply with this requirement);
	•	a majority of our directors must be Israeli citizens and residents;
	•	at least 20% of our directors must be appointed by Israeli citizens and residents among our founding shareholders; and
	•	we are required to have a committee of our Board of Directors that deals with matters relating to state security, which must be comprised of at least four directors (including an external director) having the requisite security clearance by Israel’s General Security Service.

	We may be adversely affected by the significant technological and other changes in the cellular communications industry.

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	If we cannot obtain or maintain favorable roaming arrangements our services may be less attractive or less profitable.

	Our substantial debt increases our exposure to market risks, may limit our ability to incur additional debt that may be necessary to fund our operations and could adversely affect our financial stability.

	•	increasing our vulnerability to adverse economic, industry or business conditions, including increases in prevailing interest rates, particularly because our debentures are linked to the Israeli CPI, and our credit facility bears interest at a variable rate;
	•	limiting our flexibility in planning for, or reacting to, changes in our industry and the economy in general;
	•	requiring us to dedicate a substantial portion of our cash flow from operations to service our debt, thus reducing the funds available for operations and future business development; and
	•	limiting our ability to obtain additional financing to operate, develop and expand our business.

	Our freedom to operate our business is limited as a result of certain restrictive covenants contained in our credit facility and our indentures.

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	Our business results may be affected by currency fluctuations, by our currency hedging positions and by changes in the Israeli Consumer Price Index.

	We may not be able to fulfill our dividend policy in the future.

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	We rely on a limited number of suppliers for key equipment and services.

	We are a member of the IDB group of companies, one of Israel’s largest business groups. This may limit our ability to expand our business, to acquire other businesses or to borrow money from Israeli banks.

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	We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel.

	Our freedom and ability to conduct our operations may be limited during periods of national emergency.

	Provisions of Israeli law and our license may delay, prevent or impede an acquisition of us, which could prevent a change of control.

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	It may be difficult to enforce a U.S. judgment against our officers, our directors and us or to assert U.S. securities law claims in Israel.

	We are controlled by a single shareholder who can significantly influence matters requiring shareholders’ approval.

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	Our share price may be extremely volatile and you may not be able to resell your shares at or above the initial public offering price.

	A substantial number of our ordinary shares could be sold into the public market shortly after this offering, which could depress our share price.

	We will incur increased costs as a result of being a U.S. public company.

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	We have not yet evaluated our internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act.

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Month		High				Low
		(NIS)				(NIS)
August 2006			4.408				4.357
September 2006			4.394				4.297
October 2006			4.302				4.238
November 2006			4.331				4.247
December 2006			4.234				4.176
January 2007			4.260				4.187

Year		Average
		(NIS)
2002			4.736
2003			4.512
2004			4.483
2005			4.503
2006			4.442

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	•	we incur substantial non-cash depreciation and amortization expense that reduces our net income; and
	•	we have not typically required significant working capital; our customers generally pay us within 45 days of the end of each monthly billing cycle in which the service was provided, while most of our service providers accept payment on a delayed basis.

															Nine Months
															Ended
			Year Ended December 31,												September 30,
			2003				2004				2005				2006
			(In NIS millions)
Net cash provided by operating activities				1,393				1,471				1,272				1,067
Net cash used in investing activities				(508	)			(852	)			(619	)			(511	)
	Cash available for dividends(1)			885				619				653				556
Dividend distribution pursuant to current policy(2)				323				463				362				293

(1)	We have not deducted cash used to make principal repayments of debt in determining cash available for dividends as we have been able to access the debt markets as needed in the past to refinance any existing debt coming due, and we anticipate that we will continue to be able to do so.
(2)	Calculated as 75% of net income. Does not take into account contractual or other restrictions that may have been in effect at such times.

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		September 30, 2006
		(In NIS millions)
Total debt			3,588
Shareholders’ equity:
Ordinary shares, NIS 0.01 par value per share, 300,000,000 shares authorized, 97,500,000 issued and outstanding			—
Capital reserve			(20	)
Retained earnings			204
Total shareholders’ equity			184
Total capitalization			3,772

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		NIS				$
Assumed initial public offering price			86.04				20.00
Net tangible book value per share as of September 30, 2006			(2.88	)			(0.67	)
Dilution per share to new investors			83.16				20.67

		Shares				Total Consideration								Average Price
		Purchased				Amount								per Share
		Number				NIS				$				NIS				$
						(In millions)
Existing shareholders who are affiliated persons(1)			67,761,645				6,269	(2)			1,370				92.52				20.22
Purchasers in the offering			20,000,000				1,721				400				86.04				20.00

(1)	Does not reflect dividends of NIS 39.3 ($9.13) per share paid in 2006.
(2)	DIC paid the consideration in U.S. dollars. The consideration amount in NIS was calculated according to the exchange rate at the transaction date.

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		Year Ended December 31,																				Nine Months Ended September 30,
																														2006
		2001				2002				2003				2004				2005				2005				2006				(In $)
		(In NIS millions, except per share data)
Income Statement Data:
Revenues			4,960				5,135				5,261				5,600				5,114				3,845				4,191				974
Cost of revenues			2,893				3,111				3,075				3,302				3,133				2,264				2,470				574

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		Year Ended December 31,																				Nine Months Ended September 30,
																														2006
		2001				2002				2003				2004				2005				2005				2006				(In $)
		(In NIS millions, except per share data)
Selling and marketing expenses			574				651				613				661				623				453				473				110
General and administrative expenses			621				678				682				684				656				512				486				113
Operating income			872				695				891				953				702				616				762				177
Financial income (expense), net			(15	)			(5	)			(216	)			(45	)			24				13				(128	)			(30	)
Other income (expenses), net			6				(5	)			1				1				(11	)			(10	)			(1	)			(0	)
Income tax			288				266				245				292				232				201				243				56
Net income			575				419				431				617				483				418				390				91
Basic and diluted net income per share			5.90				4.30				4.42				6.33				4.95				4.29				4.00				0.93
Weighted average ordinary shares outstanding			97,500,000				97,500,000				97,500,000				97,500,000				97,500,000				97,500,000				97,500,000				97,500,000
Dividends declared per share(1)			—				—				—				—				34.87				—				4.41				—
U.S. GAAP Data(2):
Net income			—				—				441				620				491				460				374				87
Basic and diluted earnings			—				—				4.52				6.36				5.04				4.72				3.84				0.89
Other Data:
EBITDA(3)			1,704				1,652				1,890				1,914				1,643				1,320				1,429				332
Capital expenditures			1,727				1,073				658				739				747				360				313				73
Net cash provided (used) by operating activities			1,325				1,285				1,393				1,471				1,272				1,000				1,067				248
Net cash provided (used) in investing activities			(1,280	)			(1,557	)			(508	)			(852	)			(619	)			(445	)			(511	)			(119	)
Net cash provided (used) by financing activities			(153	)			436				(603	)			(1,068	)			1,114				(536	)			(2,210	)			(514	)
Subscribers(4)			2,262				2,468				2,300				2,450				2,603				2,554				2,828
Period churn rate(5)			10.5	%			11.2	%			27.3	%			19.9	%			15.0	%			10.5	%			12.4	%
ARPU (in NIS)(6)			177				166				162				174				151				154				152				35

		December 31,																				September 30,
		2001				2002				2003				2004				2005				2006
		(In NIS millions)
Balance Sheet Data:
Cash			6				171				454				5				1,772				118
Working capital			(628	)			(67	)			(361	)			(138	)			1,909				180
Total assets			5,639				6,047				5,907				5,311				7,016				5,014
Shareholders’ equity			1,694				2,114				2,545				3,161				3,649				184
U.S. GAAP Data(2):
Total assets			—				—				—				5,610				11,100				9,085
Shareholders’ equity			—				—				—				3,312				4,490				4,018

(1)	All dividends declared were paid in cash in the first nine months of 2006.

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(2)	Under U.S. GAAP, DIC’s acquisition of our shares in 2005 is treated as a purchase that requires a revaluation of our assets and liabilities, leading to increased amortization expense of intangible assets, offset by decreased depreciation expense of tangible assets under U.S. GAAP. In addition, we were required to push down certain DIC debt and the interest expense relating to such debt incurred to finance the acquisition until it was repaid in early 2006, leading to increased financial expense under U.S. GAAP. See note 28 to our consolidated financial statements. As a result of this accounting treatment, U.S. GAAP data presented for the year ended and as at December 31, 2005 and for the nine months ended and as at September 30, 2006 are not comparable with the data presented for the previous periods.
(3)	EBITDA is a non-GAAP measure and is defined as income before financial income (expenses), net; other income (expenses), net; income tax; depreciation and amortization. We present EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure (most particularly affecting our interest expense given our recently incurred significant debt), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses or, most recently, our provision for tax expenses) the age of, and depreciation expenses associated with, fixed assets (affecting relative depreciation expense and, until December 31, 2003, the effects of adjusting for changes in the general purchasing power of the Israeli currency as discussed above). EBITDA should not be considered in isolation or as a substitute for operating income or other statement of operations or cash flow data prepared in accordance with GAAP as a measure of our profitability or liquidity. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this prospectus, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.

																						Nine Months
																						Ended
		Year Ended December 31,																				September 30,
		2001				2002				2003				2004				2005				2005				2006
		(In NIS millions)
Net income			575				419				431				617				483				418				390
Financial expense (income), net			15				5				216				45				(24	)			(13	)			128
Other expenses (income)			(6	)			5				(1	)			(1	)			11				10				1
Income taxes			288				266				245				292				232				201				243
Depreciation and amortization			832				957				999				961				941				704				667
EBITDA			1,704				1,652				1,890				1,914				1,643				1,320				1,429

(4)

Subscriber data refer to active subscribers. Until June 30, 2006, we had a three-month method of calculating our subscriber base, which means that we deduct subscribers from our subscriber base after three months of no revenue generation or activity on our network by or in relation to both the post-paid and pre-paid subscriber. We now believe that waiting six months to deduct subscribers is preferable since many subscribers that were inactive for three months become active again before the end of six months. As a result, commencing July 1, 2006, we adopted a six-month method of calculating our subscriber base, but have not restated our prior subscriber data presented in this table to reflect this change. The six-month method is, to the best of our knowledge, consistent with the methodology used by other cellular providers in Israel. This change in methodology resulted in an increase of our number of reported subscribers by approximately 80,000 compared to the prior methodology and affected our other key performance indicators accordingly.

We also revised our subscriber calculation methodology in 2003 and 2005 but in each case have not restated prior subscriber data to conform to the new presentation. We estimate that the change in methodology in 2003 led to a decrease in our reported subscriber numbers of approximately 300,000 and the change in methodology in 2005 led to an increase in our reported subscriber numbers of approximately 84,000.

(5)	Churn rate is defined as the total number of voluntary and involuntary permanent deactivations in a given period expressed as a percentage of the number of subscribers at the beginning of the period. Involuntary permanent deactivations relate to subscribers who have failed to pay their arrears for the period of six consecutive months. Voluntary permanent deactivations relate to subscribers who terminated their use of our services.
(6)	Average monthly revenue per subscriber (ARPU) is calculated by dividing revenues from cellular services for the period by the average number of subscribers during the period and by dividing the result by the number of months in the period. Revenues from inbound roaming services are included even though the number of subscribers in the equation does not include the users of those roaming services. Inbound roaming services are included because ARPU is meant to capture all service revenues generated by a cellular network, including roaming services. Revenues from sales of extended warranties are included because they represent recurring revenues generated by

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	subscribers, but revenues from sales of handsets, repair services and transmission services are not. We, and industry analysts, treat ARPU as a key performance indicator of a cellular operator because it is the closest meaningful measure of the contribution to service revenues made by an average subscriber.

																							Nine Months Ended September 30,
			Year Ended December 31,
																															2006
			2001				2002				2003				2004				2005				2005				2006				(In $)
			(In NIS millions, except number of subscribers and months)
Revenues				4,960				5,135				5,261				5,600				5,114				3,845				4,191				974
	less revenues from equipment sales			286				502				498				646				565				406				477				111
	less other revenues*			11				10				22				21				38				26				43				10
	adjustments to the Israeli CPI**			226				(32	)			(62	)			—				—				—				—				—
Revenues used in ARPU calculation (in NIS millions)				4,437				4,655				4,803				4,933				4,511				3,413				3,671				853
Average number of subscribers				2,091,937				2,336,264				2,477,316				2,368,919				2,489,453				2,467,596				2,675,807				2,675,807
Months during period				12				12				12				12				12				9				9				9
ARPU (in NIS, per month)				177				166				162				174				151				154				152				35

	*	Other revenues includes revenues from repair services and transmission services.

	**	Pursuant to Israeli GAAP, until December 31, 2003, we prepared our financial statements on the basis of historical cost adjusted for the changes in the general purchasing power of Israeli currency, the NIS, based upon changes in the Israeli CPI. We reverse these adjustments in presenting ARPU.

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	General

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	New Israeli accounting standard affecting measurement of fixed assets

		Year Ended												Nine Months Ended
		December 31,												September 30,
		2003				2004				2005				2005				2006
														(Unaudited)
		(In NIS millions)
Decrease in depreciation expense			46				46				52				39				38
Decrease (increase) in deferred tax expense			(17	)			(4	)			(2	)			2				7
Decrease in capital gain			—				—				(2	)			(2	)			(3	)
Increase in net income			29				42				48				39				28
Increase in basic and diluted earnings per ordinary shares			0.30				0.43				0.49				0.40				0.29

	Adoption of International Financial Reporting Standards

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	2006 Share Incentive Plan

	Revenues

	Cost of revenues

	Selling and marketing expenses

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	General and administrative expenses

	Financial income and expenses

	Other income and expenses

	Income Tax

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	Comparison of nine months ended September 30, 2005 and 2006

		Nine Months Ended
		September 30,
		2005				2006				Change*
Subscribers at end of period(1) (in thousands)			2,554				2,828				10.7	%
Period churn rate(1)(2)			10.5	%			12.4	%			1.9	pp
Average monthly usage per subscriber (MOU) (in minutes)(1)(3)			326				336				3.1	%
Average monthly revenue per subscriber (ARPU)(1)(4) (in NIS)			154				152				(1.3	)%
Operating income (in NIS millions)			616				762				23.7	%
Net income (in NIS millions)			418				390				(6.7	)%
EBITDA(5) (in NIS millions)			1,320				1,429				8.3	%
Operating income margin(6)			16.0	%			18.2	%			2.2	pp
EBITDA margin(7)			34.3	%			34.1	%			(0.2pp	)

*	pp denotes percentage points and this measure of change is calculated by subtracting the 2005 measure from the 2006 measure.

(1)	Subscriber data refer to active subscribers. Until June 30, 2006, we had a three-month method of calculating our subscriber base, which means that we deduct subscribers from our subscriber base after three months of no revenue generation or activity on our network by or in relation to both the post-paid and pre-paid subscriber. We now believe that waiting six months to deduct subscribers is preferable since many subscribers that were inactive for three months become active again before the end of six months. As a result, commencing July 1, 2006, we adopted a six-month method of calculating our subscriber base, but have not restated our prior subscriber data presented in this table to reflect this change. The six-month method is, to the best of our knowledge, consistent with the methodology used by other cellular providers in Israel. This change in methodology resulted in an increase of our number of reported subscribers by approximately 80,000 compared to the prior methodology and affected our other key performance indicators accordingly.
(2)	Churn rate is defined as the total number of voluntary and involuntary permanent deactivations in a given period expressed as a percentage of the number of subscribers at the beginning of the period. Involuntary permanent deactivations relate to subscribers who have failed to pay their arrears for the period of six consecutive months. Voluntary permanent deactivations relate to subscribers who terminated their use of our services.
(3)	Average monthly minutes of use per subscriber (MOU) is calculated by dividing the total billable minutes (of outgoing and incoming calls from other networks, excluding roaming usage) during the month, by the average number of subscribers during such month, and by dividing the sum of such results for all months in the reported period by the number of months in the period. If the methodology of calculating our subscriber base had not changed in July 2006, the MOU for the nine months ended September 30, 2006 would have been 339 minutes, which represents an increase of 4.0% compared with the corresponding period in 2005.
(4)	Average monthly revenue per subscriber (ARPU) is calculated by dividing revenues from cellular services for the period by the average number of subscribers during the period and by dividing the result by the number of months in the period. Revenues from inbound roaming services are included even though the number of subscribers in the equation does not include the users of those roaming services. Inbound roaming services are included because ARPU is meant to capture all service revenues generated by a cellular network, including roaming services.

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Revenues from sales of extended warranties are included because they represent recurring revenues generated by subscribers, but revenues from sales of handsets, repair services and transmission services are not. We, and industry analysts, treat ARPU as a key performance indicator of a cellular operator because it is the closest meaningful measure of the contribution to service revenues made by an average subscriber.

			Nine Months Ended September 30,
			2005				2006				2006 (In $)
			(In NIS millions, except number of
			subscribers and months)
Revenues				3,845				4,191				974
	less revenues from equipment sales			406				477				111
	less other revenues*			26				43				10
	adjustments to the Israeli CPI**			—				—				—
Revenues used in ARPU calculation (in NIS millions)				3,413				3,671				853
Average number of subscribers				2,467,596				2,675,807				2,675,807
Months during period				9				9				9
ARPU (in NIS, per month)				154				152				35

	*	Other revenues include revenues from repair services and transmission services.

	**	Pursuant to Israeli GAAP, until December 31, 2003, we prepared our financial statements on the basis of historical cost adjusted for the changes in the general purchasing power of Israeli currency, the NIS, based upon changes in the Israeli CPI. We reverse these adjustments in presenting ARPU.

	If the methodology of calculating our subscriber base had not changed in July 2006, ARPU for the nine months ended September 30, 2006 would have been NIS 154, which is equal to ARPU for the corresponding period in 2005.

(5)

EBITDA is a non-GAAP measure and is defined as income before financial income (expenses), net; other income (expenses), net; income tax; depreciation and amortization. We present EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure (most particularly affecting our interest expense given our recently incurred significant debt), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses or, most recently, our provision for tax expenses) and the age of, and depreciation expenses associated with, fixed assets (affecting relative depreciation expense and, until December 31, 2003, the effects of adjusting for changes in the general purchasing power of the Israeli currency as discussed above). EBITDA should not be considered in isolation or as a substitute for operating income or other statement of operations or cash flow data prepared in accordance with Israeli GAAP as a measure of our profitability or liquidity. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this prospectus, may not be comparable to similarly titled measures reported by other companies due to differences in the way these measures are calculated.

		Nine Months
		Ended
		September 30,
		2005				2006
		(In NIS
		millions)
Net income			418				390
Financial expenses (income), net			(13	)			128
Other expenses (income), net			10				1
Income taxes			201				243
Operating income			616				762
Depreciation and amortization			704				667
EBITDA			1,320				1,429

(6)	Operating income margin is defined as operating income as a percentage of total revenues for each of the applicable periods.
(7)	EBITDA margin is defined as EBITDA as a percentage of total revenues for each of the applicable periods.

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		Nine Months
		Ended
		September 30,
		2005				2006
Revenues			100.0	%			100.0	%
Cost of revenues			58.9	%			58.9	%
Gross profit			41.1	%			41.1	%
Selling and marketing expenses			11.8	%			11.3	%
General and administrative expenses			13.3	%			11.6	%
Operating income			16.0	%			18.2	%
Financial income (expenses), net			0.3	%			(3.1	)%
Other income (expenses), net			(0.2	)%			(0.0	)%
Income before taxes			16.1	%			15.1	%
Income tax			5.2	%			5.8	%
Net income			10.9	%			9.3	%

		Nine Months Ended
		September 30,
		2005				2006				Change
		(In NIS millions)
Revenues			3,845				4,191				9.0	%

		Nine Months Ended September 30,
		2005								2006
		Revenues				% of Total Revenues				Revenues				% of Total Revenues
		(NIS in millions)								(NIS in millions)
Voice services:
Outgoing air time (including interconnect)			1,931				50.2	%			1,958				46.7	%
Incoming air time			815				21.2	%			846				20.1	%
Roaming			222				5.8	%			292				7.0	%

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		Nine Months Ended September 30,
		2005								2006
		Revenues				% of Total Revenues				Revenues				% of Total Revenues
		(NIS in millions)								(NIS in millions)
Total voice services			2,968				77.2	%			3,096				73.9	%
Other services*			471				12.2	%			618				14.7	%
Total services			3,439				89.4	%			3,714				88.6	%
Handsets and accessories			406				10.6	%			477				11.4	%
Total			3,845				100.0	%			4,191				100.0	%

*	Consists of fixed monthly subscription fees, content services, text messages, data services, extended warranty fees, transmission and others.

		Nine Months Ended September 30,
		2005								2006
		Revenues				% of Total Revenues				Revenues				% of Total Revenues
		(NIS in millions)								(NIS in millions)
Individual			2,112				54.9	%			2,280				54.4	%
Business			1,609				41.9	%			1,693				40.4	%
Other*			124				3.2	%			218				5.2	%
Total			3,845				100.0	%			4,191				100.0	%

*	Consists of revenues from inbound roaming services and other services.

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		Nine Months Ended September 30,
		2005								2006
		Revenues				% of Total Revenues				Revenues				% of Total Revenues
		(NIS in millions)								(NIS in millions)
Pre-paid			523				13.6	%			530				12.6	%
Post-paid			3,198				83.2	%			3,443				82.2	%
Other*			124				3.2	%			218				5.2	%
Total			3,845				100.0	%			4,191				100.0	%

*	Consists of revenues from inbound roaming services and other services.

	Cost of revenues and gross profit

		Nine Months Ended
		September 30,
		2005				2006				Change
		(In NIS millions)
Cost of revenues — services			1,816				1,878				3.4	%
Cost of revenues — equipment			448				592				32.1	%
Total cost of revenues			2,264				2,470				9.1	%
Gross profit			1,581				1,721				8.9	%

	Selling and marketing expenses and general and administrative expenses

			Nine Months Ended
			September 30,
			2005				2006				Change
			(In NIS
			millions)
Selling and marketing expenses				453				473				4.4	%
General and administrative expenses				512				486				(5.1	)%
	Total			965				959				(0.6	)%

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	Financial and other income (expenses), net

		Nine Months
		Ended
		September 30,
		2005				2006
		(In NIS
		millions)
Financial income (expenses), net			13				(128	)
Other income (expenses), net			(10	)			(1	)

	Income tax

		Nine Months Ended
		September 30,
		2005				2006				Change
		(In NIS
		millions)
Income tax			201				243				(20.9	)%

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	Net income

		Nine Months Ended
		September 30,
		2005				2006				Change
		(In NIS
		millions)
Net income			418				390				(6.7	)%

	Comparison of 2003, 2004 and 2005

		Year Ended December 31,												Change*
		2003				2004				2005				2004 vs. 2003				2005 vs. 2004
Subscribers at end of period(1) (in thousands)			2,300				2,450				2,603				6.5	%			6.2	%
Period churn rate(1)(2)			27.3	%			19.9	%			15.0	%			(7.4pp	)			(4.9pp	)
Average monthly usage per subscriber (MOU) (in minutes)(1)(3)			316				334				321				5.7	%			(3.9	)%
Average monthly revenue per subscriber (ARPU)(1)(4) (in NIS)			162				174				151				7.4	%			(13.2	)%
Operating income (in NIS millions)			891				953				702				7.0	%			(26.3	)%
Net income (in NIS millions)			431				617				483				43.2	%			(21.7	)%
EBITDA(5) (in NIS millions)			1,890				1,914				1,643				1.3	%			(14.1	)%
Operating income margin(6)			16.9	%			17.0	%			13.7	%			0.1pp				(3.3pp	)
EBITDA margin(7)			35.9	%			34.2	%			32.1	%			(1.7pp	)			(2.1pp	)

*	pp denotes percentage points and this measure of change is calculated by subtracting the 2003 measure from the 2004 measure and the 2004 measure from the 2005 measure, respectively.

(1)	Subscriber data refer to active subscribers. We revised our subscriber calculation methodology in 2003 and 2005 but in each case have not restated prior subscriber data to conform to the new presentation. We estimate that the change in methodology in 2003 led to a decrease in our reported subscriber numbers of approximately 300,000 and the change in methodology in 2005 led to an increase in our reported subscriber numbers of approximately 84,000.
(2)	Churn rate is defined as the total number of voluntary and involuntary permanent deactivations in a given period expressed as a percentage of the number of subscribers at the beginning of such period. Involuntary permanent deactivations relate to subscribers who have failed to pay their arrears for the period of six consecutive months. Voluntary permanent deactivations relate to subscribers who terminated their use of our services.
(3)	Average monthly minutes of use per subscriber (MOU) is calculated by dividing the total billable minutes (of outgoing and incoming calls from other networks, excluding roaming usage) during the month, by the average number of subscribers during such month, and by dividing the sum of such results for all months in the reported period by the number of months in the period.
(4)	Average monthly revenue per subscriber (ARPU) is calculated by dividing revenues from cellular services for the period by the average number of subscribers during the period and by dividing the result by the number of months in the period. Revenues from inbound roaming services are included even though the number of subscribers in the

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equation does not include the users of those roaming services. Inbound roaming services are included because ARPU is meant to capture all service revenues generated by a cellular network, including roaming services. Revenues from sales of extended warranties are included because they represent recurring revenues generated by subscribers, but revenues from sales of handsets, repair services and transmission services are not. We, and industry analysts, treat ARPU as a key performance indicator of a cellular operator because it is the closest meaningful measure of the contribution to service revenues made by an average subscriber.

	We have set out below the calculation of ARPU for each of the periods presented:

			Year Ended December 31,
			2003				2004				2005
			(In NIS millions, except number
			of subscribers and months)
Revenues				5,261				5,600				5,114
	less revenues from equipment sales			498				646				565
	less other revenues*			22				21				38
	adjustments to the Israeli CPI**			(62	)			—				—
Revenues used in ARPU calculation (in NIS millions)				4,803				4,933				4,511
Average number of subscribers				2,477,316				2,368,919				2,489,453
Months during period				12				12				12
ARPU (in NIS, per month)				162				174				151

	*	Other revenues include revenues from repair services and transmission services.

	**	Pursuant to Israeli GAAP, until December 31, 2003, we prepared our financial statements on the basis of historical cost adjusted for the changes in the general purchasing power of Israeli currency, the NIS, based upon changes in the Israeli CPI. We reverse these adjustments in presenting ARPU.

(5)

EBITDA is a non-GAAP measure and is defined as income before financial income (expenses), net; other income (expenses), net; income tax; depreciation and amortization. We present EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure (most particularly affecting our interest expense given our recently incurred significant debt), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses or, most recently, our provision for tax expenses) and the age of, and depreciation expenses associated with, fixed assets (affecting relative depreciation expense and, until December 31, 2003, the effects of adjusting for changes in the general purchasing power of the Israeli currency as discussed above) and the impact of purchase accounting (affecting depreciation and amortization expense). EBITDA should not be considered in isolation or as a substitute for operating income or other statement of operations or cash flow data prepared in accordance with Israeli GAAP as a measure of our profitability or liquidity. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this prospectus, may not be comparable to similarly titled measures reported by other companies due to differences in the way these measures are calculated.

		Year Ended
		December 31,
		2003				2004				2005
		(In NIS millions)
Net income			431				617				483
Financial expenses (income), net			216				45				(24	)
Other expenses (income), net			(1	)			(1	)			11
Income taxes			245				292				232
Operating income			891				953				702
Depreciation and amortization			999				961				941
EBITDA			1,890				1,914				1,643

(6)	Operating income margin is defined as operating income as a percentage of total revenues for each of the applicable periods.
(7)	EBITDA margin is defined as EBITDA as a percentage of total revenues for each of the applicable periods.

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		Year Ended December 31,
		2003				2004				2005
Revenues			100.0	%			100.0	%			100.0	%
Cost of revenues			58.4	%			59.0	%			61.3	%
Gross profit			41.6	%			41.0	%			38.7	%
Selling and marketing expenses			11.7	%			11.8	%			12.2	%
General and administrative expenses			13.0	%			12.2	%			12.8	%
Operating income			16.9	%			17.0	%			13.7	%
Financial income (expenses), net			(4.1	)%			(0.8	)%			0.5	%
Other income (expenses), net			0.0	%			0.0	%			(0.2	)%
Income before taxes			12.8	%			16.2	%			14.0	%
Income tax			4.6	%			5.2	%			4.6	%
Net income			8.2	%			11.0	%			9.4	%

	Revenues

		Year Ended December 31,												Change
		2003				2004				2005				2004 vs. 2003				2005 vs. 2004
		(In NIS millions)
Revenues			5,261				5,600				5,114				6.4	%			(8.7	)%

		2003								2004								2005
						% of Total								% of Total								% of Total
		Revenues				Revenues				Revenues				Revenues				Revenues				Revenues
		(NIS in								(NIS in								(NIS in
		millions)								millions)								millions)
Voice services:
Outgoing air time (including interconnect)			2,818				53.6	%			2,773				49.5	%			2,535				49.6	%
Incoming air time			1,242				23.6	%			1,290				23.1	%			1,072				21.0	%
Roaming			143				2.7	%			230				4.1	%			300				5.8	%
Total voice services			4,203				79.9	%			4,293				76.7	%			3,907				76.4	%
Other services*			560				10.6	%			661				11.8	%			642				12.6	%

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		2003								2004								2005
						% of Total								% of Total								% of Total
		Revenues				Revenues				Revenues				Revenues				Revenues				Revenues
		(NIS in								(NIS in								(NIS in
		millions)								millions)								millions)
Total services			4,763				90.5	%			4,954				88.5	%			4,549				89.0	%
Handsets and accessories			498				9.5	%			646				11.5	%			565				11.0	%
Total			5,261				100.0	%			5,600				100.0	%			5,114				100.0	%

*	Consists of fixed monthly subscription fees, content services, text messages, data services, extended warranty fees, transmission services and others.

		2003								2004								2005
						% of Total								% of Total								% of Total
		Revenues				Revenues				Revenues				Revenues				Revenues				Revenues
		(NIS in								(NIS in								(NIS in
		millions)								millions)								millions)
Individual			2,998				57.0	%			3,140				56.1	%			2,805				54.8	%
Business			2,192				41.7	%			2,322				41.5	%			2,137				41.8	%
Other*			71				1.3	%			138				2.4	%			172				3.4	%
Total			5,261				100.0	%			5,600				100.0	%			5,114				100.0	%

*	Consists of revenues from inbound roaming services and other services.

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		2003								2004								2005
						% of Total								% of Total								% of total
		Revenues				Revenues				Revenues				Revenues				Revenues				revenues
		(NIS in								(NIS in								(NIS in
		millions)								millions)								millions)
Pre-paid			713				13.5	%			773				13.8	%			682				13.3	%
Post-paid			4,477				85.1	%			4,689				83.7	%			4,260				83.3	%
Other*			71				1.4	%			138				2.5	%			172				3.4	%
Total			5,261				100.0	%			5,600				100.0	%			5,114				100.0	%

*	Consists of revenues from inbound roaming services and other services.

	Cost of revenues and gross profit

		Year Ended December 31,												Change
		2003				2004				2005				2004 vs. 2003				2005 vs. 2004
		(In NIS millions)
Cost of revenues-services			2,365				2,489				2,450				5.2	%			(1.6	)%
Cost of revenues-equipment			710				813				683				14.5	%			(16.0	)%
Total cost of revenues			3,075				3,302				3,133				7.4	%			(5.1	)%
Gross profit			2,186				2,298				1,981				5.1	%			(13.8	)%

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	Selling and marketing expenses and general and administrative expenses

			Year Ended December 31,												Change
			2003				2004				2005				2004 vs. 2003				2005 vs. 2004
			(In NIS millions)
Selling and marketing expenses				613				661				623				7.8	%			(5.7	)%
General and administrative expenses				682				684				656				0.3	%			(4.1	)%
	Total			1,295				1,345				1,279				3.9	%			(4.9	)%

	Financial and other income (expenses), net

		Year Ended
		December 31,
		2003				2004				2005
		(In NIS millions)
Financial income (expenses), net			(216	)			(45	)			24
Other income (expenses), net			1				1				(11	)

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	Income tax

		Year Ended
		December 31,												Change
		2003				2004				2005				2004 vs. 2003				2005 vs. 2004
		(In NIS millions)
Income tax			245				292				232				19.2	%			(20.5	)%

	Net income

		Year Ended
		December 31,												Change
		2003				2004				2005				2004 vs. 2003				2005 vs. 2004
		(In NIS millions)
Net income			431				617				483				43.1	%			(21.7	)%

	•	Push-down accounting. Under U.S. GAAP, DIC’s acquisition of our shares is treated as a purchase that requires a revaluation of our assets and liabilities, leading to increased amortization expense of intangible assets, offset by decreased depreciation expense of tangible assets under U.S. GAAP. In addition, we were required to push down certain DIC debt and the interest expense relating to such debt incurred to finance the acquisition until it was repaid in early 2006, leading to increased financial expense under U.S. GAAP. Push-down accounting had a significant impact on our balance sheet under U.S. GAAP.
	•	Depreciation of property, plant and equipment. Under U.S. GAAP, each individual significant component is depreciated over its useful life, rather than depreciating all assets on the basis of the estimated useful life of the dominant asset. This leads to decreased depreciation expense under U.S. GAAP. We will adopt a similar policy under Israeli GAAP beginning in 2007.

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	General

	Dividend payments

	Debt service

	Public debentures

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	Credit facility from bank syndicate

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	Other credit facilities

	Capital expenditures

	Cash flows from operating activities

	Cash flows from investing activities

	Cash flows from financing activities

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	Working capital

	Trade receivables

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		Total				2006				2007-2009				2010-2011				2012 and Beyond
Long-term debt obligations (including interest)(1)			4,299				78				1,408				1,413				1,400
Capital (finance) lease obligations			—				—				—				—				—
Operating lease obligations			1,768				67				630				291				780
Purchase obligations			242				16				186				40				—
Other long-term liabilities reflected on our balance sheet under GAAP			—				—				—				—				—
Total			6,309				161				2,224				1,744				2,180

(1)

Interest on our credit facilities is calculated using LIBOR plus 1.05% and TELBOR plus 0.17% plus 1.175 to 1.25%, depending on the facility, using LIBOR and TELBOR in effect on November 30, 2006. Because the interest rate under the credit facility is variable, actual payments may differ. Interest does not include (a) payments that could be required under our interest-rate swap agreements, which payments will depend upon changes in interest rates and could vary significantly, or (b) any increase in interest that would be required based on increases in the Israeli CPI.

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		December 31, 2004								December 31, 2005								September 30, 2006
		Par Value				Fair Value				Par Value				Fair Value				Par Value				Fair Value
		(In NIS millions)
Forward contracts on exchange rate (mainly US$ — NIS)			754				(12	)			654				1				486				(27	)
Forward contracts on Israeli CPI rate			—				—				—				—				500				(4	)
Options on the exchange rate (mainly US$ — NIS)			1,639				12				925				4				796				1
Compounded foreign currency and interest swap			—				—				—				—				887				(62	)
			2,393				—				1,579				5				2,669				(92	)

	Sensitivity information

	•	an increase of 0.1% of the Israeli CPI would result in an increase of approximately NIS 2.0 million in our financial expenses;
	•	a devaluation of the NIS against the U.S. dollar of 1.0% would increase our financial expenses by approximately NIS 9.0 million; and
	•	an increase in NIS interest rates of 100 basis points would increase our annual interest expense by approximately NIS 6.2 million ($1.4 million). An increase in U.S. dollar interest rates of 100 basis points would increase our annual interest expense by approximately $2 million.

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	Revenue recognition

	Nature of critical estimate items

	Assumptions/approach used

	Effect if different assumptions used

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	Long-lived assets — depreciation

	Nature of critical estimate items

	Assumptions/approach used

	Effect if different assumptions used

	Impairment of long-lived assets

	Nature of critical estimate items

	Assumptions/approach used

	•	cash flows attributed to the asset group;
	•	future cash flows for the asset group, including estimates of residual values, which incorporate our views of growth rates for the related business and anticipated future economic conditions; and
	•	period of time over which the assets will be held and used.

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	Effect if different assumptions used

	Accounts receivable — bad debt and allowance for doubtful accounts

	Nature of critical estimate items

	Assumptions/approach used

	Effect if different assumptions used

	Liabilities arising from litigation

	Push-down accounting — for U.S. GAAP only

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	Income taxes

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	Israeli Accounting Standard No. 26, “Inventory”

	Israeli Accounting Standard No. 27, “Property, plant and equipment”

	Revaluation of assets

	Asset retirement obligations

	Components depreciation

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	Asset retirement obligations

	Components depreciation

	Israeli Accounting Standard No. 29, “Adoption of International Financial Reporting Standards (“IFRS”)”

	U.S. GAAP Accounting Standards

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Population (millions)			6.99
GDP ($ billions)			123.7
GDP per capita($)			17,900
Exports of goods & services ($ billions)			56.8
CPI change			2.4	%
Long-term local currency sovereign credit rating by S&P			A	+
Unemployment rate (December 31, 2005)			8.8	%

		December 31,
														September 30,
		2003				2004				2005				2006
Total subscribers (millions)			6.6				7.2				7.8				8.2
Cellular penetration(%)			98				105				112				116

Source:	Reported by Cellcom, Partner and Pelephone. Cellcom estimates for MIRS as MIRS does not disclose operating information.

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1986		Bezeq and Motorola create a joint venture called “Pelephone”, which becomes Israel’s first cellular operator. Pelephone launches N-AMPS services
1994		Cellcom awarded a license and launches TDMA services
1997		Cellcom introduces first pre-paid plan to the market
1998		Partner awarded a license and launches GSM services
1998		Pelephone launches CDMA services
2001		Ministry of Communications allocates additional 2G and 3G cellular frequencies for existing cellular operators and for the licensing of a new operator
2001		MIRS becomes Israel’s fourth cellular operator with iDEN services
2002		Cellcom launches GSM/GPRS services
2003		Cellcom launches EDGE services
2004		Partner launches UMTS services
		Pelephone launches EVDO services
2006		Cellcom launches full scale UMTS/HSDPA services
		Partner begins deploying HSDPA

	Key characteristics of the Israeli cellular services market

	High cellular telephone penetration. The estimated penetration rate in Israel as of September 30, 2006 was 116%. Penetration rate is calculated by dividing the total number of subscribers by the Israeli population. The Israeli population does not include foreign workers and Palestinian subscribers who are included in the number of subscribers. The number of subscribers may also include subscribers to more than one network including those in the process of switching networks. As a result, the effective penetration rate after adjustment for these factors is likely to be somewhat lower than 116%.
	Favorable demographics. Population growth is generally high and the population is relatively younger than in other developed economies.
	Favorable geography and high population density around a few urban centers. Israel covers a small area of territory of approximately 8,000 square miles (20,700 square kilometers). In addition, Israel is relatively flat and dry. Moreover, the population tends to be concentrated in a small number of geographical locations. These characteristics facilitate efficient network roll out.

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	High cellular voice usage. The average cellular voice usage per subscriber in Israel is more than 300 minutes per month, which is higher than the average cellular voice usage per subscriber in most developed economies.
	Low average voice revenue per minute. Cellular operators in Israel have lower average voice revenues per minute than in most developed economies. This is a consequence, among other things, of the importance given to low prices in the first five years of our operation, in the awarding criteria during the original licensing process for a second cellular operator.
	Different cellular technologies. We use TDMA, GSM/ GPRS/ EDGE and UMTS/ HSDPA networks. Partner uses GSM/ GPRS and UMTS/ HSDPA networks. Pelephone uses CDMA, CDMA1x and EVDO networks. MIRS uses an iDEN network.
	High potential for value-added services. The contribution of non-voice revenues to total revenues in the Israeli cellular market is below the level of other developed markets such as the European Union. This characteristic is attributable in part to the low voice tariffs in Israel compared to the tariffs in other markets, which has the effect of keeping text messaging usage low. We believe that there is potential for narrowing this gap by increasing marketing efforts of new content services and the growth in our existing 3G subscriber base. Moreover, the percentage of post-paid subscribers is relatively high when compared to other developed economies, which we believe facilitates the acceptance of value-added services.
	Calling party pays. In Israel, as in many western European countries, the party originating the call pays for the airtime. Cellular telephone network operators do not charge subscribers for calls received on their handsets, except while roaming abroad.
	Low annual churn rates. The average annual churn rate in Israel was 12.6% in 2005, which is lower than the churn rates in other developed economies.

																		2005 Data
																		Revenues as
		Penetration				2005 MOU				2005 Yield per				2005 ARPU				% of Total				2005 Annual
		(%)(1)				(min/month)				Minute ($c)				($)				Revenues (%)				Churn Rate (%)
Israel			112	%			304				10.6				35.3				9.7	%			12.6	%
United Kingdom			113	%			144				20.5				41.0				21.6	%			32.5	%
France			79	%			224				17.7				46.2				14.0	%			20.7	%
Germany			96	%			83				23.0				29.4				18.6	%			19.6	%
United States			69	%			739				6.0				51.3				6.8	%			28.4	%
Spain			99	%			143				25.7				42.0				12.7	%			23.3	%
Italy			120	%			130				23.7				36.3				14.9	%			17.1	%
South Korea(2)			79	%			181				18.0				38.8				21.1	%			30.8	%
Taiwan(3)			87	%			211				11.2				24.1				5.3	%			28.4	%

Source:	Pyramid Research (except for Israeli penetration which is based on data reported by Cellcom, Partner and Pelephone and Cellcom estimates for MIRS as MIRS does not disclose operating information).

(1)	As of December 2005.
(2)	Based on the 2005 Annual Reports of South Korean operators, LG Telecom, KT Freetel and SK Telecom, and Goldman Sachs Research.
(3)	Based on the 2005 Annual Reports of Taiwanese operators, Chunghwa Telecom, Far Eastone and Taiwan Mobile, and Goldman Sachs Research.

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	Voice Services

	Broadband and Internet services

	International voice services

	Multichannel television

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																						Nine Months
																						Ended
		Year Ended December 31,																				September 30,
		2001				2002				2003				2004				2005				2005				2006
Subscribers (end of period) (in thousands)(1)			2,261				2,468				2,300				2,450				2,603				2,554				2,828
Revenues (in NIS millions)			4,960				5,135				5,261				5,600				5,114				3,845				4,191

(1)

Subscriber data refer to active subscribers. Until June 30, 2006, we had a three-month method of calculating our subscriber base, which means that we deduct subscribers from our subscriber base after three months of no revenue generation or activity on our network by or in relation to both the post-paid and pre-paid subscriber. We now believe that waiting six months to deduct subscribers is preferable since many subscribers that were inactive for three months become active again before the end of six months. As a result, commencing July 1, 2006, we adopted a six-month method of calculating our subscriber base, but have not restated our prior subscriber data presented in this table to reflect this change. The six-month method is, to the best of our knowledge, consistent with the methodology used by other cellular providers in Israel. This change in methodology resulted in an increase of our number of reported subscribers by approximately 80,000 compared to the prior methodology.

We also revised our subscriber calculation methodology in 2003 and 2005 but in each case have not restated prior subscriber data to conform to the new presentation. We estimate that the change in methodology in 2003 led to a decrease in our reported subscriber numbers of approximately 300,000 and the change in methodology in 2005 led to an increase in our reported subscriber numbers of approximately 84,000.

	•	Unique combination of leading market position and strong operational momentum. In the last year, we have achieved market-leading subscriber and revenue growth while steadily strengthening our operating margins. Leveraging a series of brand, customer service and content initiatives and a rationalization of our management structure, our new senior management team has managed to solidify Cellcom’s leading market position as reflected in our subscriber base, revenues and EBITDA while controlling capital expenditures.
	•	Strong and distinctive own brand. Our established brand enjoys strong recognition in Israel. Since 2004, we have made the enhancement of our image among consumers a top priority and have invested substantial resources to position Cellcom as a local cellular company with a warm personal touch. Our focus on music and music-related content services, particularly our “Cellcom Volume” initiative, is our leading marketing theme and one that associates us with the important growth opportunity presented by advanced cellular content and data services.
	•	Transmission infrastructure and landline services. We have an advanced fiber-optic transmission infrastructure that consists of approximately 1,300 kilometers of inland fiber-optic cable, which, together with our complementary microwave-based infrastructure, connects the majority of our cell sites and provides for substantially all of our backhaul services. Our transmission infrastructure significantly reduces our operational reliance on Bezeq, the incumbent landline operator in Israel, while also saving us substantial infrastructure-leasing cash costs. As our transmission network has transmission and data

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		capacity in excess of our own backhaul needs, and covers the majority of Israel’s business parks, we offer transmission and data services to business customers and telecommunications providers. In addition, since July 2006, following the receipt of a landline transmission, data and telephony services license, we offer landline telephony services to selected businesses.
	•	Strategic relationship with a leading group of local and international shareholders. Our ultimate parent company, IDB, is one of the largest business groups in Israel. We enjoy access, through our management services agreement, to the senior management of the IDB group, who are some of the most experienced managers in Israel. These managers, including veterans of the Israeli telecommunications market, provide us with financial, managerial and strategic guidance. In 2006, our shareholder base was broadened as a result of IDB’s sale of minority stakes to a series of highly regarded international and local financial investors, including affiliates of Goldman Sachs, Bank Leumi, Migdal Group and the First International Bank of Israel.
	•	Strong management team. Since IDB acquired control of us in September 2005, we have put in place a team of seasoned managers with significant experience and solid track records in previous managerial positions. Our Chairman, Mr. Ami Erel, is a veteran of the Israeli communications market and previously served as the chief executive officer of Bezeq. Our chief executive officer, Mr. Amos Shapira, has been chief executive officer of Kimberly-Clark’s Israeli subsidiary and of El Al Airlines, where he was credited with its successful restructuring and improvements in customer service. Our chief financial officer, Mr. Tal Raz, has extensive experience in the Israeli cellular market, as he was involved in the formation of one of our main competitors, Partner, and served as a member of its board of directors. Under the leadership of Messrs. Erel, Shapira and Raz, we have demonstrated significant improvements in our operating results and believe that we are well positioned to continue this trend and to execute our business strategy.
	•	Strong cash flow generation. We have a proven track record of strong financial performance and profitability with cash operating margins that have been higher than those of our principal competitors. As a result, we have been able to invest in our business and deploy advanced network technology so that we can offer advanced services and applications, as well as distribute dividends to our shareholders.

	•	Maximize customer satisfaction, retention and growth. Our growth strategy is focused on retaining our subscribers and expanding the selection of services and products we offer to our subscribers in order to enhance customer satisfaction and increase average revenues per user, or ARPU. We strive to continually improve and enhance the flexibility of our customer service to shorten the time required to fulfill subscriber requests. From September 2005 to September 2006, despite a reduction in our overall workforce, we increased our customer-facing staff by 2%. In addition to providing quality customer service, we also strive to retain our subscribers and attract new subscribers by offering them advanced handsets, handset upgrades, attractive calling plans and value-added services. In 2006, we introduced a “churn lab” that identifies subscribers at high risk of churn and seeks to preemptively approach them with tailored solutions to maintain their satisfaction with our services.
	•	Grow and develop our Internet, content and data services. The usage of cellular content and data services in Israel is currently relatively low compared to western European countries and we believe that we have significant growth potential in this field. We intend

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		to continue to invest in the deployment of our high speed UMTS/ HSDPA network, which covered 80% of the populated territory of Israel at the end of 2006, in order to permit higher-quality and higher-speed multimedia content transmission. We also plan to expand our content and data services, products and capabilities through in-house expertise and strategic relationships with leading cellular content providers. For example, in 2006 we introduced “Cellcom Heep,” a Web 2.0 portal that permits cellular and PC users to upload, review and rate user-generated content and in 2004 we introduced our “Cellcom Volume” initiative that featured, among other things, the introduction of our cellular music portal.
	•	Grow roaming revenues. We have experienced steady growth in roaming revenues since 2003 and believe that roaming presents an important source of future revenue and profit growth for us. We currently have GSM roaming agreements with over 450 operators in 167 countries, of which 45 operators in 27 countries are also 3G operators, and we aim to increase our number of relationships. In particular, we intend to pursue additional agreements with 3G operators, allowing our and their subscribers to benefit from advanced content and data services when traveling.
	•	Further develop and strengthen the Cellcom brand. External market surveys that we have commissioned indicate that brand recognition has become an increasingly important factor in subscriber selection of, and loyalty to, a cellular operator. Due to our extensive efforts in the past few years, we believe that we have established the Cellcom brand as one of the most recognized and respected consumer brands in Israel. We plan to continually enhance our brand through maintaining our high network quality, the provision of innovative products and services, quality customer service and investments in advertising and promotional campaigns. We believe these enhancements are key to maintaining our competitive advantage, differentiating our services from those of our competitors and establishing and maintaining a successful relationship with our subscribers.
	•	Optimize our cost structure. We intend to continue our efforts to control costs so that we can improve profitability while also improving the quality of our services. For example, from September 2005 to September 2006, we have reduced our non-customer facing positions by over 16%, including higher-cost temporary workers, while increasing our customer-facing positions. In addition, having already built our own fiber-optic and microwave infrastructure reduces our operating cash costs, as our network maintenance costs and microwave spectrum fees are lower than the lease costs to rent backhaul capacity from Bezeq. We intend to continue to focus on identifying further opportunities to manage our costs without reducing the quality of our service.
	•	Capitalize on our existing infrastructure to selectively provide landline telephony services. Our 1,300 kilometer inland fiber-optic network and our microwave infrastructure provide us with the ability to offer cost-efficient landline telecommunications solutions. We hold a license to operate a landline service in Israel and, since July 2006, we offer our landline telephony service to selected businesses.

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	Basic cellular telephony services

	•	Our principal service is basic cellular telephony. In addition we offer many other services with enhancements and additional features to our basic cellular telephony service. These services include voice mail, cellular fax, call waiting, call forwarding, caller identification, conference calling, “Push-and-Talk” service (which allows subscribers to initiate a call with one or more other persons using a designated button in their handset without having to dial a number), “Talk 2” (two handsets sharing the same number, thus allowing our subscribers to own both a handset and a car phone), additional number service (enables our subscribers to add a second phone number to their handset) and collect call service (a unique service protected by our U.S. patent).
	•	We also offer both an outbound roaming service to our subscribers when traveling outside of Israel and an inbound roaming to visitors to Israel who can “roam” into our network. Roaming allows cellular subscribers, while using their own cell phone number (and handset, in most cases) and being billed by their provider, to place and receive calls and text messages while in the coverage area of a network to which they do not subscribe. Where available, subscribers can also benefit from other cellular services such as advanced data and content services. As of September 30, 2006, we had commercial roaming relationships with over 450 operators in 167 countries based on the standard agreements of the GSM organization (an umbrella organization in which all the cellular operators operating with GSM technology are members). This enables our subscribers to enjoy our services in almost the entire world. Most of our GSM subscribers who use these roaming services abroad can use their own handset and others can borrow or rent, depending upon the period of time, a suitable handset from us. In addition, as of September 30, 2006, we had 3G roaming arrangements with 45 of these operators, enabling our 3G roamers to participate in video calls and use high-speed data, video and audio content services in 27 countries. Roaming is an increasingly important revenue stream to us due to the large inbound tourism industry in Israel and extensive overseas travel by Israelis.

	Value-added services

	•	In addition to basic cellular telephony services, we offer many value-added services. Value-added services are important to our business as they enable us to differentiate ourselves from our competitors, strengthen our brand and increase subscriber usage, ARPU and subscriber satisfaction. We offer those services that we believe are likely to be popular with subscribers and benefit our business. Some of the value-added services that we offer are available only to subscribers who have supporting handset models. The principal advanced value-added services that we currently offer, some of which are exclusive to us, are:

Cellcom Volume. This music-related marketing initiative is focused not just on providing a rich downloadable content consisting of ringtones, video tones, true tones and songs in MP3 format through our popular cellular music portal, but also on promoting Israeli music and local musicians and supporting youth music centers. In addition, handsets supporting music content, as well as other merchandising, are marketed under

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	the “Cellcom Volume” service. Complementary services provided through Cellcom Volume include “Fun Dial,” which enables our subscribers to have callers listen to our subscribers’ favorite music instead of the regular ringing tone while waiting to be connected, and “Gift Song,” which enables subscribers to send songs to friends with a personally recorded introduction.
	Cellcom Heep. This innovative portal enables our subscribers and other cellular and landline Internet users to upload, review and rate user-generated content by using Web 2.0 technology.
	SMS and MMS services. These messaging services enable subscribers to send and receive text (SMS), photos, multimedia and animation (MMS) messages. Additional applications enable our subscribers to send SMS messages to a large number of handsets simultaneously.
	Cellcom i-mode. This is a cellular Internet service developed by NTT DoCoMo, a Japanese operator and developer of sophisticated cellular multimedia technology, that enables our subscribers with designated handsets to obtain information and content from designated Internet sites in a friendly, easy-to-use manner.
	Access to third party application providers. We provide our subscribers with access to certain services offered by third party application providers. These services include: a service that allows subscribers to receive notification of roadway speed detectors in their vicinity; a service (using a cellular modem) that provides a comprehensive system for the management of vehicle fleets and a service that enables subscribers to remotely manage and operate time clocks and various controllers for industrial, agricultural and commercial purposes.
	Video calls. This service enables our 3G users, using 3G handsets in our 3G coverage area, to communicate with each other through video conferences.
	Zone services. This service provides discounts on airtime for calls initiated from a specific location, such as a university campus. Our network identifies the location from which the call is initiated in order to apply the discounted rate on the call.
	Location-based services. We offer a number of location-based services. “Where are you?” is a location-based service that allows one subscriber to locate another subscriber, subject to the latter’s prior approval, such as a parent and child. “Cellcom Navigator” is a service provided through a third party that enables our subscribers to receive real-time travel directions and visual data regarding their position using global positioning system, or GPS, technology.
	Other information and content services. We also provide other information and content services, some provided directly by us and some by third party content providers. For example, we provide voice-based information services through interactive voice response platforms, or IVR, including interactive information services and radio and TV programs. We also provide text-based information services and interactive information services including news headlines, sports results, and traffic and weather reports. Some of these services are provided through our MMS or video-based technologies, and are offered to subscribers with supporting handsets.

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	Handsets

	Landline services

	General

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	Infrastructure

	Network design

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	Network performance

	Spectrum allocation

	Cell site construction and licensing

	Suppliers

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	Transmission Network

	Information technology

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	Sales

	Points of sale. We distribute our products and services through a broad network of physical points of sale providing us with nationwide coverage of our existing and potential subscriber base.
	We operate directly, using our sales force and service personnel, approximately 40 physical points of sale and service, mostly located in shopping centers and other frequently visited locations to provide our subscribers with easy and convenient access to our products and services. We record approximately 175,000 subscriber applications per month in our direct points of sale and service.
	We also distribute our products and services indirectly through a chain of dozens of dealers who operate in over 130 points of sale throughout Israel. Our dealers are compensated for each sale based on qualitative and quantitative measures. We closely monitor the quality of service provided to our subscribers by our dealers. In our efforts to penetrate certain sectors of our potential subscriber base, we select dealers with proven expertise in marketing to such sectors.
	Telephonic sales. Telephonic sales efforts target existing and potential subscribers who are interested in buying or upgrading handsets and services. When approached by a customer, our sales representatives (both in-house and outsourced) offer such customer a variety of products and services.
	Door-to-door sales. The door-to-door sales team is comprised of approximately 350 dealers’ sales representatives. All the members of our door-to-door sales team go through extensive training by us prior to commencing their work. We target the door-to-door subscribers based on market surveys that we regularly conduct. All information derived from our market surveys is uploaded into a database. Once a potential customer is identified, we

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	contact the potential customer and schedule a meeting with a member of our door-to-door sales team.
	Account managers. Our direct sales force for our business customers maintains regular, personal contact with our large accounts, focusing on sales, customer retention and tailor-made solutions for the specific needs of such customers, including advanced data services.

	Marketing

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	Call centers. In order to provide quick and efficient responses to the different needs of our various subscribers, our call-center services are divided into several sub-centers: finance; network; international roaming; and data transfer. The call center services are provided in four languages: Hebrew, Arabic, English and Russian. We regularly monitor the performance of our call centers. Based on our internal reviews, the average waiting time for subscribers who contact our call center is well under a minute. If calls go unanswered for longer than our guidelines require, a flashing light is automatically activated in our corporate headquarters, alerting management to the delay. We currently operate call centers in four locations throughout Israel, one of which is outsourced. On average, we respond to one million calls every month. During peak hours our call centers have the capability to respond to 700 customer calls simultaneously.
	Walk-in centers. We currently operate approximately 40 service and sales centers, covering almost all the populated areas of Israel. These centers provide a walk-in contact channel and offer the entire spectrum of services that we provide to our subscribers and potential subscribers, including handsets and accessories, sales upgrades, maintenance and other services, such as finance, calling-plan changes and subscriptions to new services. These stores are mostly located in central locations, such as popular shopping malls. Our walk-in centers also provide our subscribers with onsite express repair services, performed by highly skilled technicians, a concept rarely seen in most western European countries. This enables a subscriber to deposit a handset with our repair lab and receive the repaired handset, on average, within one hour. If a repair service is expected to take longer, we provide the subscriber with a substitute handset.
	Self-services. We provide our subscribers and potential subscribers with various self-service channels, such as interactive voice response, or IVR, web-based services and service using SMS. These channels provide general and specific information, including calling plans, account balance, billing-related information and roaming tariffs. They also provide subscribers information regarding trouble shooting and handset-operation, and enable subscribers to activate and deactivate services and to download content.
	Churn Lab. In 2006, we introduced an innovative “churn lab,” aimed at reducing churn. The churn lab is part of our call center operations. Based on various factors and analytical tools, we identify and analyze high-quality subscribers whom we consider to be at a high risk of churn. Then, in order to retain them, we preemptively approach these subscribers with specially trained customer care representatives and offer them solutions previously successfully tested on a sample group of subscribers with similar characteristics, such as enhanced services at attractive prices and handset upgrades.
	Our business sales force and back office personnel also provide customer care to our business customers.

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	All of our service channels are monitored and analyzed regularly in order to assure the quality of our services and to identify areas where we can improve.
	Be’eri Printers provides our printing supplies and invoices as well as the distribution, packaging and delivery of invoices and other mail to the postal service distribution centers. We 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, we committed to purchase from Be’eri a minimum monthly quantity of production and distribution services which may be reduced if we modify our printed invoice delivery policy. The agreement is valid until 2008.

		Number of
		Full-Time
		Equivalent
Unit		Positions
Management and headquarters			31
Human resources and administration			42
Marketing			69
Business customers			331
Sales and service			1,904
Operations and supply chain			411
Finance			115
Technologies			585
Total			3,488

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	Headquarters

	Real estate in Modi’in

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	Service centers, points of sale and cell sites

	Authorization agreement with land regulatory authorities

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	•	marketing and branding campaigns aimed at enhancing market leadership, perceived value, brand recognition and loyalty among our existing and potential subscriber base;
	•	investing resources in improving customer service and retention, as well as supporting information technology systems;
	•	introducing innovative value-added services and identifying popular niches among various subscriber groups;
	•	investing in improving our network technology to ensure our ability to offer quality services and advanced services;
	•	using innovative sales campaigns for attracting new subscribers by offering subsidies on handsets to new subscribers such as “1+1” (buy one, get one free) campaigns; and
	•	offering attractive calling plans to subscribers, adapted to their needs and preferences.

	General

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	Purported class actions

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	Commercial and other disputes

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	•	The license may be modified, cancelled, conditioned or restricted by the Ministry of Communications in certain instances, including: if required to ensure the level of services we provide; if a breach of a material term of the license occurs; if DIC (or a transferee or transferees, if approved by the Ministry of Communications), in its capacity as our founding shareholder, holds, directly or indirectly, less than 26% of our means of control; if our founding shareholders who are Israeli citizens and residents (the Ministry of Communications has informed us that it is considering certain amendments to our license in relation to the Israeli holding requirement, such as to impose a minimum holding requirement on individual Israeli persons in connection with this requirement; based on conversations to date, we do not expect this change to have a material impact on us) hold, directly or indirectly, less than 20% of our means of control (DIC, as founding shareholder, has undertaken to comply with this condition); if at least 20% of our directors are not appointed by Israeli citizens and residents from among our founding shareholders or if less than a majority of our directors are Israeli citizens and residents; if any of our managers or directors is convicted of a crime of moral turpitude and continues to serve; if we commit an act or omission that adversely affects or limits competition in the cellular communications market; or if we and our 10% or greater shareholders fail to maintain combined shareholders’ equity of at least $200 million. For the purpose of the license, “means of control” is defined as voting rights, the right to appoint a director or general manager, the right to participate in distributions, or the right to participate in distributions upon liquidation;
	•	It is prohibited to acquire (alone or together with relatives or with other parties who collaborate on a regular basis) or transfer our shares, directly or indirectly (including a

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		transfer by way of foreclosing on a pledge), in one transaction or a series of transactions, if such acquisition or transfer will result in a holding or transfer of 10% or more of any of our means of control, or to transfer any of our means of control if as a result of such transfer, control over our company will be transferred from one party to another, without the prior approval of the Ministry of Communications. For the purpose of the license, “control” is defined as the direct or indirect ability to direct our operations whether this ability arises from our articles of association, from written or oral agreement or from holding any means of control or otherwise, other than from holding the position of director or officer;
	•	It is prohibited for any of our office holders or anyone holding more than 5% of our means of control, to hold, directly or indirectly, more than 5% of the means of control in Bezeq or another cellular operator in Israel, or, for any of the foregoing to serve as an office holder of one of our competitors, subject to certain exceptions requiring the prior approval of the Ministry of Communications;
	•	We, our office holders or interested parties may not be parties to any arrangement whatsoever with Bezeq or another cellular operator that is intended or is likely to restrict or harm competition in the field of cellular services, cellular handsets or other cellular services. For the purpose of the license, an “interested party” is defined as a 5% or greater holder of any means of control;
	•	We are subject to the guidelines of Israel’s General Security Services, which may include requirements that certain office holders and holders of certain other positions be Israeli citizens and residents with security clearance. For example, our Board of Directors is required to appoint a committee to deal with matters concerning state security. Only directors who have the requisite security clearance by Israel’s General Security Services may be members of this committee. In addition, the Minister of Communications is entitled under our license to appoint a state employee with security clearance to act as an observer in all meetings of our Board of Directors and its committees;
	•	During the entire period of operation under the license, we are required to have agreements with a manufacturer of cellular network equipment which must include, among other things, a know-how agreement and an agreement guaranteeing the supply of spare parts for our network equipment for a period of at least seven years;
	•	We are required to interconnect our network to other public telecommunications networks in Israel, on equal terms and without discrimination, in order to enable subscribers of all operators to communicate with one another;
	•	We may not give preference in providing infrastructure services to a license holder that is an affiliated company over other license holders, whether in payment for services, conditions or availability of services or in any other manner, other than in specific circumstances and subject to the approval of the Ministry of Communications;
	•	The license sets forth the general types of payments that we may collect from our subscribers, the general mechanisms for setting tariffs, the reports that we must submit to the Ministry of Communications and the obligation to provide notice to the Ministry of Communications prior to changing tariffs. The Ministry of Communications is authorized to intervene in setting tariffs in certain instances;
	•	The license requires us to maintain a minimum standard of customer service, including, among other things, establishing call centers and service centers, maintaining a certain service level of our network, collecting payments pursuant to a certain procedure and protecting the privacy of subscribers;

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	•	The license or any part thereof may not be transferred, pledged or encumbered without the prior approval of the Ministry of Communications. The license also sets forth restrictions on the sale, lease or pledge of any assets used for implementing the license;
	•	We are required to obtain insurance coverage for our cellular activities. In addition, the license imposes statutory liability for any loss or damage caused to a third party as a result of establishing, sustaining, maintaining or operating our cellular network. We have further undertaken to indemnify the State of Israel for any monetary obligation imposed on the State of Israel in the event of such loss or damage. For the purpose of guaranteeing our obligations under the license, we have deposited a bank guarantee in the amount of $10 million with the Ministry of Communications, which may be forfeited in the event that we violate the terms of our license.

	Special general license for the provision of landline communication services

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	Data and transmission license

	Cellular services in Judea and Samaria

	•	The maximum interconnect tariff payable by a landline operator or a cellular operator for the completion of a call on another cellular network was decreased as of March 1, 2005 from NIS 0.45 to NIS 0.32 per minute; and as of March 2006, to NIS 0.29 per minute. This tariff will be reduced to NIS 0.26 per minute as of March 1, 2007, and it will be further reduced to NIS 0.22 per minute as of March 1, 2008.
	•	The maximum interconnect tariff payable by an international call operator for the completion of a call on a cellular network is NIS 0.25 per minute. This tariff will be reduced to NIS 0.22 per minute as of March 1, 2008.
	•	The maximum interconnect tariff payable by a cellular operator for sending an SMS message to another cellular network was decreased as of March 1, 2005 from NIS 0.285 to NIS 0.05 per message; and as of March 2006, to NIS 0.025 per message.

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	General

	•	building permits from the local planning and building committee or the local licensing authority (if no exemption is available);
	•	approvals for construction and operation from the commissioner of environmental radiation of the Ministry of Environmental Protection;
	•	permits from the Civil Aviation Authority (in most cases);
	•	permits from the Israel Defense Forces (in certain cases); and
	•	other specific permits necessary where applicable, such as for cell sites on water towers or agricultural land.

	National Zoning Plan 36

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	Site licensing

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	Indemnification obligations

	Construction and operating permits from the commissioner of environmental radiation

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Name		Age				Position
Ami Erel(2),(3)			59			Chairman of the Board
Nochi Dankner(3)			52			Director
Isaac Manor			65			Director
Shay Livnat(2),(3)			48			Director
Raanan Cohen(1),(2)			39			Director
Oren Lieder(1),(2)			58			Director
Avraham Bigger(1)			60			Director
Rafi Bisker(2)			55			Director
Shlomo Waxe(2),(4)			60			Director
Amos Shapira			57			President and Chief Executive Officer
Tal Raz			44			Chief Financial Officer
Eliezer (Lipa) Ogman			53			Chief Technology Officer
Isaiah Rozenberg			46			Vice President of Engineering and Network Operation
Itamar Bartov			44			Vice President of Executive and Regulatory Affairs
Refael Poran			58			Vice President of Business Customers
Meir Barav			49			Vice President of Sales and Services
Ronit Ben-Basat			39			Vice President of Human Resources
Amos Maor			42			Vice President of Operations and Supply Chain
Adi Cohen			41			Vice President of Marketing
Liat Menahemi-Stadler			40			General Legal Counsel
Gil Ben-Itzhak			41			Controller

(1)	Member of our Audit Committee.
(2)	Member of our Cost Analysis Committee.
(3)	Member of our Option Committee.
(4)	Elected as a member of our Audit Committee effective upon completion of the offering.

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	Qualifications of external directors

	•	an employment relationship;
	•	a business or professional relationship maintained on a regular basis;
	•	control; and
	•	service as an office holder, excluding service as a director in a private company prior to its initial public offering if such director was appointed in order to serve as an external director following the offering.

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	Election of external directors

	•	at least one-third of the shares of non-controlling shareholders voted at the meeting vote in favor of the election of the external director; or
	•	the total number of shares of non-controlling shareholders voted against the election of the external director does not exceed 1% of the aggregate voting rights in the company.

	Israeli-Appointed Directors

	Audit committee

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	Cost analysis committee

	Option committee

	Security committee and observer

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	Fiduciary duties of office holders

	•	information on the appropriateness of a given action brought for his or her approval or performed by virtue of his or her position; and
	•	all other important information pertaining to these actions.

	•	refrain from any conflict of interest between the performance of his or her duties in the company and his or her other duties or personal affairs;
	•	refrain from any activity that is competitive with the company;
	•	refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and
	•	disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder.

	Personal interests of an office holder

	•	other than in the ordinary course of business;
	•	that is not on market terms; or
	•	that is likely to have a material impact on the company’s profitability, assets or liabilities.

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	Personal interests of a controlling shareholder

	•	at least one-third of the shareholders who have no personal interest in the transaction and who vote on the matter must vote in favor of the transaction; or
	•	the shareholders who have no personal interest in the transaction who vote against the transaction may not represent more than 1% of the voting rights in the company.

	•	an amendment to the articles of association;
	•	an increase in the company’s authorized share capital;
	•	a merger; and
	•	approval of related party transactions that require shareholder approval.

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	•	the securities issued amount to 20% or more of the company’s outstanding voting rights before the issuance;
	•	some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and
	•	the transaction will increase the relative holdings of a shareholder that holds 5% or more of the company’s outstanding share capital or voting rights or that will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share capital or voting rights.

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	2006 Share Incentive Plan

	Phantom compensation plan

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	Original 1997 shareholders agreement

	Goldman Sachs 2006 share purchase agreement and shareholders agreement

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	Migdal 2006 share purchase agreement

	Bank Leumi 2006 share purchase agreement and First International Bank 2006 share purchase agreement

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	•	each person, or group of affiliated persons, known to us to be the beneficial owner of 5% or more of our outstanding shares;
	•	each selling shareholder;
	•	each of our directors and executive officers; and
	•	all of our directors and executive officers as a group.

		Shares Beneficially																Shares Beneficially
		Owned Before the								Shares Offered in the								Owned After the
		Offering								Offering								Offering
Name of Beneficial Owner		Number				Percent				Number				Percent				Number				Percent
5% Shareholders and Selling Shareholders
Discount Investment Corporation Ltd.(1)			81,900,000				84.0	%			19,025,000				19.5	%			62,875,000				64.5	%
Goldman Sachs International			4,875,000				5.0	%			975,000				1.0	%			3,900,000				4.0	%
Leumi & Co. Investment House Ltd.			4,875,000				5.0	%			—				—				4,875,000				5.0	%
Directors and Officers
Ami Erel(2)			—				—				—				—				—				—
Nochi Dankner(3)			81,900,000				84.0	%			19,025,000				19.5	%			62,875,000				64.5	%
Isaac Manor(4)			—				—				—				—				—				—
Shay Livnat(5)			—				—				—				—				—				—
Raanan Cohen(6)			—				—				—				—				—				—
Oren Lieder(7)			—				—				—				—				—				—
Avraham Bigger			—				—				—				—				—				—
Rafi Bisker(8)			—				—				—				—				—				—
Shlomo Waxe			—				—				—				—				—				—
Amos Shapira			—				—				—				—				—				—
Tal Raz			—				—				—				—				—				—
Eliezer (Lipa) Ogman			—				—				—				—				—				—
Isaiah Rozenberg			—				—				—				—				—				—
Itamar Bartov			—				—				—				—				—				—
Refael Poran			—				—				—				—				—				—
Meir Barav			—				—				—				—				—				—
Ronit Ben-Basat			—				—				—				—				—				—
Amos Maor			—				—				—				—				—				—
Adi Cohen			—				—				—				—				—				—
Liat Menahemi-Stadler			—				—				—				—				—				—
Gil Ben-Itzhak			—				—				—				—				—				—
Directors and officers as a group (21 persons)			81,900,000				84.0	%			19,025,000				19.5	%			62,875,000				64.5	%

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(1)

Includes 24,375,855 ordinary shares held by two wholly-owned subsidiaries of DIC (namely, PEC Israel Economic Corporation, a Maine corporation, and DIC Communication and Technology Ltd., an Israeli company) and 5,362,500 ordinary shares, representing 5.5% of our issued and outstanding shares, held by four shareholders whose voting rights are vested in DIC. DIC is a majority-owned subsidiary of IDB Development Corporation Ltd., or IDB Development, which in turn is a majority-owned subsidiary of IDB. IDB, IDB Development and DIC are public Israeli companies traded on the Tel Aviv Stock Exchange.

	•	Ganden Holdings Ltd., or Ganden, a private Israeli company controlled by Nochi Dankner (who is also the Chairman of IDB, IDB Development and DIC and one of our directors) and his sister Shelly Bergman, holds, directly and through a wholly-owned subsidiary, approximately 44.88% of the outstanding shares of IDB;
	•	Shelly Bergman, through a wholly-owned company, holds approximately 7.23% of the outstanding shares of IDB;
	•	Avraham Livnat Ltd., or Livnat, a private company controlled by Avraham Livnat (one of whose sons, Zvi Livnat, is a director and Executive Vice President of IDB, Deputy Chairman of IDB Development and a director of DIC, and another son, Shay Livnat, is one of our directors and a director of IDB Development) holds, directly and through a wholly-owned subsidiary, approximately 10.38% of the outstanding shares of IDB; and
	•	Manor Holdings BA Ltd., or Manor, a private company controlled by Ruth Manor (whose husband, Isaac Manor, is one of our directors and he and their son Don Manor are directors of IDB, IDB Development and DIC) holds, directly and through a majority-owned subsidiary, approximately 10.37% of the outstanding shares of IDB.

(2)	Mr. Erel, the President and Chief Executive Officer of DIC, disclaims beneficial ownership of the ordinary shares owned by DIC.
(3)	Represents the 81,900,000 ordinary shares owned by DIC, of which Mr. Dankner is the Chairman. Mr. Dankner is also the Chairman and Chief Executive Officer of IDB and the Chairman of IDB Development.
(4)	Mr. Manor, the Deputy Chairman of the board of directors of IDB and a member of the board of directors of IDB Development and DIC, disclaims beneficial ownership of the ordinary shares owned by DIC.
(5)	Mr. Livnat, a member of the board of directors of IDB Development, disclaims beneficial ownership of the ordinary shares owned by DIC.
(6)	Mr. Cohen, the Vice President of DIC, disclaims beneficial ownership of the ordinary shares owned by DIC.
(7)	Mr. Lieder, the Senior Vice President and Chief Financial Officer of DIC, disclaims beneficial ownership of the ordinary shares owned by DIC.
(8)	Mr. Bisker, a member of the board of directors of IDB, IDB Development and DIC, disclaims beneficial ownership of the ordinary shares owned by DIC.

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	•	a citizen or resident of the United States;
	•	a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any political subdivision thereof; or
	•	an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

	Taxation of Distributions

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	Sale and Other Disposition of the Company’s Shares

	Passive Foreign Investment Company Rule

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	Information Reporting and Backup Withholding

	Taxation of Israeli Companies

	General Corporate Tax Structure

	Special Provisions Relating to Taxation under Inflationary Conditions

	•	When the value of a company’s equity, as calculated under the Inflationary Adjustments Law, exceeds the depreciated cost of its fixed assets (as defined in the Inflationary Adjustments Law), a deduction from taxable income is permitted equal to the product of

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		the excess multiplied by the applicable annual rate of inflation. The maximum deduction permitted in any single tax year is 70% of taxable income, with the unused portion permitted to be carried forward, linked to the increase in the Israeli CPI.
	•	If the depreciated cost of a company’s fixed assets exceeds its equity, the product of the excess multiplied by the applicable annual rate of inflation is added to taxable income.
	•	Subject to certain limitations, depreciation deductions on fixed assets and losses carried forward are adjusted for inflation based on the increase in the Israeli CPI.

	Capital Gains Tax on Sales of Our Ordinary Shares

	Taxation of Israeli Residents

	Taxation of Non-Israeli Residents

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	Taxation of Dividends Paid on Our Ordinary Shares

	Taxation of Israeli Residents

	Taxation of Non-Israeli Residents

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Number of Shares		Date
5,362,500(1)		On the date of this prospectus
72,137,500		After 180 days from the date of this prospectus (subject, in some cases, to volume limitations)

(1)	Holders of these shares are restricted from transferring their shares without the prior consent of DIC, which has undertaken toward the underwriters of this offering not to grant such consent during the lock-up period.

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			Number of
			Ordinary
Underwriters			Shares
Goldman, Sachs & Co.				8,274,000
Citigroup Global Markets Inc.				3,916,000
Deutsche Bank Securities, Inc.				3,916,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated				1,800,000
Jefferies & Company, Inc.				1,258,000
William Blair & Company, LLC				836,000
	Total			20,000,000

			No Exercise				Full Exercise
Per Share			$	1.30			$	1.30
	Total		$	26,000,000			$	29,900,000

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	United Kingdom

	(a) it has not made or will not make an offer of ordinary shares to the public in the United Kingdom within the meaning of section 102B of the Financial Services and Markets Act 2000 (as amended) (FSMA) except to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances which do not require the publication by us of a prospectus pursuant to the Prospectus Rules of the Financial Services Authority (FSA);
	(b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which section 21 of FSMA does not apply; and
	(c) it has complied with, and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the ordinary shares in, from or otherwise involving the United Kingdom.

	European Economic Area

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	(a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;
	(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or
	(c) in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

	Hong Kong

	Singapore

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	Israel

	Japan

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			Amount
			to be Paid
Registration fee			$	44,551
NASD filing fee				46,500
NYSE listing fee				250,000
Transfer agent’s fees				4,500
Printing and engraving expenses				140,000
Legal fees and expenses				745,000
Accounting fees and expenses				950,000
Blue Sky fees and expenses				—
Miscellaneous				600,000
	Total		$	2,780,551

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	•	the judgment is enforceable in the state in which it was given;
	•	adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence;
	•	the judgment and the enforcement of the judgment are not contrary to the law, public policy, security or sovereignty of the State of Israel;
	•	the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; and
	•	an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the foreign court.

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Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets as at December 31, 2004 and 2005 and as at September 30, 2006			F-3
Consolidated Income Statements for the years ended December 31, 2003, 2004 and 2005 and the nine months ended September 30, 2005 and 2006			F-4
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2003, 2004 and 2005 and the nine months ended September 30, 2005 and 2006			F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005 and the nine months ended September 30, 2005 and 2006			F-6
Notes to the Consolidated Financial Statements			F-8

F-1

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F-2

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														Convenience								Convenience
														Translation								Translation
														Into								Into
														U.S. Dollar								U.S. Dollar
														(Note 2C)								(Note 2C)
						December 31
														December 31				September 30				September 30
		Note				2004				2005				2005				2006				2006
						NIS				NIS				US$				NIS				US$
						(All amounts are in millions except for share and per share
						data)
Current assets
Cash and cash equivalents			3				5				1,772				412				118				27
Trade receivables, net			4				1,190				1,237				288				1,259				293
Other receivables			5				140				224				52				121				28
Inventory			6				99				118				27				137				32
							1,434				3,351				779				1,635				380
Long-term receivables			7				433				433				101				515				120
Property, plant and equipment, net			8				2,948				2,739				637				2,399				558
Other assets, net			9				496				493				114				465				108
Total assets							5,311				7,016				1,631				5,014				1,166
Current liabilities
Short-term bank credit			10				552				320				75				333				77
Trade payables			11				816				944				220				707				164
Other current liabilities			12				204				178				41				415				97
							1,572				1,442				336				1,455				338
Long-term liabilities
Long-term loans from banks			13				391				31				7				1,238				288
Debentures			14				—				1,752				407				2,017				469
Deferred taxes			25				155				140				33				118				28
Other long-term liabilities			16				32				2				—				2				—
							578				1,925				447				3,375				785
Commitments and contingent liabilities			17
Shareholders’ equity			18
Share capital:
Ordinary shares of NIS 0.1 par value:
Authorized — 10,000,000 shares at December 31, 2004 and 2005, respectively, and at September 30, 2006; Issued and outstanding 114,000 shares at December 31, 2004 and 2005, respectively, and at September 30, 2006							—				—				—				—				—
Capital surplus							—				5				1				(20	)			(5	)
Retained earnings							3,161				3,644				847				204				48
Total shareholders’ equity							3,161				3,649				848				184				43
Total liabilities and shareholders’ equity							5,311				7,016				1,631				5,014				1,166

F-3

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																														Convenience
																		Convenience												Translation
																		Translation												Into
																		Into												U.S. Dollar
																		U.S. Dollar												(Note 2C)
																		(Note 2C)
																						Nine Month Period Ended
																														Nine Month
						Year Ended December 31												Year Ended												Period Ended
																		December 31				September 30				September 30				September 30
		Note				2003				2004				2005				2005				2005				2006				2006
																						(Unaudited)
						NIS (Note 2B)
																		US$												US$
						NIS (Note 2B)
						(All amounts are in millions except for share and per share data)
Revenues			19				5,261				5,600				5,114				1,189				3,845				4,191				974
Cost of revenues			20				3,075				3,302				3,133				728				2,264				2,470				574
Gross profit							2,186				2,298				1,981				461				1,581				1,721				400
Selling and marketing expenses			21				613				661				623				145				453				473				110
General and administrative expenses			22				682				684				656				153				512				486				113
Operating income							891				953				702				163				616				762				177
Financial income (expenses), net			23				(216	)			(45	)			24				6				13				(128	)			(30	)
Other income (expenses), net			24				1				1				(11	)			(3	)			(10	)			(1	)			—
Income before income tax							676				909				715				166				619				633				147
Income tax			25				245				292				232				54				201				243				56
Net income							431				617				483				112				418				390				91
Earnings per share
Basic and diluted earnings per share in NIS (see Note 2T)							4.42				6.33				4.95				1.15				4.29				4.00				0.93
Weighted-average number of shares used in the calculation of basic and diluted earnings per share (in thousands)							97,500				97,500				97,500				97,500				97,500				97,500				97,500

F-4

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														Cash
														Dividend												Convenience
		Share Capital												Declared												Translation
														Subsequent												Into
		Number of								Capital				to Balance				Retained								U.S. Dollar
		Shares				Amount				Reserve				Sheet Date				Earnings				Total				(Note 2C)
		NIS 0.1																								US$ Millions
		par value				NIS Millions (Note 2B)
Balance as of January 1, 2003			114,000				—				—				—				2,113				2,113				491
Changes in the year ended December 31, 2003
Net income			—				—				—				—				431				431				100
Balance as of December 31, 2003			114,000				—				—				—				2,544				2,544				591
Changes in the year ended December 31, 2004
Net income			—				—				—				—				617				617				144
Balance as of December 31, 2004			114,000				—				—				—				3,161				3,161				735
Changes in the year ended December 31, 2005
Movement in capital reserve in respect of hedging transactions, net			—				—				5				—				—				5				1
Cash dividend declared subsequent to balance sheet date			—				—				—				3,400				(3,400	)			—				—
Net income			—				—				—				—				483				483				112
Balance as of December 31, 2005			114,000				—				5				3,400				244				3,649				848
For the nine month period ended September 30, 2006
Movement in capital reserve in respect of hedging transactions, net			—				—				(25	)			—				—				(25	)			(6	)
Dividend paid			—				—				—				(3,400	)			(430	)			(3,830	)			(890	)
Net income for the period			—				—				—				—				390				390				91
Balance as of September 30, 2006			114,000				—				(20	)			—				204				184				43
For the nine month period ended September 30, 2005 (unaudited)
Balance as of January 1, 2005			114,000				—				—				—				3,161				3,161
Movement in capital reserve in respect of hedging transactions, net			—				—				5				—				—				5
Cash dividend declared subsequent to balance sheet date			—				—				—				1,700				(1,700	)			—
Net income of the period			—				—				—				—				418				418
Balance as of September 30, 2005 (unaudited)			114,000				—				5				1,700				1,879				3,584

F-5

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																										Convenience
														Convenience												Translation
														Translation												Into
														Into												U.S. Dollar
														U.S. Dollar												(Note 2C)
														(Note 2C)
																		Nine Month Period Ended
																										Nine-Month
		Year Ended December 31												Year Ended												Period Ended
														December 31				September 30				September 30				September 30
		2003				2004				2005				2005				2005				2006				2006
																		(Unaudited)
														US$												US$
		NIS (Note 2B)																NIS (Note 2B)
		(All amounts are in millions)
Cash flows from operating activities:
Net income			431				617				483				112				418				390				91
Addition required to present cash flows from operating activities(a)			962				854				789				184				582				677				157
Net cash provided by operating activities			1,393				1,471				1,272				296				1,000				1,067				248
Cash flows from investing activities:
Addition to property, plant and equipment			(676	)			(725	)			(576	)			(134	)			(420	)			(501	)			(117	)
Proceeds from sales of property, plant and equipment			23				7				12				3				8				12				3
Long-term deposit			189				—				—				—				—				—				—
Investment in other assets			(44	)			(134	)			(55	)			(13	)			(33	)			(22	)			(5	)
Net cash used in investing activities			(508	)			(852	)			(619	)			(144	)			(445	)			(511	)			(119	)
Cash flows from financing activities:
Repayments under short-term bank credit facility			(25,616	)			(9,269	)			(4,953	)			(1,151	)			(4,817	)			(903	)			(210	)
Borrowings under short-term bank credit facility			25,168				9,328				4,894				1,138				4,758				1,166				271
Borrowings of long-term loans from banks			—				—				—				—				—				2,155				501
Payment of long-term loans from banks			(155	)			(1,127	)			(533	)			(124	)			(477	)			(1,088	)			(253	)
Proceeds from issuance of debentures, net of issuance costs			—				—				1,706				396				—				290				67
Paid dividend			—				—				—				—				—				(3,830	)			(890	)
Net cash provided by (used in) financing activities			(603	)			(1,068	)			1,114				259				(536	)			(2,210	)			(514	)
Increase (decrease) in cash and cash equivalents			282				(449	)			1,767				411				19				(1,654	)			(385	)
Balance of cash and cash equivalents at beginning of the period			171				454				5				1				5				1,772				412
Balance of cash and cash equivalents at end of the period			453				5				1,772				412				24				118				27
The accompanying notes are an integral part of the financial statements.

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																										Convenience
														Convenience												Translation
														Translation												Into
														Into												U.S. Dollar
														U.S. Dollar												(Note 2C)
														(Note 2C)
																		Nine Month Period Ended
																										Nine-Month
		Year Ended December 31												Year Ended												Period Ended
														December 31				September 30				September 30				September 30
		2003				2004				2005				2005				2005				2006				2006
																		(Unaudited)
														US$												US$
		NIS (Note 2B)																NIS (Note 2B)
		(All amounts are in millions)
(a) Adjustments required to present cash flows from operating activities
Income and expenses not involving cash flows
Depreciation and amortization			999				961				941				219				704				667				155
Deferred taxes			54				(9	)			(6	)			(1	)			(11	)			(21	)			(5	)
Exchange and linkage differences on long-term liabilities			16				6				—				—				—				(68	)			(16	)
Capital losses (gains)			(7	)			(1	)			2				—				2				1				—
Change in liability for employee severance pay			6				(7	)			—				—				(1	)			—				—
Provision for decline in value of land — held for sale			6				—				4				1				4				—				—
			1,074				950				941				219				698				579				134
Changes in assets and liabilities
Increase in trade receivables (including long-term amounts)			(141	)			(234	)			(37	)			(9	)			(12	)			(80	)			(19	)
Decrease (increase) in other receivables (including long-term amounts)			(15	)			133				(60	)			(14	)			(40	)			26				6
Decrease (increase) in inventories			69				15				(19	)			(4	)			(47	)			(19	)			(4	)
Increase (decrease) in trade payables (including long-term amounts)			(94	)			74				(15	)			(3	)			(19	)			(26	)			(6	)
Increase (decrease) in other payables and credits (including long-term amounts)			69				(84	)			(21	)			(5	)			2				197				46
			(112	)			(96	)			(152	)			(35	)			(116	)			98				23
			962				854				789				184				582				677				157
(b) Non-cash activities
Acquisition of property, plant and equipment and other assets on credit			259				165				314				73				105				94				22
Receivables in respect of issuance of debentures			—				—				46				11				—				—				—
Supplemental information:
Income taxes paid			211				277				275				64				205				206				48
Interest paid			177				109				51				12				44				95				22

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A.	Basis of presentation

B.	Reporting principles

F-8

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		December 31,				December 31,				December 31,				September 30,				September 30,
		2003				2004				2005				2005				2006
CPI (in points)			178.6				180.7				185.1				184.1				186.5
Exchange rate of U.S.$ in NIS			4.379				4.308				4.603				4.598				4.302

														January 1 to				January 1 to
														September 30				September 30
		2003				2004				2005				2005				2006
CPI			(1.9	)%			1.2	%			2.4	%			1.9	%			0.7	%
Exchange rate of U.S.$ in NIS			(7.6	)%			(1.6	)%			6.9	%			6.7	%			(6.5	)%

C.	Convenience translation into U.S. dollars (“dollars” or “$”)

D.	Use of estimates

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E.	Principles of consolidation

F.	Cash and cash equivalents

G.	Allowance for doubtful accounts

H.	Inventory

I.	Property, plant and equipment

F-10

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		%
Network and transmission equipment			15
Control and testing equipment			15-25			(Mainly 25%)
Vehicles			15
Computers and software			15-33			(Mainly 25%)
Furniture and office equipment			6-15			(Mainly 7%)

J.	Impairment of assets

K.	Other assets, net

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L.	Revenue recognition

F-12

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M.	Discounts from suppliers

N.	Advertising expenses

O.	Capitalization of financing costs

P.	Deferred taxes

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Q.	Freestanding derivative financial instruments

R.	Financial instruments and concentration of credit risk

F-14

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S.	Dividend declared subsequent to the balance sheet date

T.	Earnings per share

U.	Effects of new Israeli Accounting Standards not yet adopted

F-15

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	Revaluation of assets

	Asset retirement obligations

	Component depreciation

	Asset retirement obligations

	Component depreciation

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														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Decrease in depreciation expense			46				46				52				39				38
Decrease in capital gain			—				—				(2	)			(2	)			(3	)
Decrease (increase) in deferred tax expense			(17	)			(4	)			(2	)			2				(7	)
Increase in net income			29				42				48				39				28
Increase in basic and diluted earnings per ordinary shares			0.30				0.43				0.49				0.40				0.29

	Composition

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Israeli currency — NIS			1				1,767				109
Foreign currency			4				5				9
			5				1,772				118

	Composition

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Open accounts and unbilled revenue			747				723				716
Checks and credit cards receivables			153				149				171
			900				872				887
Current maturity of long-term receivables			461				519				556
			1,361				1,391				1,443
Less — allowance for doubtful accounts			171				154				184
			1,190				1,237				1,259

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	Composition

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Government institutions			1				40				—
Derivative financial instruments			12				7				1
Prepaid expenses			54				70				54
Deferred taxes			64				53				64
Receivables in respect of debentures			—				46				—
Other			9				8				2
			140				224				121

A.	Composition

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Handsets			87				97				105
Accessories			5				8				10
Spare parts			7				13				22
			99				118				137

	Composition

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Open accounts(a)			901				816				890
Credit cards receivables(a)			46				155				176
Other			24				33				57
Total			971				1,004				1,123
Less deferred interest income(b)			75				48				48
			896				956				1,075
Less — Allowance for doubtful accounts			2				4				4
			894				952				1,071
Less current maturities			461				519				556
			433				433				515

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		December 31				September 30
		2005				2006
		NIS millions				NIS millions
Second year			279				350
Third year			120				130
Fourth year and thereafter			34				35
			433				515

(a)	The long-term trade receivables arise from the sale of handsets on a contractual installment basis (primarily 36 monthly payments).

(b)	The deferred interest income constitutes the difference between the amount of the long-term receivables and their discounted value based on the relevant imputed interest rate at the date of the transaction. The annual interest rate used by the Company in 2006 is 5% (2005 — 3.5%-7%, 2004 — 9%).

A.	Composition:

						Network												Computers,
						and				Control and								Furniture
						Transmission				Testing								and Office				Leasehold
		Land*				Equipment				Equipment				Vehicles				Equipment				Improvements				Total
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
For the year ended December 31, 2005
Cost
Balance at January 1, 2005			33				6,830				239				92				1,507				160				8,861
Additions			—				456				22				7				212				25				722
Dispositions			—				(52	)			—				(30	)			(7	)			(1	)			(90	)
Balance at December 31, 2005			33				7,234				261				69				1,712				184				9,493
Accumulated depreciation
Balance at January 1, 2005			—				4,691				154				51				916				95				5,907
Depreciation for the year			—				635				32				12				219				14				912
Dispositions			—				(46	)			—				(23	)			(6	)			—				(75	)
Balance at December 31, 2005			—				5,280				186				40				1,129				109				6,744
Provision for decline in value in land held for sale
Balance at January 1, 2005			(6	)			—				—				—				—				—				(6	)
Additions			(4	)			—				—				—				—				—				(4	)
Balance at December 31, 2005			(10	)			—				—				—				—				—				(10	)
Net depreciated cost as at December 31, 2005			23				1,954				75				29				583				75				2,739
Net depreciated cost as at December 31, 2004			27				2,139				85				41				591				65				2,948

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						Network												Computers,
						and				Control and								Furniture
						Transmission				Testing								and Office				Leasehold
		Land*				Equipment				Equipment				Vehicles				Equipment				Improvements				Total
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
For the nine month period ended September 30, 2006:
Cost
Balance at January 1, 2006			33				7,234				261				69				1,712				184				9,493
Additions			—				204				—				—				99				10				313
Dispositions			—				(47	)			—				(31	)			(11	)			—				(89	)
Balance at September 30, 2006			33				7,391				261				38				1,800				194				9,717
Accumulated depreciation
Balance at January 1, 2006			—				5,280				186				40				1,129				109				6,744
Depreciation for the period			—				437				19				6				168				12				642
Dispositions			—				(44	)			—				(23	)			(11	)			—				(78	)
Balance at September 30, 2006			—				5,673				205				23				1,286				121				7,308
Provision for decline in value in land held for sale
Balance at January 1, 2006			(10	)			—				—				—				—				—				(10	)
Additions			—				—				—				—				—				—				—
Balance at September 30, 2006			(10	)			—				—				—				—				—				(10	)
Net depreciated cost as at September 30, 2006			23				1,718				56				15				514				73				2,399

*	Represents land that was leased from the Israel Lands Administration.

	B.     Additional information

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	Composition

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Deferred expenses			—				4				—
License			536				558				559
Less — accumulated amortization			(40	)			(69	)			(94	)
			496				493				465

		December 31				September 30
		2005				2006
		NIS millions				NIS millions
2006			31				8
2007			31				31
2008			31				31
2009			31				31
2010			31				31
2011			31				31

	Composition

						December 31
		September 30												September 30
		2006				2004				2005				2006
		Interest rate %				NIS millions				NIS millions				NIS millions
Short-term loans from banks			6.4 - 7.1				59				—				263
Current maturities of long-term loans from banks			6.9 - 7.3				493				320				75
Total							552				320				338
Less debt issuance cost							—				—				(5	)
							552				320				333

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	Composition

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Open accounts:
In Israeli currency			122				169				126
In foreign currency (mainly in U.S. dollars)			139				289				90
Accrued expenses (mainly in NIS)			514				457				491
			775				915				707
Current maturity of long-term trade payables			41				29				—
			816				944				707

	Composition

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Employees and related liabilities			100				71				94
Government institutions			20				16				100
Accrued expenses			38				41				95
Deferred revenue			26				39				29
Derivative financial instruments			13				3				93
Advances from customers			7				8				4
			204				178				415

A.	Composition

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
In NIS — linked to the Israeli CPI			107				—				—
In NIS — unlinked			777				351				1,325
			884				351				1,325
Less debt issuance cost			—				—				(12	)
Total			884				351				1,313
Less current maturities			(493	)			(320	)			(75	)
			391				31				1,238

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B.	Maturity dates:

		December 31				September 30
		2005				2006
		NIS millions				NIS millions
2006			320				56
2007			25				25
2008			6				254
2009			—				247
2010			—				743
			351				1,325

C.	Credit facility agreement

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D.	Credit facility

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A.	Composition

						December 31				September 30
		Interest Rate %				2005				2006
						NIS millions				NIS millions
Debentures (Series A) — linked to the CPI			5.0	%			1,037				1,080
Debentures (Series B) — linked to the CPI			5.3	%			715				939
Unamortized premium on debentures							—				3
							1,752				2,022
Less — Deferred issuance expenses							—				(5	)
							1,752				2,017

B.	Maturity dates

		December 31				September 30
		2005				2006
		NIS millions				NIS millions
2006			—				—
2007			—				—
2008			115				120
2009			230				240
2010			230				240
More than 5 years			1,177				1,422
			1,752				2,022

C.	Issuance of debentures

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	Composition:

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
In respect of acquisition of spectrum licenses			69				29				—
Other			4				2				2
			73				31				2
Less current maturities			(41	)			(29	)			—
			32				2				2

A.	Contingent liabilities

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B.	Effects of new legislation and standards

	(a) The Company estimates, based on the opinion of the Company legal advisors, that there are currently no legal grounds for approval of any indemnification with respect to sites established based on a permit issued under the NZP, prior to the entry of the aforementioned amendment. Presently, attempts, which have yet to be filed or decided, are being made to assert such grounds for legal claims.
	(b) As part of the Company considerations for establishment of new cell sites, the Company will also examine the potential for a claim under Section 197. To the best of management’s knowledge, at this point no court decision has been made indicating a decline in the value of property due to the construction of a cell site.
	(c) The need to dismantle and remove existing sites, and the difficulties in establishing alternative sites, could have an adverse effect on the Company’s results of operations.
	(d) The Company is unable to estimate the future impact of the indemnification requirement, as detailed in sections a and b. Despite this, if the Company shall be required to make substantial payments under the indemnity letters, it may have an adverse effect on the Company’s financial results and trigger a default under the credit facility agreement (see Note 13C above).

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	a. A gradual decline in the rate of interconnection tariffs received from other cellular networks or from landline network operators, as follows: as of March 1, 2005, the rate of NIS 0.45 per minute will decrease to a maximum rate of NIS 0.32 per minute; as of March 1, 2006, to a maximum rate of NIS 0.29 per minute; as of March 1, 2007, to a maximum rate of NIS 0.26 per minute, and as of March 1, 2008, to a maximum rate of NIS 0.22 per minute.
	b. A decrease in the rate of interconnection tariffs received from international network operators, from the current rate of NIS 0.25 per minute, to a maximum rate of NIS 0.22 per minute, as of March 1, 2008.
	c. A decrease, as of March 1, 2005, in the rate of SMS interconnection tariffs received from other cellular operators from the rate of NIS 0.285 per message, to a maximum rate of NIS 0.05 per message, and an additional decrease to a maximum rate of NIS 0.025 per message as of March 1, 2006.
	d. The aforementioned tariffs in items a through c do not include Value Added Tax and linkage to the CPI, and they will be annually updated, based on the annual change in the CPI, as of March 1, 2005, in accordance with the provisions of the aforementioned regulations.

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C.	Commitments

	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 royalties equal to 3% of the Company’s revenues generated from telecommunications services, less payments transferred to other license holders for interconnect fees or roaming services, sale of handsets and losses from bad debt. The rate of these royalties has decreased in recent years, from 4.5% in 2002, to 4% in 2003, and to 3.5% in 2004 and 2005. In August 2006, the royalty rate was reduced to 3%, retroactively from January 1, 2006 and it will continue to be reduced by 0.5% per year, until reaching a rate of 1%.
	c. 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.

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	a. Office buildings and warehouses — there are lease agreements for periods of up to 23 years and four months.
	b. Switching stations — there are lease agreements for switching station locations for periods of up to 10 years.
	c. Cell sites — there are lease agreements for cell sites for periods of up to 28 years and four months.
	d. Service centers, retail stores and stands — there are lease agreements for service and installation centers, stores and stands for periods of up to 15 years and six months.
	e. Transmission services for cell sites and switches.

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

		December 31				September 30
		2005				2006
		NIS millions				NIS millions
2006			213				67
2007			202				254
2008			174				199
2009			123				176
2010			115				158
2011 and thereafter			634				914
			1,461				1,768

D.	Liens and guarantees

	a. To the Government of Israel (to guarantee performance of the License) — U.S. $10 million.
	b. To the Government of Israel (to guarantee performance of the License for Cellcom Fixed Line Communication L. P.) — NIS 10 million.
	c. To suppliers and government institutions — NIS 14.7 million.

		At September 30, 2006
		and at December 31 2005
		and 2004
						Issued and
		Authorized				Paid-up
		NIS				NIS
Ordinary shares of NIS 0.1 par value each			1,000,000				11,400

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	1) To reorganize the share capital so that each ordinary share of NIS 0.1 par value would be split into 10 ordinary shares of NIS 0.01 par value.
	2) To increase the authorized share capital from 100,000,000 ordinary shares of NIS 0.01 par value to 300,000,000 ordinary shares of NIS 0.01 par value.
	3) To allot 96,360,000 fully paid share dividend of NIS 0.01 par value to all shareholders, pro rata.

C.	Share Based Incentive Plan

	All per share data and ordinary share data below have been retroactively adjusted to reflect the increase in the authorized share capital, stock split and allotment of bonus shares, effected by the Company, subsequent to the balance sheet date, on October 12, 2006.
	In September 2006, the Company’s Board of Directors approved a share based incentive plan for employees, directors, consultants and sub-contractors and to those of the Company’s affiliates and the shareholders’ affiliates. The plan has an initial pool of 2,500,000 shares over which options and restricted stock units may be granted.
	In October and November 2006, subsequent to the balance sheet date, 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 employees. The options are exercisable only upon a successful public offering of the Company’s ordinary shares.
	In general, the options will vest in four equal installments on each of the first, second, third and fourth anniversary of the date of grant. As a result, the total value of the options granted in October and November 2006 will be expensed over the vesting period commencing on the date of completion of a public offering of the Company’s ordinary shares. However, the vesting of options and restricted stock units will be accelerated upon the occurrence of certain events, including a merger, a consolidation, a sale of all or substantially all of the Company’s consolidated assets, or a sale of the Company’s ordinary shares held by DIC and its affiliates to a third party resulting in IDB holding less than 50.01% of the Company’s then outstanding share capital.
	The total compensation expense related to the options granted during October-November 2006 is approximately NIS 53 million, which will be recognized over the vesting period commencing on the date of completion of a public offering of the Company’s ordinary shares (unaudited).

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	The fair value of each option granted was estimated on the date of the grant using the Black-Scholes model, assuming a dividend yield of zero percent, due to a dividend adjustment mechanism, and using the following assumptions:

	•	weighted average expected life of the options of 4.25 years;
	•	risk-free, annual interest rate of 5.01%, which represents the risk- free interest rate of zero-coupon U.S. Government Bonds; and
	•	expected average volatility of 26.69%, which represents a weighted average standard deviation rate for the stock prices of similar publicly traded companies.

D.	Dividend policy

	Composition

														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Revenues from handsets, net			498				646				565				406				477
Revenues from services			4,763				4,954				4,549				3,439				3,714
			5,261				5,600				5,114				3,845				4,191

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														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Additional information
Revenues from handsets on an installments basis			377				539				527				351				428

	Composition

														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
According to source of income:
Cost of revenues from handsets			710				813				683				448				592
Cost of revenues from services			2,365				2,489				2,450				1,816				1,878
			3,075				3,302				3,133				2,264				2,470
According to its components:
Purchase of handsets			640				798				649				476				611
Changes in inventory			44				1				(18	)			(47	)			(28	)
Write-down of inventory			26				14				52				19				9
			710				813				683				448				592
Rent and related expenses			230				268				286				195				219
Salaries and related expenses			175				164				142				107				113
Fees to other operators and others			882				928				825				595				673
Depreciation and amortization			742				688				681				501				480
Royalties (see Note 17C1)			137				120				112				86				79
Other			199				321				404				332				314
			2,365				2,489				2,450				1,816				1,878
			3,075				3,302				3,133				2,264				2,470

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	Composition

														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Salaries and related expenses			252				232				236				175				192
Commissions			109				140				122				84				110
Advertising and public relations			116				138				118				91				65
Depreciation			13				12				9				7				5
Other			123				139				138				96				101
			613				661				623				453				473

	Composition

														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Salaries and related expenses			176				160				148				114				106
Depreciation and amortization			245				262				251				197				182
Rent and maintenance			76				79				75				55				54
Professional services			76				77				81				61				55
Allowance for doubtful accounts			64				37				19				27				32
Other			45				69				82				58				57
			682				684				656				512				486

		December 31												September 30
		2003				2004				2005				2006
		NIS millions				NIS millions				NIS millions				NIS millions
Balance at beginning of the period			176				151				173				158
Write-offs			(89	)			(15	)			(34	)			(2	)
Additional allowance			64				37				19				32
Balance at end of the period			151				173				158				188

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	Composition

														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Expenses for long-term liabilities:
Debentures			—				—				(2	)			—				(98	)
Long-term loans			(160	)			(94	)			(43	)			(36	)			(53	)
			(160	)			(94	)			(45	)			(36	)			(151	)
Short-term loans			(42	)			(5	)			(2	)			(2	)			(19	)
Transactions in derivative financial instruments			(85	)			(28	)			11				10				(16	)
Transactions involving installment sales imputed interest on market installment sales			50				70				62				48				38
Other items			21				12				(2	)			(7	)			20
			(216	)			(45	)			24				13				(128	)
Additional information:
Includes expenses for foreign exchange differences			(23	)			(2	)			(3	)			(5	)			(5	)

	Composition

															Nine Month Period Ended
			Year Ended December 31												September 30
			2003				2004				2005				2005				2006
															(Unaudited)
			NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Capital gain (loss) from sale of property, plant and equipment				7				1				(2	)			(1	)			(1	)
Other income (expenses), net*				(6	)			—				(9	)			(9	)			—
				1				1				(11	)			(10	)			(1	)
* Includes provision for decline in value of land —
	— held for sale			(6	)			—				(4	)			(4	)			—

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D.	Reconciliation of income tax expense:

														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Income before income taxes as per the income statement			676				909				715				619				633
Tax rate			36	%			35	%			34	%			34	%			31	%
Tax calculated according to the main tax rate			243				318				243				210				196
Increase (decrease) in tax resulting from:
Non-deductible interest expenses (see Note 25F)			—				—				—				—				39
Other non-deductible expenses and non taxable income, net			8				4				4				4				4

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														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Taxes in respect of prior years			—				2				—				—				3
Change in deferred tax balances due to reduction in tax rate			—				(22	)			(16	)			(16	)			—
Other, net			(6	)			(10	)			1				3				1
			245				292				232				201				243

E.	Deferred taxes

		December 31												September 30
		2003				2004				2005				2006
		NIS millions				NIS millions				NIS millions				NIS millions
Provisions for employee benefits, net			8				4				1				1
Allowance for doubtful debts			54				59				49				54
Hedging transactions			—				—				(2	)			8
Property, plant and equipment and other assets			(162	)			(154	)			(135	)			(117	)
			(100	)			(91	)			(87	)			(54	)

		December 31												September 30
		2003				2004				2005				2006
		NIS millions				NIS millions				NIS millions				NIS millions
Other receivables (short-term)			60				64				53				64
Deferred taxes (long-term)			(160	)			(155	)			(140	)			(118	)
			(100	)			(91	)			(87	)			(54	)

F.	Income tax in the income statement

														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Current taxes			191				299				238				215				263
Prior year taxes			—				2				—				—				3
Deferred taxes			54				(9	)			(6	)			(14	)			(23	)
			245				292				232				201				243

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G.	Taxes recorded to shareholders’ equity

														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Deferred taxes in respect of hedging transactions			—				—				2				2				(10	)

H.	Losses for tax purposes

A.	Linkage terms of financial instrument

December 31, 2005

September 30, 2006

In or

In or

Linked to

Linked to

Foreign

Foreign

Currencies

Currencies

Linked to

(Mainly

Linked to the

(Mainly

the Israeli

Dollars)

Israeli CPI

Unlinked

Dollars)

CPI

Unlinked

NIS millions

NIS millions

NIS millions

NIS millions

NIS millions

NIS millions

Assets

5

15

3,577

9

18

1,910

Liabilities

317

1,752

1,158

980

2,074

1,663

B.	Derivative Financial Instruments

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		December 31, 2004								December 31, 2005								September 30, 2006
		Par Value				Fair Value				Par Value				Fair Value				Par Value				Fair Value
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Forward contracts on exchange rate (mainly dollar — NIS)			754				(12	)			654				1				486				(27	)
Forward contracts on Israeli CPI			—				—				—				—				500				(4	)
Options on the exchange rate (mainly dollar — NIS)			1,639				12				925				4				796				1
Compounded foreign currency and interest swap			—				—				—				—				887				(62	)
			2,393				—				1,579				5				2,669				(92	)

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Beginning accumulated derivative in capital reserve			—				—				5
Net (gain) loss reclassified to earnings			—				(3	)			(1	)
Net change in the revaluation of hedging transactions			—				8				(24	)
Ending accumulated derivative in capital reserve			—				5				(20	)

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C.	Fair value of financial instruments

		December 31, 2005								September 30, 2006
		Book Value				Fair Value				Book Value				Fair Value
		NIS millions				NIS millions				NIS millions				NIS millions
Long-term receivables			921				922				1,017				1,017
Long-term loans, debentures and other liabilities			2,103				2,105				3,588				3,706

A.	Balance sheet

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Current assets			5				1				—
Long-term liability — debentures			—				136				119

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

														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Expenses:
Salaries and related expenses to related parties (two salaried employees in 2005)			3				4				17				13				2
Professional services and other			1				5				2				1				2

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C.	An agreement with DIC

Note 28 —	Material Differences between Israeli and US GAAP and their Effect on the Financial Statements

A.	The effect of the differences between Israeli and US GAAP on the financial statements

1.	Reconciliation of:

															Nine Month Period Ended
			Year Ended December 31												September 30
			2003				2004				2005				2005				2006
															(Unaudited)
			NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Net income as reported, according to Israeli GAAP				431				617				483				418				390
Temporary differences resulting from recognition of revenue arising from application of EITF 00-21 — Note 28C(5)				—				(37	)			14				13				4
Depreciation of property, plant and equipment — Note 28C(3)				46				46				50				37				34
Embedded Derivatives — Note 28C(4)				(28	)			(13	)			9				9				(2	)
AROs — Note 28C(6)				(3	)			(3	)			(2	)			(1	)			(2	)
Push down accounting adjustments:
	Elimination of deferred revenue			—				—				(10	)			—				—
	Depreciation expenses of property, plant and equipment			—				—				25				3				80
	Amortization expenses of intangible assets			—				—				(50	)			(5	)			(125	)
	Interest expenses on push down debt			—				—				(43	)			(4	)			(17	)

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														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Income tax effect of US GAAP adjustments			(5	)			10				15				(10	)			12
Net income according to US GAAP			441				620				491				460				374

			December 31				December 31				September 30
			2004				2005				2006
			NIS millions				NIS millions				NIS millions
Shareholders’ equity as reported, according to Israeli GAAP				3,161				3,649				184
Temporary differences resulting from recognition of revenue arising from application of EITF 00-21 — Note 28C(5)				(37	)			(6	)			(2	)
Depreciation of property, plant and equipment — Note 28C(3)				296				346				380
Embedded Derivatives — Note 28C(4)				(30	)			(21	)			(23	)
AROs — Note 28C(6)				(6	)			(10	)			(9	)
Push down accounting adjustments — Note 28C(2):
	Push down of the acquisition			—				3,652				3,652
	Push down of DIC’s debt			—				(2,970	)			—
	Elimination of deferred revenue			—				(22	)			(22	)
	Cumulative depreciation of property, plant and equipment			—				25				105
	Cumulative amortization expenses of intangible assets			—				(50	)			(175	)
	Accrued interest expenses, net of deemed dividend in respect of DIC’s push down debt			—				(43	)			—
Income tax effect of US GAAP adjustments				(72	)			(60	)			(72	)
Shareholders’ equity according to US GAAP				3,312				4,490				4,018

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Note 28 —	Material Differences between Israeli and US GAAP and their Effect on the Financial Statements

B.	Condensed financial statements according to US GAAP

		December 31					December 31				September 30
		2004					2005				2006
		(All amounts are in NIS millions)
Current assets
Cash and cash equivalents			5					1,772				118
Trade receivables, net			1,190					1,237				1,259
Other receivables			140					225				121
Inventory			99					118				137
			1,434					3,352				1,635
Long-term receivables			460					456				537
Property, plant and equipment, net			3,220					2,384				2,159
Other assets, net			496					1,625				1,471
Goodwill			—					3,283				3,283
Total assets			5,610					11,100				9,085
Current liabilities
Short-term bank credit (see Note 28C(2))			552					3,333				333
Trade payables			816					944				707
Other current liabilities			271					205				440
			1,639					4,482				1,480
Long-term liabilities
Long-term loans from banks			391					31				1,238
Debentures			—					1,752				2,017
Deferred taxes			227					333				318
Other long-term liabilities			41					12				14
			659					2,128				3,587
Shareholders’ equity			3,312					4,490				4,018
Total liabilities and shareholders’ equity			5,610					11,100				9,085

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		Year Ended								January 1					September 22				Nine Month Period
		December 31								Through					through				Ended September 30
										September 21					December 31
		2003				2004				2005					2005				2005					2006
																			(Unaudited)
		All amounts are in NIS millions except for share and per share data
Revenues			5,261				5,563				3,713					1,405				3,858					4,195
Cost of revenues			3,034				3,263				2,141					972				2,232					2,480
Gross profit			2,227				2,300				1,572					433				1,626					1,715
Selling and marketing expenses			613				661				434					189				453					473
General and administrative expenses			681				683				502					167				524					491
Operating income			933				956				636					77				649					751
Financial income (expenses), net			(240	)			(55	)			21					(27	)			22					(145	)
Income before income tax and cumulative effect of change in accounting principle			693				901				657					50				671					606
Income tax			250				281				205					11				211					232
Income before cumulative effect of change in accounting principle			443				620				452					39				460					374
Cumulative effect of a change in accounting principle (Note 28C(6))			(2	)			—				—					—				—					—
Net income			441				620				452					39				460					374
Earnings per share
Basic and diluted earnings per share in NIS			4.52				6.36				4.64					0.40				4.72					3.84
Weighted-average number of shares used in calculation of basic and diluted earnings per share (in thousands)			97,500				97,500				97,500					97,500				97,500					97,500

*	The period from September 22, 2005 through September 30, 2005 is presented under the new basis of accounting within the nine month period ended September 30, 2005.

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		Share Capital
										Additional
		Number of								Paid-in				Retained
		Shares				Amount				Capital				Earnings				Total
		NIS 0.01
		Pare Value
		All amounts are in NIS millions except for share and per share
		data
Balance as of January 1, 2003			97,500,000				—				—				2,251				2,251
Changes in the year ended December 31, 2003
Net income			—				—				—				441				441
Balance as of December 31, 2003			97,500,000				—				—				2,692				2,692
Changes in the year ended December 31, 2004
Net income			—				—				—				620				620
Balance as of December 31, 2004			97,500,000				—				—				3,312				3,312
Changes in the year ended December 31, 2005
Movement in capital reserve in respect of hedging transactions, net, for the period from January 1, 2005 through September 21, 2005			—				—				5				—				5
Net income for the period from January 1, 2005 through September 21, 2005							—				—				452				452
Elimination of historical equity on acquisition at September 21, 2005							—				3,764				(3,764	)			—
Push-down of the acquisition — Note 28C(2b5)							—				3,652				—				3,652
Push-down of DIC’s debt — Note 28C(2b6)							—				(2,970	)			—				(2,970	)
Net income for the period from September 22, 2005 through December 31, 2005							—				—				39				39
Balance as of December 31, 2005			97,500,000				—				4,451				39				4,490
For the nine month period ended September 30, 2006
Movement in capital reserve in respect of hedging transactions, net			—				—				(25	)			—				(25	)
Dividend paid			—				—				(3,570	)			(260	)			(3,830	)
Allotment to dividend share subsequent to balance sheet date			—				1				—				(1	)			—

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		Share Capital
										Additional
		Number of								Paid-in				Retained
		Shares				Amount				Capital				Earnings				Total
		NIS 0.01
		Pare Value
		All amounts are in NIS millions except for share and per share
		data
Repayment of DIC’s push-down debt and interest, net of deemed dividend			—				—				3,009				—				3,009
Net income			—				—				—				374				374
Balance as of September 30, 2006			97,500,000				1				3,865				152				4,018

4.	Comprehensive income (loss)

										January 1					September 22				Nine Month Period Ended
		Year Ended December 31,								through					through				September 30
										September 21,					December 31,
		2003				2004				2005					2005				2005					2006
																			(Unaudited)
		NIS millions				NIS millions				NIS millions					NIS millions				NIS millions					NIS millions
Net income according to US GAAP			441				620				452					39				460					374
Net gain (loss) reclassified to earnings			—				—				(1	)				(2	)			(1	)				(1	)
Adjustments in respect of derivatives, net			—				—				6					2				6					(24	)
Total comprehensive income			441				620				457					39				465					349

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5.	Condensed Consolidated Statement of Cash Flows:

		Year Ended								January 1					September 22				Nine Month Period
		December 31								through					through				Ended September 30
										September 21,					December 31,
		2003				2004				2005					2005				2005					2006
																			(Unaudited)
		All amounts are in NIS millions
Cash flows from operating activities:
Net income			441				620				452					39				460					374
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			956				920				645					269				668					677
Deferred income taxes			59				(20	)			(3	)				(17	)			(1	)				(32	)
Exchange and linkage differences (erosion of) long- term liabilities			17				6				—					2				—					(68	)
Interest on push-down debt (see Note 28C(2c3))			—				—				—					43				4					17
Capital losses (gains)			(7	)			(2	)			3					(1	)			4					4
Change in liability for employee severance pay			6				(7	)			—					—				(1	)				—
Provision for decline in value of land — held for sale			6				—				4					—				4					—
			1,037				897				649					296				678					598
Changes in operating assets and liabilities, net of effects of acquisitions:
Decrease (increase) in trade receivables (including long-term amounts)			(141	)			(234	)			65					(102	)			(12	)				(80	)
Decrease (increase) in other receivables (including long-term amounts)			(3	)			134				(41	)				(19	)			(40	)				26
Decrease (increase) in inventories			69				15				(43	)				24				(47	)				(19	)
Increase (decrease) in trade payables (including long-term amounts)			(94	)			74				(69	)				54				(19	)				(26	)

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		Year Ended								January 1					September 22				Nine Month Period
		December 31								through					through				Ended September 30
										September 21,					December 31,
		2003				2004				2005					2005				2005					2006
																			(Unaudited)
		All amounts are in NIS millions
Increase (decrease) in other payables and credits (including long-term amounts)			84				(34	)			6					(39	)			(20	)				194
			(85	)			(45	)			(82	)				(82	)			(138	)				95
Net cash provided by operating activities			1,393				1,472				1,019					253				1,000					1,067
Net cash used in investing activities			(508	)			(852	)			(444	)				(175	)			(445	)				(511	)
Net cash provided by (used in) financing activities			(603	)			(1,068	)			(536	)				1,650				(536	)				(2,210	)
Increase (decrease) in cash and cash equivalents			282				(448	)			39					1,728				19					(1,654	)
Balance of cash and cash equivalents at beginning of the period			171				453				5					44				5					1,772
Balance of cash and cash equivalents at end of the period			453				5				44					1,772				24					118

C.	Differences between Israeli GAAP and US GAAP

	1.     Effect of inflation

	In accordance with Israeli GAAP:

	In accordance with US GAAP:

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2.	Push-down accounting

	In accordance with Israeli GAAP:

	In accordance with US GAAP:

	a.     New basis of accounting:

		September 21
		2005
		NIS millions
Current assets			1,051
Property, plant and equipment			1,338
Other assets			301
Liabilities			(1,098	)
Definite life intangible assets acquired licenses			346
Definite life intangible assets acquired customer base			714
Indefinite life brand name			468

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		September 21
		2005
		NIS millions
Goodwill			3,283
Deferred taxes			(134	)
Total cash consideration paid for equity interests, including direct acquisition cost			6,269

	b.     Primary changes to the balance sheet

	(1) The reduction of the carrying value of property, plant and equipment, which have been recorded using the estimated replacement cost fair market value;
	(2) The recording of a value for brand name;
	(3) The recording of a value for customer base;
	(4) Adjustment to deferred tax assets resulting from the above changes;
	(5) The recording of a value for goodwill;
	(6) The recording NIS 2,970 millions of push-down debt;
	(7) The elimination of deferred revenue;
	(8) An increase to the shareholders equity in respect of these adjustments.

	c.     Primary changes to the income statement

	(1) A decrease in costs of revenue due to lower level of depreciation from the reduced depreciable base of property, plant and equipment;
	(2) An increase in costs of revenue due to amortization of the acquired customer base;
	(3) An increase in interest expenses resulting from the push-down debt;
	(4) A decrease in the deferred tax expenses resulting from the above adjustments.

	d.     Brand names and goodwill

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	e.     Customer base

3.	Property, plant and equipment

	In accordance with Israeli GAAP:

	In accordance with US GAAP:

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4.	Embedded Derivatives

	In accordance with Israeli GAAP:

	In accordance with US GAAP:

5.	Revenue recognition — free air time sold together with a handset

	In accordance with Israeli GAAP:

	In accordance with US GAAP:

6.	Asset Retirement Obligations

	In accordance with Israeli GAAP:

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	In accordance with US GAAP:

7.	Deferred issuance expenses in respect of debentures

	In accordance with Israeli GAAP:

	In accordance with US GAAP:

D.	US GAAP (Supplementary Information)

	1.     Deferred taxes

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Deferred tax assets:
Provision for employee benefits, net			4				1				1
Allowance for doubtful debts			59				49				54
Hedging transactions			—				(2	)			8
Tax losses			3				3				3
Gross total deferred tax assets			66				51				66
Valuation allowance — in respect of carryforward tax losses			(3	)			(3	)			(3	)
Net deferred tax assets			63				48				63
Deferred tax liabilities:
Property, plant and equipment and other assets, net			(249	)			(232	)			(221	)

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			December 31
											September 30
			2004				2005				2006
			NIS millions				NIS millions				NIS millions
Push down adjustments:
	Property, plant and equipment and other assets			—				184				158
	Intangible asset			—				(302	)			(263	)
	Push down interest expense			—				14				—
Other				23				8				9
Net deferred tax liabilities				(226	)			(328	)			(317	)
Deferred taxes are included in the balance sheet as follows:
Other receivables				64				53				64
Long-term liabilities				(227	)			(333	)			(318	)
				(163	)			(280	)			(254	)

	Reconciliation of income tax expense:

															Nine Month Period Ended
			Year Ended December 31												September 30
			2003				2004				2005				2005				2006
															(Unaudited)-
			NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Income before income taxes as per the income statement				693				901				707				671				606
	Tax rate			36	%			35	%			34	%			34	%			31	%
	Tax calculated according to the main tax rate			249				315				240				228				188
	Increase (decrease) in tax resulting from:
	Non-deductible interest expenses			—				—				—				—				39
	Other Non-deductible expenses and non taxable income, net			8				4				4				4				4
	Taxes in respect of prior years			—				2				—				—				3

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														Nine Month Period Ended
		Year Ended December 31												September 30
		2003				2004				2005				2005				2006
														(Unaudited)-
		NIS millions				NIS millions				NIS millions				NIS millions				NIS millions
Change in deferred tax balances due to reduction in tax rate			—				(32	)			(27	)			(27	)			—
Other, net			(7	)			(8	)			(1	)			6				(2	)
			250				281				216				211				232

2.	Assets retirement obligations:

		December 31
										September 30
		2004				2005				2006
		NIS millions				NIS millions				NIS millions
Balance at the beginning of the period			6				9				10
Liability settled during the period			(1	)			(2	)			(1	)
Accretion expenses			1				1				1
New liability			3				2				2
Balance at the end of the period			9				10				12

3.	Segment information

4.	New accounting standards

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