Cellcom Israel Ltd. (Form: 20-F, Received: 03/18/2008 08:31:11)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20–F

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

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 200 7

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report …………………………….

For the transition period from ___________________ to ___________________

Commission file number 001-33271

CELLCOM ISRAEL LTD.

(Exact name of Registrant as specified in its charter

and translation of Registrant’s name into English)

ISRAEL

(Jurisdiction of incorporation or organization)

10 Hagavish Street, Netanya 42140, Israel

(Address of principal executive offices)

Liat Menahemi Stadler, 972-52-9989595 (phone), 972-98607986 (fax), LIATME@cellcom.co.il , 10 Hagavish Street, Netanya 42140, Israel.

_______________________________________________________________________________________

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

Securities registered or to be registered pursuant to Section 12(b) of the Act.

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

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

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

None

(Title of Class)

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

As of December 31, 2007, the Registrant had outstanding 97,504,721 Ordinary Shares, par value NIS 0.01 per share.

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [X] Yes [ ] No

If this report is an annual or transition report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. [ ] Yes [X] No

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

Item 17 [X]  Item 18 [ ]

If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

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

U.S. GAAP [ ]

International Financial Reporting Standards as issued by the International Accounting Standards Board [ ]

Other [X]

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant elected to follow.

Item 17 [X]

Item 18 [ ]

TABLE OF CONTENTS

		Page
PART I
Item 1.	Identity of Directors, Senior Management and Advisers	5
Item 2.	Offer Statistics and Expected Timetable	5
Item 3.	Key Information	5
Item 4.	Information on the Company	24
Item 4A	Unresolved Staff Comments	61
Item 5.	Operating and Financial Review and Prospects	61
Item 6.	Directors, Senior Management and Employees	89
Item 7.	Major Shareholders and Related Party Transactions	105
Item 8.	Financial Information	110
Item 9.	The Offer and Listing	116
Item 10.	Additional Information	118
Item 11.	Quantitative and Qualitative Disclosures About Market Risk	131
Item 12.	Description of Securities Other than Equity Securities	133

PART II
Item 13.	Defaults, Dividend Arrearages and Delinquencies	133
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	133
Item 15.	Controls and Procedures	133
Item 16A.	Audit Committee Financial Expert	134
Item 16B.	Code of Ethics	135
Item 16C.	Principal Accountant Fees and Services	135
Item 16D.	Exemptions from the Listing Standards for Audit Committees	136
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	136

PART III
Item 17.	Financial Statements	136
Item 18.	Financial Statements	136
Item 19.	Exhibits	136
Financial Statements		F-1

INTRODUCTION

In this annual report, “Cellcom,” the “Company,” “we,” “us” and “our” refer to Cellcom Israel Ltd. and its subsidiaries. The terms “NIS” refers to new Israeli shekel, and “dollar,” “USD” or “$” refers to U.S. dollars.

Presentation of Financial and Share Information

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in Israel, or Israeli GAAP, and, unless otherwise indicated, all financial data and discussions related to such data are based upon financial statements prepared in accordance with Israeli GAAP. The principal differences between the accounting principles applied by us under Israeli GAAP and generally accepted accounting principles in the United States, or U.S. GAAP, are discussed in note 28 to our consolidated annual financial statements included elsewhere in this annual report.

Unless we indicate otherwise, U.S. dollar translations of the NIS amounts presented in this annual report are translated using the rate of NIS 3.846 to $1.00, the representative rate of exchange as of December 31, 2007 as published by the Bank of Israel.

Trademarks

We have proprietary rights to trademarks used in this annual report which are important to our business. We have omitted the “®” and “™” designations for certain trademarks, but nonetheless reserve all rights to them. Each trademark, trade name or service mark of any other company appearing in this annual report belongs to its respective holder.

Industry and Market Data

This annual report contains information about our market share, market position and industry data. Unless otherwise indicated, this statistical and other market information is based on statistics prepared by the Ministry of Communications of Israel, the Ministry of Finance of Israel, the Central Bureau of Statistics of Israel, the Organization for Economic Cooperation and Development, or OECD, and Pyramid Research. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. We have not independently verified the accuracy of market data and industry forecasts contained in this annual report that were taken or derived from these industry publications.

Special Note Regarding Forward-Looking Statements

We have made statements under the captions “Item 3.D - Risk Factors,” “Item 4 – Information on the Company,” “Item 5 - Operating and Financial Review and Prospects,” and in other sections of this annual report that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could

cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Item 3.D - Risk Factors.” You should specifically consider the numerous risks outlined under “Item 3.D - Risk Factors.”

Although we believe the expectations reflected in the forward-looking statements contained in this annual report are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We assume no duty to update any of these forward-looking statements after the date of this annual report to conform our prior statements to actual results or revised expectations, except as otherwise required by law.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. SELECTED FINANCIAL DATA

You should read the following selected consolidated financial data in conjunction with the section of this annual report entitled “Item 5 - Operating and Financial Review and Prospects” and our consolidated financial statements and the notes thereto included elsewhere in this annual report.

The selected data presented below under the captions “Income Statement Data,” and “Balance Sheet Data” for, and as of the end of, each of the years in the five-year period ended December 31, 2007, are derived from the consolidated financial statements of Cellcom Israel Ltd. and subsidiaries, which financial statements have been audited by Somekh Chaikin, an independent registered public accounting firm and a member firm of KPMG International. The consolidated financial statements as of December 31, 2007, 2006 and 2005, and for each of the years in the three-year period ended December 31, 2007, and the report thereon, are included elsewhere in this annual report. The selected data should be read in conjunction with the consolidated financial statements, the related notes, and the independent registered public accounting firm’s report which contains emphasis paragraphs regarding the convenience translation of the consolidated financial statements as of and for the year ended December 31, 2007 into US dollars solely for the convenience of the reader and, as explained below, reporting periods prior to January 1, 2004 have been adjusted for the changes in the general purchasing power of the Israeli currency.

The figures for the years 2003 to 2006 have been restated to give retroactive effect to the initial implementation of the new Israeli Accounting Standard No. 27, “Property, plant and equipment”, which came into effect on January 1, 2007. See note 2.U.2. to our consolidated financial statements included elsewhere in this Annual Report.

The information presented below under the caption “Other Data” contains information that is not derived from the financial statements.

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. Accordingly, among other things, non-monetary items (such as fixed assets) were adjusted based on the changes in the Israeli CPI from the Israeli CPI published for the month in which the transaction relating to the asset took place up to the Israeli CPI at the date of the balance sheet. Starting January 1, 2004, the adjustment of financial statements for the impact of the changes in the purchasing power of the Israeli currency was discontinued. The adjusted amounts included in the financial statements as of December 31, 2003 constitute the starting point for the nominal financial report as of January 1, 2004. Any additions made from January 1, 2004 are included at their nominal values.

The selected information also includes certain items in accordance with U.S. GAAP. Israeli GAAP differs in certain significant respects from U.S. GAAP. For a summary of certain significant differences, see note 28 to our consolidated financial statements included elsewhere in this annual report.

For your convenience, the following tables also contain U.S. dollar translations of the NIS amounts presented at December 31, 2007, translated using the rate of NIS 3.846 to $1.00, the representative rate of exchange on December 31, 2007 as published by the Bank of Israel.

	Year Ended December 31,
	2003			2004			2005			2006			2007			2007 (In $)
	(In NIS millions, except per share data)
Income Statement Data:
Revenues		5,261			5,600			5,114			5,622			6,050			1,573
Cost of revenues		* 3,029			* 3,256			* 3,081			* 3,273			3,372			877
Selling and marketing expenses		613			661			623			656			685			178
General and administrative expenses		682			684			656			659			652			169
Operating income		937			999			754			1,034			1,341			349
Financial income (expense), net		(216	)		(45	)		24			(155	)		(156	)		(41	)
Other income (expenses), net		1			1			*(13	)		*(6	)		(3	)		(1	)
Income tax		* 262			* 296			* 234			* 314			309			80
Net income		460			659			531			559			873			227
Basic earnings per share		* 4.72			* 6.76			* 5.44			* 5.73			8.95			2.33
Diluted earnings per share		* 4.72			* 6.76			* 5.44			* 5.73			8.87			2.31
Weighted average ordinary shares used in calculation of basic earnings per share		97,500,000			97,500,000			97,500,000			97,500,000			97,500,482			97,500,482
Weighted average ordinary shares used in calculation of diluted earnings per share		97,500,000			97,500,000			97,500,000			97,500,000			98,441,260			98,441,260

* Restated due to initial implementation of a new Israeli Accounting Standard No. 27 (see note 2.U.2 to our consolidated financial statements included elsewhere in this annual report).

U.S. GAAP Data (1) :
Net income		441			620			491			494			869			226
Basic earnings per share		4.52			6.36			5.04			5.07			8.91			2.32
Diluted earnings per share		4.52			6.36			5.04			5.07			8.83			2.30

	As at December 31,
	2003			2004			2005			2006			2007			2007 (In $)
	(In NIS millions, except per share data)
Other Data:
EBITDA(2)		1,890			1,914			1,643			1,864			2,115			550
Capital expenditures		658			739			747			521			573			149
Dividends declared per share		—			—			34.87			4.41			13.90			3.61
Net cash provided (used) by operating activities		1,393			1,471			1,272			1,477			1,644			427
Net cash provided (used) in investing activities		(508	)		(852	)		(619	)		(633	)		(571	)		(148	)
Net cash provided (used) by financing activities		(603	)		(1,068	)		1,114			(2,560	)		(218	)		(57	)
Subscribers(3)		2,300			2,450			2,603			2,884			3,073
Period churn rate(4)		27.3	%		19.9	%		15.0	%		16.8	%		16.3	%
ARPU (in NIS)(5)		162			174			151			149			149			39

	As at December 31,
	2003			2004			2005		2006		2007
	(In NIS millions)
Balance Sheet Data:
Cash		454			5			1,772		56		911
Working capital		(361	)		(138	)		1,909		237		771
Total assets		* 6,158			* 5,607			* 7,361		* 5,323		6,272
Shareholders’ equity		* 2,702			* 3,361			* 3,897		* 597		830

U.S. GAAP Data (2) :
Total assets		—			5,610			11,100		8,998		9,902
Shareholders’ equity		—			3,312			4,490		4,134		4,368

* Restated due to initial implementation of a new Israeli Accounting Standard No. 27 (see note 2.U.2 to our consolidated financial statements included elsewhere in this annual report).

___________

(1)

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, for the year ended and as at December 31, 2006 and for the year ended and as at December 31, 2007 are not comparable with the data presented for the previous periods.

(2)

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 significant debt), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) the age of, and depreciation expenses associated with fixed assets. 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 annual report, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.

The following is a reconciliation of net income to EBITDA:

	Year Ended December 31,
	2003			2004			2005			2006		2007
	(In NIS millions)
Net income		460			659			531			559		873
Financial expense (income), net		216			45			(24	)		155		156
Other expenses (income)		(1	)		(1	)		13			6		3
Income taxes		262			296			234			314		309
Depreciation and amortization		953			915			889			830		774
EBITDA		1,890			1,914			1,643			1,864		2,115

(3)

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 2005 but we have not restated prior subscriber data to conform to the new presentation. We estimate that the change in methodology in 2005 led to an increase in our reported subscriber numbers of approximately 84,000.

(4)

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.

(5)

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

	Year Ended December 31,
	2003	2004	2005	2006	2007	2007 (in$)
	(In NIS millions, except number of subscribers and months)
Revenues	5,261	5,600	5,114	5,622	6,050	1,573
less revenues from equipment sales	498	646	565	636	663	173
less other revenues*	22	21	38	61	93	24
adjustments to the Israeli CPI**	(62)	—	—	—	—	—
Revenues used in ARPU calculation (in NIS millions)	4,803	4,933	4,511	4,925	5,294	1,376
Average number of subscribers	2,477,316	2,368,919	2,489,453	2,757,133	2,955,855	2,955,855
Months during period	12	12	12	12	12	12
ARPU (in NIS, per month)***	162	174	151	149	149	39

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

***

ARPU for 2006 was restated to reflect the full impact of the change in the methodology of calculating our subscriber base implemented in July 2006, to allow comparison with 2007. If the change in methodology of calculating our subscriber base had not changed in July 2006, ARPU for the year ended December 31, 2006 and for the year ended December 31, 2007 would have been NIS 153.

Exchange Rate Information

The following table shows, for each of the months indicated, the high and low exchange rates between the NIS and the U.S. dollar, expressed as NIS per U.S. dollar and based upon the daily representative rate of exchange as published by the Bank of Israel:

Month	High (NIS)		Low (NIS)

September 2007		4.137		4.013
October 2007		4.047		3.966
November 2007		3.969		3.830
December 2007		4.008		3.841
January 2008		3.861		3.625
February 2008		3.655		3.578

On March 17, 2008 the daily representative rate of exchange between the NIS and U.S. dollar as published by the Bank of Israel was NIS 3.426 to $1.00.

The following table shows, for periods indicated, the average exchange rate between the NIS and the U.S. dollar, expressed as NIS per U.S. dollar, calculated based on the average of the representative rate of exchange on the last day of each month during the relevant period as published by the Bank of Israel:

Year	Average (NIS)

2003		4.512
2004		4.483
2005		4.503
2006		4.442
2007		4.085

The effect of exchange rate fluctuations on our business and operations is discussed in “Item 5 - Operating and Financial Review and Prospects—Quantitative and Qualitative Disclosures about Market Risk.”

B. CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D. RISK FACTORS

We believe that the occurrence of any one or some combination of the following factors could have a material adverse effect on our business, financial condition or results of operations.

Risks Related to our Business

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

A substantial part of our operations is subject to the Israeli Communications Law, 1982, the Israeli Wireless Telegraph Ordinance (New Version), 1972, the regulations promulgated thereunder and the license for the provision of cellular services that we received from the Ministry of Communications in accordance with the Communications Law. The interpretation and implementation of the provisions of our general license, as well as our other licenses, are not certain and disagreements have arisen and may arise in the future between the Ministry of Communications and us. The Communications Law and regulations thereunder grant the Ministry of Communications extensive regulatory and supervisory authority with regard to our activities, as well as the authority to impose substantial sanctions in the event of a breach of our licenses. In the event that we materially violate the terms of our licenses, the Ministry of Communications has the authority to revoke them.

Our general license is valid until February 2022. It may be extended for additional six-year periods upon our request to the Ministry of Communications and confirmation from the Ministry of Communications that we have complied with the provisions of our license and the applicable law, have continuously invested in the improvement of our service and network and have demonstrated the ability to do so in the future. Our other licenses are also limited in time. However, our licenses may not be extended when necessary, or, if extended, the extensions may be granted on terms that are not favorable to us. In addition, the Ministry of Communications may modify our licenses without our consent and in a manner that could limit our freedom to conduct our business.

Further, our business and results of operations could be materially and adversely affected by new legislation and decisions by our regulators that:

·	reduce tariffs, including interconnect and roaming tariffs, limit our ability to raise tariffs or otherwise intervene in the pricing policies for our products and services;

increase the number of competitors in the cellular market, including by providing MVNO licenses and/or mobile WiMAX licenses; limit our ability to compete, including by limiting our ability to develop our network, by preferring new and/or small competitors in the allocation of new frequencies, including those designated to the 4 th generation of cellular 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 and/or requirements 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.

See “Item 4. Information on the Company – B – Business Overview - Government Regulations ― Our Principal License”.

If we fail to compensate for lost revenues resulting from past or future legislative or regulatory changes with alternative sources of income, our results of operations may be materially adversely affected.

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.

As a result of an amendment to the Communications Law in March 2005, cellular and landline telephone operators were required to implement number portability by September 1, 2006. Number portability permits subscribers to change to another network operator without having to change their telephone numbers. Despite efforts to introduce the requisite

technology and coordinate the transition to number portability by September 1, 2006, no cellular or landline operator had implemented number portability by that date and a purported class action was filed against us and other cellular and landline operators in that respect. Number portability was implemented on December 2, 2007 and the lawsuit dismissed without prejudice in March 2008, at the plaintiffs’ request. However, we can not guarantee that we will not be exposed to other legal claims, including class actions, regarding this matter.

See “Item 8. Financial Information - Legal Proceedings—Purported class actions” for additional details on a purported class action filed against us and dismissed, in that respect.

See "Item 4. Information on the Company – B. Business Overview – Government Regulations – Number Portability” for additional details.

In 2005, our license was amended to regulate charging for SMS messages sent outside our network, which, under one interpretation of the amendment, may lead to claims of our not being in compliance with our license. To date, we have fulfilled the license requirements, even under this potential interpretation, with respect to SMS messages sent to subscribers of one other cellular operator. However, due to technological difficulties which we and our competitors face and have not yet been resolved, we may face claims, if such interpretation of the amendment prevails, of not having implemented the amendment with respect to SMS messages sent to subscribers of two other operators. We had notified the Ministry of Communications of our technological inability to fully implement the amendment, if it is so interpreted. The Ministry of Communications had proposed an amendment to our license to resolve this problem, which we believe is unsatisfactory because it does not change the charging criteria but mainly proposes certain customer notification requirements. Until such time as the cellular operators develop the necessary interfaces or our license is amended, we may be exposed, if such an interpretation prevails, to substantial sanctions and legal claims.

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

We depend on our network of cell sites to maintain and enhance network coverage for our subscribers. In addition, where necessary, we provide certain subscribers with bi-directional amplifiers, also known as “repeaters,” to remedy weak signal reception in indoor locations. Some of these repeaters are located outdoors on rooftops. We also deploy and operate microwave sites as part of our transmission network. The construction and operation of these various facilities are highly regulated and require us to obtain various consents and permits. See “Item 4.B – Business Overview - Government Regulations—Permits for Cell Site Construction” for additional details.

We have experienced difficulties in obtaining some of these consents and permits, particularly in obtaining building permits for cell sites from local planning and building authorities. As of December 31, 2007, we operated approximately 5.9% of our cell sites without building permits or applicable exemptions. Although, in relation to approximately 3.9% of our cell sites we are in the process of seeking to obtain building permits or to modify them to satisfy applicable exemptions, we may not be able to obtain all the necessary permits or make the necessary modifications. Approximately 28% of our cell sites operate without building permits in reliance on an exemption from the requirement to obtain a building permit, mainly for radio access devices. Our reliance upon the exemption for radio access devices has been challenged by local planning and building authorities in the courts, mostly unsuccessfully. In July 2007, a Magistrate Court has ruled, contrary to the rulings of other

Magistrate Courts, that with respect to radio access devices, our reliance on that exemption is invalid and that we are required to receive permits for the construction and use of the facility and the accompanying equipment. The issue is awaiting consideration in the court of appeals (the District Court). Other similar challenges, as well as other claims asserting that those cell sites and other facilities do not meet other legal requirements continue. See “Item 4. Information on the Company – B. Business Overview - Government Regulations—Permits for Cell Site Construction”. In addition, we operate other cell sites in a manner that is not fully compatible with the building permits issued for these cell sites which may, in some cases, constitute grounds for termination of their lease agreements or claims for breach of such agreements. Our rooftop microwave sites and repeaters operate in reliance upon an exemption from the requirement to obtain a building permit. Substantially all of our outdoor microwave sites are rooftops. It is unclear whether other types of repeaters require a building permit. Our reliance on an exemption from the requirement to obtain building permits for the microwave sites and repeaters has not, to date, been considered by the courts. Operation of a cell site or other facility without a building permit or not in accordance with the permit or other legal requirements may result in the issuance of a demolition order for the cell site or other facility or the bringing of criminal charges against us and our officers and directors. Certain of our cell sites have been subject to demolition orders. In addition, criminal charges have been brought against us and our officers and directors in connection with cell sites that were alleged to have been constructed without the required permits. As of December 31, 2007, 28 criminal and administrative proceedings are outstanding; demolition orders have been granted with respect to four cell sites while the remaining 24 proceedings are pending further litigation. Certain of our directors are also named in one criminal proceeding as defendants.

Pursuant to the Israeli Non-Ionizing Radiation Law, 2006, which is effective, for the most part, as of January 1, 2007, the granting or renewal of an operating permit by the Commissioner of Environmental Radiation at the Ministry of Environmental Protection of Israel for a cell site or other facility is subject to the receipt of a building permit or the facility being exempt from the requirement to obtain a building permit. Should we fail to obtain building permits for our cell sites or other facilities, including in the event that our reliance upon an exemption from the requirement to obtain building permits for these cell sites and other facilities is found invalid, the Commissioner of Environmental Radiation at the Ministry of Environmental Protection will not grant or renew our operating permits for those cell sites and other facilities. In October 2007, the Commissioner of Environmental Protection took the position that he will not grant and/or renew operating permits to radio access devices, where the local planning and building committee’s engineer objected to our reliance upon the said exemption for radio access devices. For reasons not related to radiation hazards, we have not received environmental permits to approximately 8.7% of our cell sites, primarily due to a labor dispute at the Ministry of Environmental Protection, which began in December 2007 and is continuing to date. However, some permits have not been granted due to building and planning issues, such as objections by local planning and building committee's engineers to our reliance on the exemption from obtaining building permits for radio access devices. We expect the majority of these cell sites to be granted operating permits once the labor dispute is over. Operating a cell site or a facility without an operating permit could subject us and our officers and directors to criminal, administrative and civil liability.

Should any of our officers or directors be found guilty of an offence, although this has not occurred to date, they may face monetary penalties and a term of imprisonment. Our sites

may be the subject of further demolition orders, we may be required to relocate cell sites to less favorable locations or stop operation of cell sites which could negatively affect the extent, quality and capacity of our network coverage and we or our officers and directors may face further criminal charges.

The Israeli National Zoning Plan 36, or the Plan, which regulates cell site construction and operation is in the process of being changed. Current proposed changes impose additional restrictions and/or requirements on the construction and operation of cell sites and could, if adopted, harm our ability to construct new cell sites, make the process of obtaining building permits for the construction and operation of cell sites more cumbersome and costly, may delay the future deployment of our network.

Recently, several local planning and building authorities questioned the ability of Israeli cellular operators to receive building permits, in reliance on the current National Zoning Plan 36, for cell sites operating in frequencies not specifically detailed in the frequencies charts attached to the Plan. In a number of cases, these authorities have refused to provide a building permit for such new cell sites, arguing that the Plan does not apply to such cell sites and that building permits for such cell sites should be sought through other processes (which are longer and cumbersome), such as an application for extraordinary usage or under existing local specific zoning plans. Since June 2002, following the approval of the Plan, building permits for our cell sites (where required) have been issued in reliance on the Plan. The current proposed draft amendment to the Plan covers all new cell sites requiring a building permit, independently of the frequencies in which they operate. Most of our cell sites and many cell sites operated by other operators, operate in frequencies not specifically detailed in the Plan.

If we are unable to obtain or renew building or other consents and permits for our existing sites or other facilities, we will be required to demolish or relocate these cell sites and facilities. Our inability to relocate cell sites or other facilities in a timely manner and/or construct and operate new cell sites or other facilities – if we are unable to obtain the necessary consents and permits and/or rely on the exemption from the requirement to obtain a building permit, could adversely affect our existing network, resulting in the loss of subscribers, prevent us from meeting the network coverage and quality requirements contained in our license (which may lead to its revocation) and adversely impact our network build-out, all of which may have a material adverse effect on our results of operations and financial condition.

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

Under the Israeli Planning and Building Law, 1965, by approving a building plan, local planning and building committees may be held liable to compensate for depreciation of properties included in or neighboring the approved plan.

In January 2006, the law was amended to require an applicant, as a precondition to obtaining a cell site construction permit from a planning and building committee, to provide a letter to the committee indemnifying it for possible depreciation claims. As of December 31, 2007, we have provided over 150 indemnification letters to local planning and building committees. Calls upon our indemnification letters may have a material adverse effect on our financial condition and results of operations. We may also decide to demolish or relocate existing cell sites to less favorable alternatives and to construct new cell sites in alternative,

less suitable locations or not at all, due to the obligation to provide indemnification. As a result, our existing service may be impaired or the expansion of our network coverage could be limited.

In addition, local planning and building committees have sought to join cellular operators, including us, as defendants in depreciation claims made against them even though indemnification letters were not provided. We were joined as defendants in a small number of cases. It is possible that the joining of cellular operators to similar claims will continue despite the absence of an indemnification letter. This practice increases the risk that we may be exposed to material liability as a result of depreciation claims.

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

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

Handsets, accessories and various types of cell sites are known to be sources of non-ionizing radiation emissions and are the subject of a public debate in Israel. While, to the best of our knowledge, the handsets that we market comply with the applicable legislation that relate to acceptable “specific absorption rate,” or SAR, levels, we rely on the SAR levels published by the manufacturers of these handsets and do not perform independent inspections of the SAR levels of these handsets. As the manufacturers’ approvals refer to a prototype handset, we have no information as to the actual level of SAR of the handsets throughout the lifecycle of the handsets, including in the case of handset repair. See also “Item 4. Information on the Company – B. Business Overview - Government Regulations—Handsets”. Concerns regarding cell sites have already caused us difficulties in obtaining or renewing leases for cell sites and even resulted in unlawful sabotage of a small number of cell sites. If health concerns over non-ionizing radiation increase, adverse findings in new studies of non-ionizing radiation are published or if non-ionizing radiation levels are found to be higher than the standards set for handsets and cell sites, consumers may be discouraged from using cellular handsets and regulators may impose additional restrictions on the construction and operation of cell sites or handset usage. As a result, we may experience increased difficulty in obtaining leases for new cell site locations or renewing leases for existing locations (although so far, in total we have experienced renewal problems with approximately 5% of our cell site leases each year); we may be exposed to property depreciation claims; we may lose revenues due to decreasing usage of our services; we may be subject to increased regulatory costs; and we may be subject to health-related claims for substantial sums. See “Item 8. Financial Information - A. Consolidated Statements and Other Financial Information – Legal Proceedings—Purported class actions” for additional details on a purported class action filed against us in that respect. We have not obtained insurance for these potential claims. An adverse outcome to, or settlement of, any health - related litigation against us or any other provider of cellular services could have a material adverse effect on our results of operations, financial condition or prospects.

We face intense competition in all aspects of our business.

The Israeli cellular telephone market is highly competitive. We compete for subscribers with three other cellular operators. While we enjoy the largest market share, estimated to be 34.4% as of December 31, 2007, two of our competitors, Partner and Pelephone, enjoy estimated market shares of 31.9% and 29.3% respectively, with MIRS Motorola Communications Ltd., or MIRS, estimated to have a market share of 4.4%. The current competitive pressure in the Israeli market results primarily from the highly penetrated state of the market. See also “Item 4. Information on the Company - B. Business Overview - The Telecommunications Industry in Israel”. This means that market growth is limited and cellular operators compete intensely to retain their own subscribers and attract those of their competitors. In addition, the recent implementation of number portability has eliminated one of the deterrents to switching between cellular operators and churn rates have slightly increased but, to date, have not led to a significant change in the market shares of the cellular operators. In light of other countries' experience of an increased churn following number portability implementation, churn may still increase. Any of the following developments in our market and/or the adoption of the recommendations recently published by a public committee (see Item 4. Information on the Company – B. Business Overview – Competition.”), are expected to increase competition further and may result in an increased churn rate, increased subscriber acquisition and retention costs and ultimately reduced profitability for us:

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%, it would be permitted to offer certain services jointly with its subsidiaries subject to regulatory limitations; In February 2008 the Ministry of Communications determined (after receiving information from the landline operators) that Bezeq's current market share is 88.2% in the private sector and 92.6% in the business sector.

·	the launch of a UMTS/HSPA network by Pelephone (expected in 2009), as it would strengthen Pelehone’s ability to compete in the provision of inbound and outbound roaming services as well as improve its competitive position in the market.

the entry into the Israeli cellular market by mobile virtual network operators, or MVNOs, could increase competition and thus may have material adverse affect on our revenues; See "Item 4. Information on the Company – B. Business Overview – Government Regulations – Mobile Virtual Network Operator"for additional details;

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 lead to measures by the Commissioner which could limit our freedom to manage our business, increase the competitive pressures that we face and adversely affect our results of operations; and

·	the entry into the cellular market of mobile WiMAX technology (by a new entrant or by a cellular operator); The Ministry of Communications held a hearing on WiMAX frequencies allocation in November 2007 and is expected to publish a WiMAX frequencies tender in 2008.

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

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

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

We provide services to millions of subscribers on a daily basis. As a result of the scope and magnitude of our operations we are subject to the risk of a large number of lawsuits, including class action suits by consumers with respect to billing and other practices. These actions may be costly to defend and could result in significant judgments against us. The Israeli Class Actions Law, 2006 and the 2005 amendment to the Israeli Consumer Protection Law, 1981 include provisions that expand the causes of action for which a class of litigants may bring suit, including with regard to any damages allegedly incurred prior to the effective date of these laws, reducing the minimal requirements for certification of a class action lawsuit and reducing the qualifications required to be a lead plaintiff in a class action lawsuit. These laws have increased and may continue to increase the number of requests for certification of class actions against us, our legal exposure and our legal costs in defending against such suits, which as a result may materially and adversely affect our financial results. Currently, we are engaged in a number of purported class action suits as a defendant, some of which are for substantial amounts. For a summary of certain material legal proceedings against us, see “Item 8 – Financial Information - A. Consolidated Statements and Other Financial Information –Legal Proceedings”.

We are subject to the risk of intellectual property rights claims against us, including in relation to music, music-related and/or other content services we purchase from third party

content providers. These claims may require us to initiate or defend protracted and costly litigation, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages or may be required to obtain licenses for the infringing product or service. If we cannot obtain all necessary licenses on commercially reasonable terms, we may be forced to stop using or selling the products and services, which could adversely affect our ability to provide certain services and products.

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

The Ministry of Communications is considering adopting changes to the licenses of the cellular operators that would prohibit cellular operators from creating any linkage between handset purchase and airtime credit granted to the purchasing subscriber. This prohibition is included in the recommendations of a public committee appointed by the Ministry of Communications, published in March 2008. If such proposed changes are adopted, this would impair our ability to offer our subscribers handsets with airtime rebates. This may lead to difficulties in selling advanced handsets that have the potential to generate high content-related revenues, which in turn may reduce our potential revenues or require higher subscriber acquisition costs and adversely affect our results of operations.

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.

Our ability to provide commercially viable cellular telephone services depends upon our ability to interconnect with the telecommunications networks of landline, cellular telephone and international operators in Israel in order to complete calls between our subscribers and parties on a landline or other cellular telephone network, as well as third parties abroad. All landline, cellular telephone and international operators in Israel are required to provide interconnection to, and not to discriminate against, any other licensed telecommunications operator in Israel. We have no control over the quality and timing of the investment and maintenance activities that are necessary for these entities to provide us with interconnection to their respective telecommunications networks. The failure of these or other telecommunications providers to provide reliable interconnections to us on a consistent basis could have an adverse effect on our business, financial condition or results of operations. Such adverse effect may intensify following the implementation of number portability since our ability to implement number portability, provide our services and our basic ability to port numbers between operators are dependant on the manner of number portability implementation by interconnecting local operators.

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

Our license restricts ownership of our ordinary shares and who can serve as our directors as follows:

·	our founding shareholder, Discount Investment Corporation Ltd., or 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.

If these requirements are not complied with, we could be found to be in breach of our license and our license could be changed, suspended or revoked.

In addition, our license provides that, without the approval of the Ministry of Communications, no person may acquire or dispose of shares representing 10% or more of our outstanding share capital. Further, our directors and officers and any holder of ordinary shares representing 5% or more of our outstanding share capital may not own 5% or more of Bezeq or any of our competitors or serve as a director or officer of such a company, subject to certain exceptions which require the prior approval of the Ministry of Communications.

To ensure that an unauthorized acquisition of our shares would not jeopardize our license, our articles of association provide that any shares acquired without approval required under our license, will not be entitled to voting rights.

If our service is to be determined by the Israeli Government to be an “essential service”, the Prime Minister and the Ministry of Communications could impose additional limitations including a heightened requirement of Israeli ownership of our ordinary shares.

Although our articles of association contain certain provisions that are aimed at reducing the risk that holdings or transfers of our ordinary shares will contravene our license, we cannot entirely control these and other matters required by our license, the violation of which could be a basis for suspending or revoking our license. See also “Item 4. Information on the Company – B. Business Overview – Government Regulations ― Our Principal License”.

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

The cellular market is known for rapid and significant technological changes. Our current technologies, including our 3.5G technologies, may be overtaken rapidly, requiring us to invest in alternative technologies to remain competitive. Further, technologies such as satellite-based personal communications services, wireless broadband access services such as WiMAX, Wi-Fi and other technologies that have the capacity to handle cellular calls may enter our market and compete with traditional cellular providers, thus further intensifying the competition we face and requiring us to reduce prices, thus adversely affecting our results of operations. The Ministry of Communications is expected to publish a WiMAX frequencies tender in 2008.

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

We rely on agreements to provide roaming capability to our subscribers in many areas outside Israel. As of December 31, 2007, we had roaming arrangements with 499 cellular providers in 171 countries around the world. However, we cannot control the quality of the service that they provide and it may be inferior to the quality of service that we provide. Equally, our subscribers may not be able to use some of the advanced features that they enjoy when making calls on our network. Some of our competitors may be able to obtain lower roaming rates than we do because they may have larger call volumes or because of their affiliations with other international cellular operators. If our competitors’ providers can deliver a higher quality or a more cost effective roaming service, then subscribers may migrate to those competitors and our results of operation could be adversely affected. Further, we may not be able to compel providers to participate in our technology migration and enhancement strategies. As a result, our ability to implement technological innovations could be adversely affected if these overseas providers are unable or unwilling to cooperate with the further development of our network or if they cease to provide services comparable to those we offer on our network.

Following European regulation of roaming tariffs, which reduced tariffs for calls made by members of the European Union among themselves, several European Union member operators have raised roaming tariffs for calls to and from non-European Union member operators, resulting in higher roaming tariffs for our subscribers. In addition, a recommendation published in March 2008 by a public committee appointed by the Ministry of Communications recommends that the government will negotiate a reduction of inbound and outbound roaming tariffs with the EU and/or members of the EU or countries frequently visited by Israelis. If roaming tariffs are reduced as a result of the proposed negotiation or otherwise and/or if additional European Union member operators raise their tariffs and/or if we are not able to raise our tariffs or otherwise compensate for the higher roaming expenses this could adversely affect our profitability and results of operations.

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.

As of December 31, 2007, our total indebtedness was approximately NIS 3,679 million ($957 million) and has reached approximately NIS 3,558 million, following the completion of a private placement of debentures in February 2008 and voluntary prepayment in full of our credit facility in March 2008. The indentures governing our debentures currently permit us to incur additional indebtedness. Our substantial debt could adversely affect our financial condition by, among other things:

·	increasing our vulnerability to adverse economic, industry or business conditions, including increases in the Israeli Consumer Prices Index, or CPI;

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

A substantial amount of our cash payments are incurred in, or linked to, non-NIS currencies, mainly US Dollars. In particular, in 2005, 2006 and 2007, payments in U.S. dollars or linked to the U.S. dollar represented approximately 19%, 25% and 34%, respectively, of total cash outflow. These payments included capital expenditures, some cell site rental fees, payments to equipment suppliers and, in 2006 and in 2007, payments of principal and interest on our credit facility (voluntarily prepaid in full in March 2008). As almost all of our cash receipts are in NIS, any devaluation of the NIS against those non-NIS currencies in which we make payments, particularly the U.S. dollar, will increase the NIS cost of our non-NIS denominated or linked expenses and capital expenditures.

We engage in currency hedging transactions to reduce the impact of these currency fluctuations on our cash flows and results of operations. We recognize freestanding derivative financial instruments as either assets or liabilities in our balance sheet and we measure those instruments at fair value. However, accounting for changes in the fair value of a derivative instrument, such as a currency hedging instrument, depends on the intended use of the derivative instrument and the resulting designation. For a foreign exchange derivative instrument designated as a cash flow hedge, the effective portion of the derivative instrument is initially reported as a component of our shareholders’ equity and subsequently recognized in our income statement as the hedged item affects earnings. For derivative instruments that are not designated as cash flow hedges, changes in fair value are recognized in our income statement without any reference to the change in value of the related budgeted expenditures. These differences could result in fluctuations in our reported net income on a quarterly basis.

Further, since the principal amount of, and interest that we pay on our debentures, are linked to the Israeli CPI, any increase in the Israeli CPI will increase our financial expenses and could adversely affect our results of operations.

We may not be able to fulfill our dividend policy in the future; implementation of our dividend policy will significantly reduce our future cash reserves.

In February 2006, we adopted a dividend policy targeting a payout ratio of at least 75% of our net income under Israeli GAAP in each calendar year, subject to any applicable law, our license and contractual obligations and provided that such distribution would not be detrimental to our cash needs or to any plans approved by our Board of Directors. Further, in certain cases, our Board of Directors has declared dividends constituting as much as 95% or more of our net income under Israeli GAAP and may declare dividends in similar rates in the future. See “Item 8. Financial Information - A. Consolidated Statements and Other Financial Information - Dividend Policy”. Our license requires that we and our 10% or more shareholders maintain at least $200 million of combined shareholders’ equity. See “Item 5 - Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt service”. Dividend payments are not guaranteed and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends or to pay dividends at a ratio to net income that is less than that paid in the past.

Further, our dividend policy, to the extent implemented, will significantly reduce our future cash reserves and may adversely affect our ability to fund unexpected capital expenditures as well as our ability to make interest and principal repayments on our debentures. As a result, we may be required to borrow additional money or raise capital by issuing equity securities, which may not be possible on attractive terms or at all.

If we are unable to fulfill our dividend policy, or pay dividends at levels anticipated by investors in our shares, the market price of our shares may be negatively affected and the value of our investors’ investment may be reduced.

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

We depend upon a small number of suppliers to provide us with key equipment and services. For example, Nokia Siemens Israel provides our network system based on GSM/GPRS/EDGE technology, our UMTS/HSPA core system and related products and services and our landline New Generation Network system, or NGN system; LM Ericsson Israel supplies our radio access network and related products and services based on UMTS/HSPA technology; Amdocs Israel provides us with services with respect to the operating of, and the implementation of developments to, our billing system; and 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. In addition, we lease a portion of our transmission capacity from Bezeq, the incumbent landline operator. Bezeq has experienced labor disputes, including stoppages, during the privatization process and liberalization of the landline market, and additional disruptions, stoppages and slowdowns may be experienced in the future. If these suppliers fail to provide equipment or services to us on the requisite standards of quality and on a timely basis, we may be unable to provide services to our subscribers in an optimal manner until an alternative source can be found and our license may be at risk of revocation for failure to satisfy the required service standards.

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.

We are an indirect subsidiary of IDB, one of Israel’s largest business groups. Other indirect subsidiaries of IDB also operate in the Israeli communication market providing high speed Internet, international telephone services and wireline and landline communication services. As a result, conflicts of interest may arise between us and other IDB group companies. Due to the limited size of the Israeli market and due to the high level of regulation of the Israeli market, in particular in the communications market, our being a member of the IDB group of companies may limit our ability to expand our business in the future, to form joint ventures and strategic alliances and conduct other strategic transactions with other participants in the Israeli communications market.

In addition, pursuant to the “Guidelines for Sound Bank Administration” issued by the Israeli Supervisor of Banks, the amount that an Israeli bank may lend to one group of borrowers and to each of the six largest borrowers of such banking corporation is limited. Since we are a member of IDB’s group of borrowers, these guidelines may limit the ability of Israeli banks to lend money to us, although this has not occurred to date.

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

As of December 31, 2007, DIC held, directly and indirectly, approximately 56% of our outstanding share capital (reduced to approximately 52.6% as of January 31, 2008). Pursuant to a shareholders agreement among DIC and certain of our minority shareholders, who in the aggregate own 5.5% of our ordinary shares, DIC has been granted the voting rights in respect of those shares. In addition to DIC’s shareholdings and such additional voting rights, it has the right to appoint the 20% of our directors that we are required by our license and articles of association to have appointed by Israeli citizens and residents among our founding shareholders. Accordingly, subject to legal limitations, DIC has control over all matters requiring shareholder approval, including the election and removal of our directors and the approval of significant corporate transactions. This concentration of ownership could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs or other purchases of our ordinary shares that might otherwise give our shareholders the opportunity to realize a premium over the then-prevailing market price for our ordinary shares.

Further, as a foreign private issuer, we are exempt from the application of the NYSE rules requiring the majority of the members of our Board of Directors to be independent and requiring our Board of Directors to establish independent nomination and compensation committees. Accordingly, our minority shareholders and debenture holders are denied the protection intended to be afforded by these corporate governance standards.

Risks Relating to Operating in Israel

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

Our operations, our network and some of our suppliers are located in Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and could make it more difficult for us to raise capital. Since September 2000, there has been a high level of violence between Israel and the Palestinians. Hamas, an Islamist movement responsible for many attacks, including missile strikes, against Israelis, won the majority of the seats in the Parliament of the Palestinian Authority in January 2006 and took control of the entire Gaza Strip, by force, in June 2007. These developments have further strained relations between Israel and the Palestinian Authority. Any armed conflicts, terrorist activities or political instability in the region would likely negatively affect business conditions and could harm our results of operations, including following termination of such conflicts due to a decrease in the number of tourists visiting Israel.

In addition, in the event that the State of Israel relinquishes control over certain territories currently held by it to the Palestinian Authority, we will not be able to provide service from our cell sites located in Israeli populated areas and on connecting roads in these territories. This may result in the loss of subscribers and revenues and in a decrease in our market share.

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

The Communications Law grants the Prime Minister of Israel the authority, for reasons of state security or public welfare, to order a telecommunications license holder to provide services to security forces, to perform telecommunication activities or to establish a telecommunications facility as may be required for the security forces to carry out their duties. Further, the Israeli Equipment Registration and IDF Mobilization Law, 1987, also permits the registration of engineering equipment and facilities and the taking thereof for the use of the Israel Defense Forces. This law further sets the payment for use and compensation for damages caused to the operator as a result of such taking. Our general license also permits the Israeli Government, during national emergencies or for reasons of national security, to take all necessary actions in order to ensure state security, including taking control of our network, and requires us to cooperate with such actions. If national emergency situations arise in the future and if we are to be subject during such time to any of the foregoing actions, this could adversely affect our ability to operate our business and provide services during such national emergencies and adversely affect our business operations.

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

Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be completed unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, a majority of each class of securities of the target company is required to approve a merger. Further, the provisions of our license require the prior approval of the Ministry of Communications for changes of control in our Company.

Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when the time expires, tax then becomes payable even if no actual disposition of the shares has occurred.

These provisions could delay, prevent or impede an acquisition of us, even if such an acquisition would be considered beneficial by some of our shareholders.

Risks Relating to Our Ordinary Shares

A substantial number of our ordinary shares could be sold into the public market , which could depress our share price.Our largest shareholder, DIC, holds 52.6% of our outstanding ordinary shares, as of February 29, 2008. The market price of our ordinary shares could

decline as a result of future sales into the market by DIC or other existing shareholders or the perception that these sales could occur. DIC sold 6,225,000 ordinary shares, or approximately 6.4% of our outstanding shares in a number of transactions outside the United States in September of 2007 and January of 2008. Sales may be made pursuant to a registration statement, filed with the SEC pursuant to the terms of a registration rights agreement or otherwise, or in reliance on an exemption from the registration requirements of the Securities Act, including the exemptions provided by Rule 144 or Regulation S. Any decline in our share price could also make it difficult for us to raise additional capital by selling shares.

In addition, as of February 29, 2008 we have 2,492,045 shares reserved for issuance upon the exercise of options; the options are subject to vesting schedules but vesting will be accelerated upon certain events including any sale by IDB that leads to any reduction in IDB’s ownership below 50.01%. See "Item 6. Directors, Senior Management and Employment – E. Share Ownership – 2006 Share Incentive Plan".

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

Our History

Cellcom Israel Ltd. was incorporated in 1994 in Israel. Our principal executive offices are located at 10 Hagavish Street, Netanya 41240, Israel and our telephone number is (972) -52-999-0052 . Our authorized U.S. representative, Puglisi & Associates, is located at 850 Library Avenue, Suite 204 Newark, Delaware 19711 and our agent for service of process in the United States, CT Corporation System, is located at 111 Eighth Avenue, New York, NY 10011.

We hold one of the four general licenses to provide cellular telephone services in Israel. Our cellular license was granted by the Ministry of Communications in 1994 and is valid until 2022.

Our principal founding shareholders were DIC, a subsidiary of IDB, which prior to September 2005 indirectly held approximately 25% of our share capital, and BellSouth Corporation and the Safra brothers of Brazil, which together indirectly held approximately 69.5% of our share capital and voting rights in respect of an additional 5.5% of our share capital. IDB acquired the stakes of BellSouth and the Safra brothers in September 2005 and, following the sale of minority stakes to four groups of investors in 2006, the sale of shares as part of our initial public offering in February 2007 and subsequent sales of minority stakes in September 2007 and January 2008, IDB currently indirectly holds approximately 52.6% of our share capital and the voting rights in respect of an additional 5.5% of our share capital.

Following the acquisition by IDB in 2005, IDB put in place a new management team, including Ami Erel, the Chairman of our Board of Directors, who had previously been President and CEO of Bezeq, Amos Shapira, our Chief Executive Officer, who had been CEO of Kimberly-Clark’s Israeli subsidiary and El Al Airlines, Tal Raz, our Chief Financial Officer, one of the founders and formerly a director of Partner, one of our principal competitors and Adi Cohen, our VP Marketing, who had been marketing manager of Shufersal, Israel's largest retail chain, and previously, Partner's marketing manager. Our

management team has successfully implemented a series of initiatives to drive our growth, including the continued enhancement of our distinctive brand, a greater focus on customer service and new sales campaigns. These initiatives resulted in continuous growth in all operational and financial parameters and strengthening our position as the largest cellular operator in Israel.

In February 2007 we listed our shares on the NYSE and in July 2007 we dual listed our shares on the Tel Aviv Stock Exchange, or TASE and began applying the reporting leniencies afforded under the Israeli Securities Law to companies' whose securities are listed both on the NYSE and the TASE.

As of the date of this Annual Report on Form 20-F, there has been no indication of any public takeover offer by any third party, respecting our ordinary shares, or by us, respecting another company’s shares.

Principal Capital Expenditures

Our accrual capital expenditure in 2005, 2006 and 2007 amounted to NIS NIS 747 million, NIS 521 million and NIS 573 million, respectively. Accrual capital expenditure is defined as investment in fixed assets and other assets, such as spectrum licenses, during a given period. For the periods under review, a key focus of our capital investment has been the introduction of our 1800MHz GSM/GPRS/EDGE network and the build out of our UMTS/HSPA network.

B. BUSINESS OVERVIEW

General

We are the leading provider of cellular communications services in Israel in terms of number of subscribers, revenues from services, EBITDA and EBITDA margin for the year ended December 31, 2007. Upon launch of our services in 1994, we offered significantly lower prices for cellular communications services than the incumbent provider and transformed the nature of cellular telephone usage in Israel, turning it into a mass market consumption item. We surpassed the incumbent cellular operator and became the market leader in terms of number of subscribers in 1998 and, despite the entry of two additional competitors, we have continued since then to have the highest number of subscribers. As of December 31, 2007, we provided services to approximately 3.073 million subscribers in Israel with an estimated market share of 34.4%. Our closest competitors have estimated market shares of 31.9% and 29.3%, respectively. In the year ended December 31, 2007, we generated revenues of NIS 6,050 million ($1,573 million), EBITDA of NIS 2,115 million ($550 million), and operating income of NIS 1,341 million ($349 million). See note 2 to the table in “Item 3. Key Information – A. Selected Financial Data” for a definition of EBITDA.

We offer a broad range of cellular services through our cellular networks covering substantially all of the populated territory of Israel. These services include basic and advanced cellular telephone services, text and multimedia messaging services and advanced cellular content and data services. We also offer international roaming services in 171 countries as of December 31, 2007. We offer our subscribers a wide selection of handsets from various leading global manufacturers, as well as extended warranty and repair and replacement services. We also offer landline transmission and data services to business customers and telecommunications operators and, since July 2006, we offer landline

telephony services to selected businesses, using our advanced inland fiber-optic infrastructure.

The following table presents our number of subscribers and revenues for each of the last five years:

	Year Ended December 31,
	2003		2004		2005		2006		2007
Subscribers (end of period) (in thousands)(1)		2,300		2,450		2,603		2,884		3,073
Revenues (in NIS millions)		5,261		5,600		5,114		5,622		6,050

__________

(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 subscribers. Commencing July 1, 2006, we adopted a six-month method of calculating our subscriber base since many subscribers that were inactive for three months become active again before the end of six months. We 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 and 2005 but we have not restated prior subscriber data to conform to the new presentation. We estimate that the change in methodology in 2005 led to an increase in our reported subscriber numbers of approximately 84,000.

The Telecommunications Industry in Israel

The following table sets forth selected macro statistics about Israel at and for the year ended December 31, 2007:

Population (millions)	7.24
GDP ($ billions) (PPP adjusted)	182.9
GDP per capita ($)(PPP adjusted)	26,884
Exports of goods & services ($ billions)	70.8
CPI change	3.4%
Long-term local currency sovereign credit rating by S&P	AA-
Unemployment rate (December 31, 2007)	7.4%

____________

Source: OECD, 2007 and Ministry of Finance of Israel, 2007.

The size of Israeli telecommunications services revenues in 2006 was approximately NIS 27 billion and telecommunications spending was approximately 4.4% of GDP, higher than in developed economies such as the European Union and the United States. Telecommunications services consist of several segments, which, except for landline services, are highly competitive. We estimate that, of the total telecommunications services revenues in 2006, approximately 50% was comprised of cellular services, approximately 29% was local landline voice and Internet access services, approximately 7% was international voice services, approximately 12% was multichannel television services, and approximately 2% was Network Termination Point.

Israel has high penetration rates across all telecommunications services that are in line with or higher than developed economies such as the European Union and the United States. These levels of penetration can be attributed to the rapid adoption rate of new technologies, high expenditures on telecommunications services by consumers and businesses and a relatively young population.

Cellular Services

Cellular telephone services were first introduced in Israel in 1986. For the first nine years of cellular operations there was only one operator, Pelephone, a subsidiary of Bezeq, and growth of cellular telephone services, as well as penetration rates, was limited. After the commercial launch of Cellcom in December 1994, cellular penetration rates and cellular phone usage increased significantly. This is mainly due to the fact that our license was awarded to us based upon, among other things, our commitment to offer our services at low prices during the first five years of our operation.

The Israeli cellular market is highly penetrated. The market reached an estimated penetration rate (the ratio of cellular subscribers to the Israeli population) at December 31, 2007, of approximately 124%, representing approximately 9.0 million cellular subscribers.

The following table sets forth the growth in the total number of cellular subscribers in Israel and the penetration rate over the last four years:

	December 31,
	2003		2004		2005		2006		2007
Total subscribers (millions)		6.6		7.2		7.8		8.4		9.0
Cellular penetration (%)		98		105		112		118		124

___________

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

There are currently four cellular operators in Israel: Cellcom, Partner, Pelephone, and MIRS. We estimate that the distribution of cellular subscribers among these operators as of December 31, 2007 was: Cellcom 34.4%, Partner 31.9%, Pelephone 29.3% and MIRS 4.4%. Subscriber data are based on public information except for MIRS, which is based on our estimate. However, there is no uniform method of counting subscribers.

We are majority-owned by DIC, a subsidiary of IDB, and started operations at the end of 1994. Partner is majority-owned by Hutchinson Whampoa Ltd. and started operations in 1998. Pelephone is a wholly-owned subsidiary of Bezeq and started operations in 1986. The major controlling shareholder of Bezeq following its privatization in 2005 is a consortium comprised of Saban Capital Group (controlled by the media entrepreneur Haim Saban), Apax Partners (the international private equity firm) and Arkin Communications (controlled by the Israeli businessman Mori Arkin). MIRS, wholly owned by Motorola, had its license upgraded from push-to-talk to a cellular license in February 2001.

The following listing sets forth the key milestones in the history of the Israeli cellular services:

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
2008	Cellcom launches HSPA services

Key characteristics of the Israeli cellular services market

The following paragraphs describe the key characteristics of the Israeli cellular services market:

High cellular telephone penetration. The estimated penetration rate in Israel as of December 31, 2007 was 124%. 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 lower than 124%.

Favorable demographics. Population growth is generally high and the population is relatively younger than in 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 and maintenance.

High cellular voice usage. The average cellular voice usage per subscriber in Israel is over 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, strong competition and a heavy regulated environment.

Different cellular technologies. We use TDMA, GSM/GPRS/EDGE and UMTS/HSPA networks. Partner uses GSM/GPRS and UMTS/HSDPA networks. Pelephone uses CDMA, CDMA1x and EVDO networks and is building a WCDMA/HSPA network. 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 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. And in part, due to late launch of advanced added value services in Israel. 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 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 approximately 16% in 2007, which is lower than the churn rates in developed economies. This churn rate may grow as a result of the implementation of number portability in December 2007.

Landline Services

Voice Services

Bezeq operates approximately 2.76 million lines and provides local services. The second largest competitor in landline telephony services is HOT Telecom, or HOT, a provider of cable TV services, which started landline operations in late 2003. HOT’s network has been upgraded to offer Internet, data and voice services.

In recent years, Bezeq has experienced a significant drop in its traffic volume. Bezeq is a monopoly and thus subject to enhanced regulatory scrutiny, including supervision of tariffs.

There are three players that have entered this market in 2006, including us. Partner entered this market in 2007, bringing to a total of six players.

Broadband and Internet services

Israeli broadband services are characterized by high growth and high penetration levels. The Ministry of Communications estimates that at the end of 2005, there were 1.1 million subscribers, and the household penetration rate was 52%. Also, approximately 99% of Bezeq’s lines enabled broadband services in 2004.

The dominant broadband access technologies are ADSL and cable. The first ADSL services were launched by Bezeq in 2000 and currently represent a 65% share of broadband connections. Cable modems, which account for the rest of the market, have been available since 2002.

Transmission and landline data services are provided by Bezeq, HOT, Med-1 (whose operations were acquired in 2006 by Partner) and us. These services are provided to business customers and to telecommunications operators.

Internet access is currently provided by four major Internet service providers, or ISPs: NetVision Barak (an indirect subsidiary of IDB), Bezeq International (a wholly-owned subsidiary of Bezeq), Internet Gold and Golden Lines (Golden Lines merged in February 2007, into Smile - a subsidiary of Internet Gold ), and some other niche players. All these major providers are also suppliers of international voice services.

International voice services

International voice services in Israel have been open for competition since December 1996. Until then, Bezeq International was the only supplier of such services. Bezeq International was created as a wholly-owned subsidiary of Bezeq in 1994 as part of the Israeli government’s initiative to separate the major operations of the incumbent operator. Barak

(which was acquired by Netvision) and Golden Lines (which merged into Smile – a subsidiary of Interent Gold, in February 2007) were allocated international voice services licenses and started operating at the beginning of 1997, enabling them to compete with Bezeq International. In April 2004, further competition was introduced in international voice services through the issuance of new licenses to NetVision (which acquired Barak in 2007), Internet Gold and Xfone Communications. Today there is no single dominant player in this market, and competition is very intense.

Multichannel television

The multichannel pay-TV market is also highly penetrated with levels above those of most developed economies. Multichannel pay-TV services are provided by HOT and by YES, a subsidiary of Bezeq.

Competitive Strengths

We believe that the following competitive strengths will enable us to maintain and enhance our position as the leading provider of cellular communications services in Israel:

Combination of leading market position and strong operational momentum. In 2007, we have maintained market-leading revenues from services, EBITDA and EBITDA margin growth while steadily strengthening our cash flows. Leveraging a series of brand, customer service and content initiatives and a rationalization of our management structure, our senior management team has managed to preserve Cellcom’s leading market position as reflected in our subscriber base, revenues from services and EBITDA while controlling capital expenditures.

Strong and distinctive own brand. Our established brand enjoys strong recognition in Israel. We consider the enhancement of our image among consumers a top priority and continue to invest substantial resources to maintain 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 over 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 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 and as of

February 2008, we offer additional advanced landline services to selected landline business customers, through our newly acquired NGN system.

Strategic relationship with one of Israel’s leading business groups . 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.

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. Our VP Marketing, Mr. Adi Cohen had been marketing manager of Shufersal, Israel's largest retail chain, and previously, Partner's marketing manager. Under the leadership of Messrs. Erel, Shapira, Raz and Cohen, 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.

Business Strategy

Our goal is to strengthen our position as the leading cellular provider in Israel. The principal elements of our business strategy are:

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. We strive to continually improve and enhance the flexibility of our customer service to shorten the time required to fulfill subscriber requests. During the second half of 2007, as part of our strategy to constantly improve service level and customer satisfaction and in preparation for the implementation of number portability, we enlarged our work force. Thereafter, we began to reduce the workforce recruited in preparation for number portability, while maintaining an enlarged customer

service and improved level of service. 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. The usage of our Internet, content and data services are relatively low in comparison to our competitors since we launched our content and data services 18 months after our competitors and we believe that we have significant growth potential in this field. As of December 31, 2007 approximately 419,000 of our subscribers are 3G subscribers, all post paid. We intend to continue to invest in the improvement and upgrade of our high speed UMTS/HSPA network, mainly to enhance its capacity and increase its speed, 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. In 2007 we have continued to invest in “Cellcom Volume”, our music-related initiative (featuring, among other things, our cellular music portal), due to its contribution to our revenues, brand identity and popularity amongst users in general and youth in particular.

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. As of December 31, 2007, we have GSM roaming agreements with 499 operators in 171 countries, of which 84 operators in 38 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. 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 over 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. As of February 2008, we offer additional advanced landline services to selected businesses, through our NGN system, such as video calls and a remote private operator, which will enable us to penetrate the residential sector as well, should we choose to do so.

Services and Products

We provide cellular communications services to approximately 3.073 million subscribers, including basic cellular telephony services and value-added services as well as handset sales. Not all services are supported by all handsets or by all of our networks. In addition, we offer transmission and data services to business customers and telecommunications operators. Since July 2006, we have offered our landline telephony service to selected businesses and as of February 2008, we have offered additional advanced landline services to selected landline business customers through our NGN system. We regularly evaluate and engage in discussions with potential partners concerning ways to add additional communications and other services to our portfolio.

We offer our cellular subscribers a variety of calling plans, designed to adapt to their particular characteristics and changing needs. We adapt our calling plans for the different types of usage – personal or business – and the number of users associated with the subscriber. For example, we offer discounted rates on the weekend for soldiers, Israeli music services to youth and discounted rates on calls among members of the same family. We offer two methods of payment: pre-paid and post-paid. Pre-paid services are offered to subscribers who pay for our services prior to obtaining them, usually by purchasing our “Talkman” pre-paid cards or “virtual” Talkman cards. Post-paid services are offered to subscribers who are willing to pay for our services through banking and credit arrangements, such as credit cards and direct debits. Many of our post-paid subscribers are able to terminate their relationship with us at any time and some of them do not pay a monthly fee.

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 self-developed 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 December 31, 2007, we had commercial roaming relationships with 499 operators in 171 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 December 31, 2007, we had 3G roaming arrangements with 84 of these operators, enabling our 3G roamers to participate in video calls and use high-speed data, video and audio content services in 38 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 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.

Access to third party application providers. We provide our subscribers with access to certain services offered by third party application providers. These services include, among others: 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, 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. For example: “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.

We have established relationships with content providers to provide us content for our value-added services, including Logia Development and Content Management Ltd., or Logia, to manage and develop cellular content in Israel exclusively for us. Our agreement with Logia has a one-year term renewable annually and grants us an option to acquire 51% of Logia ’s equity or 51% of Logia’s cellular content activity for us, at any time during the term of the agreement. Exercise of the equity option will be at a value to be set by an independent appraiser whereas exercise of the content option would be at no cost to us.

Handsets

We sell a wide selection of handsets designed to meet individual preferences. Prices of handsets vary based on handset features, calling plans and special promotions. We offer a variety of handsets from world-leading brands such as Nokia, Motorola, Sony-Ericsson Samsung and LG. All of the handset models we sell offer Hebrew language displays in addition to English. We are also required to provide cellular phone services to subscribers who did not purchase their handsets from us, provided that the handset model has been

approved for use by the Ministry of Communications. We offer our subscribers an extended handset warranty for their handsets as well as repair and replacement services in approximately 40 walk-in centers.

Landline services

In addition to our cellular services, we provide landline telephony, transmission and data services, using our over 1,300 kilometers of inland fiber-optic infrastructure and complementary microwave links. We have offered transmission and data services since 2001. We received a license to offer landline telephone service in April 2006 and, since July 2006, have been offering this service to selected businesses. Through our newly acquired NGN system, we are the first landline operator in Israel to provide advanced, voice and data services, to selected business customers, as of February 2008. We consider landline telephone services to be a future growth opportunity and we believe that revenues from these services will increase significantly in 2008. Should the Ministry of Communications adopt the recommendation of a public committee regarding unbundling of Bezeq's network, it may facilitate our growth in this market but also the entry of additional competitors. See “Item 4. Information on the Company – B. Business Overview – Competition.”

Network and Technology

General

Our network has developed over the years since we commenced our operations in 1994 and we now have dual cellular and landline capabilities.

Our “third generation” UMTS/HSPA, or high-speed downlink packet data access, technology, offers full interactive multimedia capabilities with current data rates of up to 1.5Mbps (and up to 2.8Mbps in wide urban areas) on the downlink path and up to 1.4 Mbps on the uplink path. We were the first and currently the only operator in Israel, to offer data transfer at such high speed. During 2008 we intend to further widen the urban areas in which the downlink path speed is up to 2.8Mbps and further increase the uplink speed up to 5.6Mbps in selected urban areas. This network, considered to be a “3/3.5G” technology, is a network that uses the same core as, with its access facilities in some cases co-located with the cell sites of, our GSM/GPRS/EDGE network. Our UMTS/HSPA network covers substantially all of the populated territory in Israel. As of 2007, this network enables transmission of up to 14.4Mbps on the downlink path and up to 1.8Mbps on the uplink path. Moreover, our UMTS/HSPA network supports new types of services that require higher throughput and lower delay, such as video conferencing.

Our “second generation” GSM/GPRS/EDGE 1800MHz network allows for voice calls, data transmission and multimedia services, like video streaming and video live (using the EDGE technology), although at slower speeds than our UMTS/HSPA network. Our GSM/GPRS/EDGE technology is an advanced second-generation technology and considered to be a “2.75G” technology. It enables us to deliver multimedia and services at speed rates that are higher than the rates offered through regular “second generation” digital cellular technology. Packet data rates vary from 50 Kbps to 200 Kbps, depending mainly on handset capabilities. In addition, in the case of coverage gaps and for services supported by our GSM/GPRS/EDGE technology, the network provides an adequate fallback and capacity relief for our UMTS/HSPA network by means of smart features and network load sharing.

Over 98% of our traffic uses our GSM/GPRS/EDGE and UMTS/HSPA networks, with substantially all of that traffic using the GSM/GPRS/EDGE network.

We also have a separate network using our initial TDMA 850MHz wireless technology, which is widely used as a “second generation” technology in North and South America. Less than 2% of our traffic uses this network. This technology supports voice calls and low rate data services known as CSD (circuit switch data) and CDPD (cellular digital packet data). Our TDMA network, which is based on Nortel technology, is maintained and operated by our engineers and technicians. Operating costs for this network are low and we expect that it will not require additional capital expenditures.

Our transmission network is comprised of over 1,300 kilometers of inland advanced fiber-optic cables that, together with our microwave infrastructure, enable us to provide our customers with telephony and high speed and high quality transmission and data services. Our transmission network is strategically deployed in order to cover the major portion of Israel’s business parks and permits us to provide our own backhaul services while reducing our need to lease capacity from Bezeq, the incumbent landline operator in Israel. Our newly acquired NGN system by Nokia Siemens, allows the provision of advanced voice and data services to our landline customers.

Infrastructure

We have built an extensive, durable and advanced cellular network system, enabling us to offer high-quality services to substantially the entire Israeli populated territory. Since maintaining a high-quality network is a basic element in our business strategy, we seek to satisfy quality standards that are important to our subscribers, such as high voice quality, high data rate packet sessions, low “blocked call” rate (calls that fail because access to the network is not possible due to insufficient network resources), low “dropped call” rate (calls that are involuntarily terminated) and deep indoor coverage. As a result, we have made substantial capital expenditures and expect to continue to make capital expenditures on our network system. As of December 31, 2007, we had invested an aggregate of NIS 7.506 billion ($1.952 billion) on our network infrastructure since our inception in 1994.

We cover substantially all of the populated areas of Israel with our UMTS/HSPA network. Our UMTS/HSPA network is mostly co-located with our GSM/GPRS/EDGE network. The suppliers of our UMTS/HSPA network are Ericsson Israel (for the 3G radio access network) and Nokia (for our core network).

Our GSM/GPRS/EDGE network currently covers substantially all of the Israeli populated territory, and is being continually expanded to support capacity growth. We are currently selectively enhancing and expanding our GSM/GPRS/EDGE network, primarily in urban areas, by adding infrastructure to improve outdoor and indoor coverage. Our GSM/GPRS/EDGE network was supplied and is maintained by Nokia Israel.

Our TDMA network, which is based on Nortel technology, is maintained and operated by our engineers and technicians.

Pursuant to the requirements of our license (as well as the licenses of the other telephony service providers in Israel), our network is interconnected, either directly or indirectly, to the networks of all other telephony service providers in Israel. Our network monitoring system provides around-the-clock surveillance of our entire network. The

network operations center is equipped with sophisticated systems that constantly monitor the status of all switches and cell sites, identify failures and dispatch technicians to resolve problems. Operations support systems are utilized to monitor system quality and identify devices that fail to meet performance thresholds. These same platforms generate statistics on system performance such as dropped calls, blocked calls and handoff failures. Our network operations center is located in our Netanya headquarters. In addition, we have a partial duplicate backup center in Kiryat Gat, located approximately 80 kilometers south of Netanya.

Network design

We have designed our TDMA, GSM/GPRS/EDGE and UMTS/HSPA networks in order to provide high quality and reliability well beyond the requirements set forth in our license while using a cost-effective design, utilizing shared components for our networks, where applicable.

Our primary objective going forward is to improve and upgrade our high speed UMTS/HSPA network, mainly by enhancing its capacity and increasing its speed, in order to permit higher-quality and higher-speed multimedia content transmission. At the same time we intend to continue to perform extensive optimization work to provide our subscribers with maximum capability to support video and other broad-bandwidth content.

Network performance

We continually optimize our entire network in order to meet the key performance indicators for our services, including dropped calls, voice quality, accessibility, availability and packet success rate. We use advanced planning, monitoring and analyzing tools in order to achieve our performance goals efficiently and with minimum faults.

The two main indicators that we use to measure network performance for voice and packet data are the “blocked call” rate and the “dropped call” rate. Our levels of blocked and dropped calls are better than those required by our license and since we commenced operations we have steadily improved our rate of both blocked calls and dropped calls.

Spectrum allocation

Spectrum availability in Israel is limited and is allocated by the Ministry of Communications through a licensing process. We have been allocated 2x10 MHz in the 850 MHz frequency band used by our TDMA network, and 2x17 MHz in the 1800 MHz frequency band used by our GSM/GPRS/EDGE network. In addition, the Ministry of Communications awarded us 2 x 10 MHz and 1 x 5 MHz in the 1900 - 2200 MHz frequency band for our UMTS third generation FDD and TDD spectrums, respectively. Currently, we are not making use of our TDD spectrum due to the unavailability of equipment that can support this spectrum. We believe that our available spectrum is sufficient for our needs.

Cell site construction and licensing

We construct cell sites based on our strategy to expand the geographical coverage and improve the quality of our network and as necessary to replace cell sites that need to be removed. Our acquisition teams survey the area in order to identify the optimal location for the construction of a cell site. In urban areas, this would normally be building rooftops. In rural areas, masts are usually constructed. Our transmission teams also identify the best means of connecting the base station to our network, based on our independent transmission

network, either by physical optical fiber, microwave link or Bezeq landlines. Once a preferred site has been identified and the exact equipment configuration for that site decided, we begin the process of obtaining all necessary consents and permits. The construction of cell sites requires building permits from local or regional authorities, or an applicable exemption, as well as a number of additional permits from governmental and regulatory authorities, such as construction and operating permits from the Ministry of Environmental Protection in all cases, permits from the Civil Aviation Authority in most cases and permits from the Israeli Defense Forces in some cases. In special circumstances, additional licenses are required. See “Item 4. Information on the Company – B. Business Overview – Government Regulations—Permits for Cell Site Construction.”

Suppliers

We entered into an agreement with LM Ericsson Israel Ltd., or Ericsson Israel, in September 2005 for the purchase of UMTS radio access network and ancillary products and services. We committed to purchase maintenance services for five years from the launch of the system (until 2011). We have an option to purchase additional maintenance services on an annual basis for 20 years from the launch of the system (until 2026). We also agreed to purchase from Ericsson at least 60% of the 3G cell sites that we purchase by September 2010. Under the agreement, the parties generally have limited liability for direct damages of up to 40% of the value of the agreement.

We entered into an agreement with Nokia Israel Communications Ltd., or Nokia Israel, in July 2001 for the purchase of our GSM/GPRS system. We were also granted an option to purchase GSM 800, EDGE, UMTS and ancillary systems. In 2002, we exercised our option to purchase an EDGE system, and in 2005, we purchased a UMTS core system, under similar terms. Nokia Israel is obligated to offer us maintenance services for 15 years from final acceptance (until 2017). Under the agreement, the parties generally have limited liability for direct damages of up to 10% of the value of the agreement.

We use Telcordia’s intelligent platform, or “IN,” to provide services to our TDMA, GSM/GPRS/EDGE and UMTS networks, allowing us, at minimal cost, to internally develop sophisticated services with a short time-to-market that are customized to local market requirements. We have also deployed Comverse’s Intelligent Peripheral, which enables us to develop services with rich voice interaction, such as Caller Name Announcement, Call Back and Fun Dial. Our IN platform supports all relevant IN protocols, which allows us to provide (subject to applicable roaming agreements) advanced roaming services, including Virtual Home Environment, abbreviated dialing, unified access to voice mail, VPN, local number format from subscribers’ phone book and call screening.

In addition, we have agreements with several Israeli engineering companies for the construction of our cell sites. We also purchase certain network components from other suppliers.

Transmission Network

Our transmission network provides us with landline connectivity for our cellular and landline network in substantially all of the populated territory of Israel. It is based on our fiber-optic network and complementary microwave infrastructure. Our transmission network includes links to our internal network and to our landline and transmission subscribers.

Our optical transmission network is deployed from Nahariya in the north to Beer Sheva in the south and Afula and Jerusalem in the east, consisting of over 1,300 kilometers. The fiber-optic network reaches most of the business parks in the country and is monitored by a fault-management system that performs real-time monitoring in order to enable us to provide our subscribers with high quality service. In order to efficiently complete our transmission network’s coverage to the entire country, we use a microwave network as a complementary solution in those areas that are not served by our fiber-optic network. As of December 31, 2007, we had deployed approximately 2,140 microwave links to both our cell sites and subscribers.

To supplement our transmission network, we lease a limited amount of transmission capacity from Bezeq, the incumbent landline operator.

Information technology

We maintain a variety of information systems that enable us to deliver superior customer service while enhancing our internal processes.

We use Amdocs’ customer care and billing system. We entered into our agreement with Amdocs (UK) Limited, or Amdocs UK, in February 1999 for the supply of a central computer system for customer care, billing and collection capable of generating customer profiles based on various usage patterns. This system is based on Amdocs UK’s generic pricing system and is customized to our specific requirements. We own the intellectual property rights for the customized developments. We currently purchase maintenance services for the generic system from Amdocs UK and ongoing support services from its affiliate, Amdocs (Israel) Limited. Amdocs (UK) is obligated to offer us maintenance services until May 2011. Under the agreement, the parties’ current liability for direct damages is limited to $500,000.

We use Nortel’s CTI system for the management of incoming calls to our telephonic call centers.

Our customer care system presents our customer care employees with a display of a subscriber’s profile based on various usage patterns. This enables us to provide a service based upon information for that particular subscriber.

We use ERP solutions by SAP. We use a data warehouse based on an Oracle data base system and various data mining tools, ETL by Informatica and reports generated by Cognos. The data warehouse contains data on our subscribers’ use and allows for various analytical segmentation of the data.

Sales and Marketing

Sales

As part of our strategy to fully penetrate every part of the Israeli market, we are committed to making the purchase of our services as easy and as accessible as possible. We offer calling plans, value-added services, handsets, accessories and related services through a broad network of direct and indirect sales personnel. We pay our independent dealers commissions on sales, while our direct, employee sales personnel receive base salaries plus performance-based bonuses. We focus on subscriber needs and conduct extensive market surveys in order to identify subscribers’ preferences and trends. Based on these findings, we

design special calling plans and promotional campaigns aimed at attracting new subscribers and enhancing our ability to provide new services to existing subscribers. From time to time, we offer our subscribers rebates and other benefits for handset purchases. See “Item 3 – Key Information – D. Risk Factors – Risks Related to our Business – We may be subject to increased regulation in respect of handset sales" for a possible change in that respect. Our distribution and sales efforts for subscribers are conducted primarily through four channels:

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 220,000 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 120 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 250 dealers’ sales representatives, as at February 29, 2008. 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 and database analysis. All information derived from our market surveys is uploaded into a database. Once a potential customer is identified, we 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

Our marketing activities are based on the principle of focusing on subscribers’ characteristics and needs and then adapting the service packages and prices that we offer to subscribers based on these characteristics and needs.

From surveys that we conduct from time to time, we learn that subscribers base their choice of cellular provider primarily on the following parameters: general brand perception; perceived price of services and handsets; level of customer service; and selection of handsets

and their compatibility with their needs. Our marketing activities take into consideration these parameters and we invest efforts to preserve our subscriber base, enhance usage and attract new subscribers. We utilize a system that allows the management of complex one-to-one marketing campaigns, such as tailoring our marketing activities to customers based on their unique profile of needs and usage patterns, thus improving customer loyalty and increasing ARPU.

Our marketing strategy is focused on our role as facilitators of interpersonal communication and our ability to foster relationships between people, as well as a general spirit of youthful exuberance and the strong local roots of our brand. We launched a highly successful branding campaign at the end of 2004 and continue to follow this marketing strategy. Our marketing strategy also emphasizes our leadership, dynamic nature and personal touch, the quality of our network and services and our innovation.

In recruiting new subscribers, we are focused on current and potential high value customers, such as students, and subscribers who influence family and business purchasing decisions, such as teenagers and senior executives. We leverage our extensive interactions with our customers, which we estimate to be approximately 700,000 unique customer applications per month, to provide the requested services and also to cross- and up-sell products and services according to customer needs and usage trends to increase customer satisfaction, loyalty and revenues. In addition, we offer loyalty rewards, such as video subscriptions and tickets to concerts, performances and movies, from time to time.

We regularly advertise in all forms of media, in promotional campaigns and in the sponsorship of major entertainment events. For example, through our music-related “Cellcom Volume” marketing initiative, we promote the sale of music-related services through our cellular music portal, we promote both Israeli music and local musicians as well as support youth music centers aimed at enabling underprivileged youth to discover and develop their musical talents. Our marketing and branding campaign has been very successful and highly acclaimed among the Israeli public, and our “Cellcom Volume” initiative in particular have provided us with a high visibility association with music content services.

We believe that our strong brand recognition gives us the high level of market exposure required to help us achieve our business objectives.

Customer Care

Our customer service unit is our main channel for preserving the long-term relationship with our subscribers. We focus on customer retention through the provision of quality service and customer care. In order to achieve this goal, we systematically monitor and analyze our subscribers’ preferences, characteristics and trends by developing and analyzing sophisticated databases. We then adopt services that are aimed to respond to subscribers’ needs and preferences. In addition, subscribers are encouraged to subscribe to additional value-added services, such as cellular Internet and content services, in order to enhance customer satisfaction and increase ARPU. We continuously strive to improve our service to our customers. We provide our customer care representatives with a continually updated database, thus shortening the interaction time required to satisfy the customer’s needs and preventing human errors. We constantly review our performance by conducting surveys among our subscribers in order to ensure their satisfaction with our services and to improve them as necessary.

In order to better respond to subscribers’ needs in the most efficient manner, our customer support and service network offers several channels for our subscribers:

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: general services; 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 less than 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 six locations throughout Israel, two of which are outsourced. We expect to open a seventh location during the third quarter of 2008. On average, we respond to 1.1 million calls every month. During peak hours our call centers have the capability to respond to 800 customer calls simultaneously.

Walk-in centers . As of December 31, 2007, we 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. While waiting, we offer our subscribers to borrow a substitute handset, free of charge, in order to continue to enjoy our cellular phone services as their handset is being repaired.

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, by phone or face to face – at their home or place of business, 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. We offer our business customers repair services by a dispatch service

collecting and returning the repaired handset within 24 hours, during which time, the customer is provided with a substitute handset, free of charge.

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 July 2008. We do not foresee any difficulties in obtaining such services thereafter.

Competition

There is substantial competition in all aspects of the cellular communications market in Israel and we expect this to continue in the future due to the highly penetrated state of our market. We compete for market and revenue share with three other cellular communication operators: Partner, which is majority owned by Hutchison Whampoa; Pelephone, which is a wholly-owned subsidiary of the incumbent landline provider, Bezeq; and MIRS, which is a wholly-owned subsidiary of Motorola.

Our estimated market share based on number of subscribers was 34.4% as of December 31, 2007. To our knowledge, the market shares at such time of Partner, Pelephone and MIRS were estimated to be approximately 31.9%, 29.3% and 4.4%, respectively. Since MIRS does not publish data on its number of subscribers, estimates of its market share are based on surveys.

The competition in our market has further increased as a result of the implementation of number portability, in December 2007, as it has removed a deterrent to switching providers. See also “ Government Regulations - Number Portability ” below. Competition may intensify even further upon the expected launch of Pelephone's UMTS/HSPA network in 2009 and subject to policy formation by the regulator, mobile virtual network operators may enter into agreements with cellular providers and enter into the market. We may also face competition in the future from other providers of voice and data communications, including service providers that may offer WiMAX or WiFi wireless high speed data access.

We believe that the principal competitive factors include general brand perception, perceived price, customer service, and handset selection. In addition, content and other value-added services constitute a potential growth engine for increasing revenues from subscribers and are also an important factor in selecting a cellular provider.

In response to the enhanced competition in our market, we have implemented various steps and strategies, including:

·	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, both cellular and landline 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 (for instance, we were the first cellular operator to offer calling plans charged by one-second airtime charging unit, as opposed to the then customary 12-second airtime charging unit).

Our ability to compete successfully will depend, in part, on our ability to anticipate and respond to trends and events affecting the industry, including: the introduction of new services and technologies, changes in consumer preferences, demographic trends, economic conditions, pricing strategies of competitors and changes to the legal and regulatory environment. We believe that we are well positioned for the competition in our market.

In 2006, the Ministry of Communications appointed a public committee to review various issues in the Israeli communications market. The committee published its recommendations on March 2008, including recommendations: to accelerate the procedures necessary to allow the entry of MVNOs and additional infrastructure based operators to the cellular market; to publish a WiMAX frequencies tender for cellular use; to examine interconnect fees and further revise them accordingly, during 2009; to negotiate a reduction of inbound and outbound roaming tariffs with the EU and/or members of the EU and/or countries frequently visited by Israelis; to cancel the operators’ obligation to pay royalties, by the year 2012 (subject to a tax reduction between 2008-2012); to regulate charges for mobile-originated international calls and subject to such regulation, to allow cellular operators to enter the international long distance market; and to prohibit a linkage between a cellular services transaction and a handset purchase transaction. The Committee further recommended the unbundling of Bezeq's network to be followed by alleviating some of the restrictions with respect to offering integrated packages of services currently imposed on Bezeq and its subsidiaries. Should the Ministry of Communications decide to adopt such recommendations, it could adversely influence our results of operations.

Intellectual Property

We are a member of the GSM Association, together with other worldwide operators that use GSM technology. As a member of the association, we are entitled to use its intellectual property rights, including the GSM logo and trademark.

We have registered approximately 100 trademarks and several trade names, the most important of which are “Cellcom”, “Talkman” and “Cellcom Volume”.

Government Regulations

The following is a description of various regulatory matters which are material to our operations, including certain future legislative initiatives which are in the process of being enacted. There is no certainty that the future legislation described here will be enacted or whether it will be subject to further change before its final enactment.

General

A significant part of our operations is regulated by the Israeli Communications Law, 1982, the regulations promulgated under the Communications Law and the provisions of our licenses, which were granted by the Israeli Ministry of Communications pursuant to the Communications Law. We are required by law to have a general license in order to provide cellular communications services in Israel. The Ministry of Communications has broad supervisory powers in connection with the operations of license holders and is authorized, among other things, to impose financial penalties for violations of the Communications Law and our licenses.

Our Principal License

The establishment and operation of a cellular communications network requires a license pursuant to the Communications Law for telecommunications operations and services and pursuant to the Israeli Wireless Telegraph Ordinance (New Version), 1972, for the allocation of spectrum and installation and operation of a cellular network.

We provide our cellular services under a non-exclusive general license granted to us by the Ministry of Communications in June 1994, which requires us to provide cellular services in the State of Israel to anyone wishing to subscribe. The license expires on January 31, 2022, but may be extended by the Ministry of Communications for successive periods of six years, provided that we have complied with the license and applicable law, have continuously invested in the improvement of our service and network and have demonstrated the ability to continue to do so in the future. The main provisions of the license are as follows:

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 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 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 our customers and 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, protecting the privacy of subscribers and obtaining an explicit request from our subscribers to provide services, whether by us or by third parties, as a precondition to providing and charging for such services;

·	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.

In 2005, our license was amended to regulate charging for SMS messages sent outside our network, which, under a certain interpretation of the amendment, may lead to claims of our not being in compliance with our license. To date, we have fulfilled the license requirements with respect to SMS messages sent to subscribers of one other cellular operator. However, due to technological difficulties which have not yet been resolved, we may face claims, if such interpretation of the amendment prevails, of not having implemented the amendment with respect to SMS messages sent to subscribers of two other operators. We had notified the Ministry of Communications of our technological inability to fully implement the amendment, in light of this interpretation. The Ministry of Communications had proposed an amendment to our license to resolve this problem, which we believe is unsatisfactory.

In the event that we violate the terms of our license, we may be subject to substantial penalties, including monetary sanctions. In January 2007, the Knesset, the Israeli parliament approved an increase in the financial sanctions that may be imposed on us by the Ministry of Communications for a breach of our licenses. Following the increase, the maximum amount per violation that may be imposed is NIS 1.4 million plus 0.25% of our annual revenue from the preceding year. An additional sanction amounting to 2% of the original sanction may be

imposed for each day that the violation continues. In addition, the Ministry of Communications may determine certain service-related terms in our license as “service terms”; the maximum monetary sanctions per violation of a “service term” shall be double the amount of any other monetary sanction set in our license for such a violation per each period of 30 days or portion thereof during which the violation continues.

Other Licenses

Special general license for the provision of landline communication services

In April 2006, Cellcom Fixed Line Communications L.P., or Cellcom Fixed Line, a limited partnership wholly-owned by us, was granted a non-exclusive special general license for the provision of landline telephone communication services. The license expires in 2026 but may be extended by the Ministry of Communications for successive periods of 10 years. We began providing landline telephone services in July 2006, concentrating on offering landline telephone services to selected businesses. The partnership deposited a bank guarantee in the amount of NIS 10 million with the Ministry of Communications upon receiving the license. The provisions of our general license described above, including as to its extension, generally apply to this license, subject to certain modifications. It should be noted that in addition to any 10% share transfer requiring the prior approval of the Ministry of Communications as noted in our general license, the special general license additionally requires prior approval for acquiring the ability to effect a significant influence over us. In this context, holding 25% of our means of control is presumed to confer significant influence.

In December 2007 this license was amended to include the provision of voice services over the internet broadband infrastructure of other operators (VOB), as well. This amendment will enable us to penetrate the residential sector as well, should we choose to do so (we are currently examining this possibility).

Data and transmission license

In 2000, we were granted a non-exclusive special license for the provision of local data communication services and high-speed transmission services, which is effective until December 2012. Following the grant of a special general license for the provision of landline telephone communication services to Cellcom Fixed Line, which also includes the services previously provided through our data and transmission license, our data and transmission license was amended in June 2006 to permit only Cellcom Fixed Line to be our customer of these services (and these services are now being provided to our customers through Cellcom Fixed Line). The provisions of our general and general specific licenses described above, including as to its extension, generally apply to this license, subject to certain modifications.

Cellular services in Judea and Samaria

The Israeli Civil Administration in Judea and Samaria granted us a non-exclusive license for the provision of cellular services to the Israeli-populated areas in Judea and Samaria. This license is effective until December 31, 2008. The provisions of the general license described above, including as to its extension, generally apply to this license, subject to certain modifications. We believe that we will be able to receive an extension to this license upon request.

Tariff Supervision

Under the Israeli Communications Regulations (Telecommunications and Broadcasting) (Payment for Interconnecting), 2000, interconnect tariffs among landline operators, international call operators and cellular operators are subject to regulation and have been gradually decreased, as follows:

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; as of March 1, 2006, to NIS 0.29 per minute; as of March 1, 2007, to NIS 0.26 per minute; and as of March 1, 2008 to NIS 0.22 per minute.

·	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 was 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.

These above tariffs do not include value added tax and are updated in March of each year based on the change in the Israeli CPI published each January with the Israeli CPI published in January 2005 in accordance with the regulations.

The reduction of interconnect tariffs by the Ministry of Communications led to a decrease in our revenues. For information on the effect on our results of operations, see “Item 5 - Operating and Financial Review and Prospects—Results of Operations.”

Under these regulations and our license, as of January 1, 2009, our basic airtime charging units, including for interconnect purposes, will be changed from twelve-second units to one-second units. In September 2007, our general license was further amended in a manner that prevents us from offering our subscribers calling plans using airtime charging units other than the basic airtime charging unit. These changes may result in a decrease in our revenues. We have been taking steps to address the effects of these amendments to the license, including initiating new and innovative marketing plans, such as "Cellcom by the Second" and "buckets of minutes" plans. See “Item 8. Financial Information – A. Consolidated Statements and Other Financial Information – Legal Proceedings - Commercial and other disputes” for a petition filed in relation to the September amendment.

In November 2006, the Ministry of Communications amended our license in a manner that obligates us, as of January 2007, to provide, in calls made to our subscribers and directed into voicemail, an announcement that the call is being directed to voicemail. Further, we may not charge for a call terminated up to one second after the announcement is made. This change has resulted in a decrease in our revenues. See “Item 5 - Operating and Financial Review and Prospects—Results of Operations.”

In 2006, the European Union declared that it is considering regulating roaming tariffs. To our knowledge, following such declaration, several operators in Europe agreed to reduce roaming tariffs among themselves. Recently, the Ministry of Communications has approached the cellular operators in Israel with a request for information in order to evaluate the need for intervention in roaming tariffs. If the Ministry of Communications decides to

intervene in the pricing of roaming services, this could reduce the revenues we derive from our roaming services.

Following previous steps taken by the Ministry of Communications to promote additional end-user equipment sales-channels, the Ministry is also examining the possibility of limiting our ability to link between handset purchase and airtime credit granted to the purchasing subscriber. If such restrictions are imposed, this may impair our ability to offer advanced handsets that include value-added features and services to our subscribers with airtime rebates which may result in lower revenues from value-added services and selling handsets.

A public committee appointed by the Ministry of Communications to review various issues in the Israeli communications market published its recommendations on March 2008, including that interconnect fees be further revised, a reduction of inbound and outbound roaming tariffs with members of the EU and/or other countries frequently visited by Israelis be negotiated and that linking a cellular services transaction and a handset purchase transaction be prohibited. See “Item 4. Information on the Company – B Business Overview – Competition.”

Permits for Cell Site Construction

General

In order to provide and improve network coverage to our subscribers, we depend on cell sites located throughout Israel. The regulation of cell site construction and operation are primarily set forth in the National Zoning Plan 36 for Communications, which was published in May 2002. The construction of radio access devices, which are cell sites of smaller dimensions, is further regulated in the Communications Law.

The construction and operation of cell sites are subject to permits from various government entities and related bodies, including:

·	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

National Zoning Plan 36 includes guidelines for constructing cell sites in order to provide cellular broadcasting and reception communications coverage throughout Israel, while preventing radiation hazards and minimizing damage to the environment and landscape. The purpose of these guidelines is to simplify and streamline the process of cell site construction by creating a uniform framework for handling building permits.

National Zoning Plan 36 sets forth the considerations that the planning and building authorities should take into account when issuing building permits for cell sites. These considerations include the satisfaction of safety standards meant to protect the public’s health from non-ionizing radiation emitting from cell sites, minimizing damage to the landscape and examining the effects of cell sites on their physical surroundings. National Zoning Plan 36 also determines instances in which building and planning committees are obligated to inform the public of requests for building permits prior to their issuance, so that they may submit objections to the construction of a site in accordance with the provisions of the Planning and Building Law.

See “Item 4. Information on the Company – B. Business Overview - Government Regulations - Site licensing” below for arguments against the application of National Zoning Plan 36 to certain cell sites.

National Zoning Plan 36 is in the process of being revised. Current proposed changes would impose additional restrictions and/or requirements on the construction and operation of cell sites and could, if adopted, harm our ability to construct new cell sites, make the process of obtaining building permits for the construction and operation of cell sites more cumbersome and costly and may delay the future deployment of our network.

Site licensing

We have experienced difficulties in obtaining some of the permits and consents required for the construction of cell sites, especially from local planning and building authorities. A small percentage of our cell sites are in various stages of receiving building permits, and in several instances we will be required to relocate these sites to alternative locations or to demolish these sites without any suitable alternative. The construction of a cell site without a building permit (or applicable exemption) constitutes a violation of the Planning and Building Law. Violations of the Planning and Building Law are criminal in nature. The Planning and Building Law contains enforcement provisions to ensure the removal of unlawful sites. There have been instances in which we received demolition orders or in which we and certain of our directors, officers and employees faced criminal charges in connection with cell sites constructed without a permit. In most of these cases, we were successful in preventing or delaying the demolition of these sites, through arrangements with the local municipalities or planning and building authorities for obtaining the permit, or in other cases, by relocating to alternate sites. As of December 31, 2007, we were subject to 28 criminal and administrative legal proceedings alleging that some of our cell sites were built without a building permit. As of the same date, approximately 5.9% of our cell sites operated without building permits or applicable exemptions. Although we are in the process of seeking to obtain building permits or modify our cell sites in order to satisfy applicable exemptions for a portion of these sites, we may not be able to obtain or modify them. In addition, we operate other cell sites in a manner which is not fully compatible with the building permits issued for them, although they are covered by permits from the Ministry of Environmental Protection in respect of their radiation level. In some cases we will be required to relocate these cell sites to alternative locations, to reduce capacity coverage or to demolish them without any suitable alternative.

Based on advice received from our legal advisors and consistent with most Magistrate Court rulings on the matter, we have not requested building permits under the Planning and Building Law for rooftop radio access devices. In July 2007 we received a Magistrate Court ruling determining that the exemption from the requirement to obtain a building permit for

radio access devices is not applicable to radio access devices in a cellular network, and therefore they, including accompanying equipment, are subject to the requirement to receive permits for their construction and use. This ruling contradicts previous and also more recent Magistrate Court rulings, which determined that the exemption is also applicable to the construction and use of the radio access devices in a cellular network. This issue is currently under consideration in the court of appeals (the District Court). Radio access devices do receive the required permits from the Ministry of Environmental Protection, but some local authorities claim that these devices also require building permits or do not meet other legal requirements. A petition filed in August 2007 with the Israeli High Court of Justice, seeking the annulment of the exemption and any environmental permits granted on the basis of the exemption, as well as enjoining the Ministry of Environmental Protection from providing any permits based on this exemption, was dismissed in limine in August 2007, for failure to exhaust the relevant proceedings prior to filing the petition, without consideration of the merits of the case. In October 2007, contrary to most rulings on the application of the exemption, the Commissioner of Environmental Radiation at the Ministry of Environmental Protection took the position that he will not grant and/or renew operating permits to radio access devices, where the local planning and building committee’s engineer objected to the Company's reliance upon this exemption for radio access devices. We believe that in taking this position, the Commissioner is acting beyond his powers.

If the courts determine that building permits are necessary for the installation of these devices or other legal requirements are not met, it would have a negative impact on our ability to obtain environmental permits for these devices and deploy additional devices, which could negatively affect the extent, quality and capacity of our network coverage and our ability to continue to market our products and services effectively.

For reasons not related to radiation hazards, we have not received environmental permits to approximately 8.7% of our cell sites, primarily due to a labor dispute at the Ministry of Environmental Protection, which began in December 2007 and is continuing to date. However, some permits have not been granted due to building and planning issues, such as objections by local planning and building committee's engineers to our reliance on the exemption from obtaining building permits for radio access devices. We expect the majority of these cell sites to be granted operating permits once the labor dispute is over. Operating a cell site or a facility without an operating permit could subject us and our officers and directors to criminal, administrative and civil liability.

Should any of our officers or directors be found guilty of an offence, although this has not occurred to date, they may face monetary penalties and a term of imprisonment. Our sites may be the subject of further demolition orders we may be required to relocate cell sites to less favorable locations or stop operation of cell sites which could negatively affect the extent, quality and capacity of our network coverage and we or our officers and directors may face further criminal charges.

June 2002, following the approval of the Plan, building permits for the Company's cell sites (where required) have been issued in reliance on the Plan. The current proposed draft amendment to the Plan covers all new cell sites requiring a building permit, independently of the frequencies in which they operate. Most of our cell sites and many cell sites operated by other operators, operate in frequencies not specifically detailed in the Plan. We believe that the Plan applies to all cell sites, whether or not they operate in specific frequencies, consistent with the practice developed since 2002 and intend to defend our position vigorously. However, we are currently unable to assess the chances of success of the above argument.

If this approach continues, it would have a negative impact on our ability to deploy additional cell sites (until such time as the Plan is amended to include all cellular cell sites), which could negatively affect the extent, quality and capacity of our network coverage and our ability to continue to market our products and services effectively.

In addition to cell sites, we provide repeaters (also known as bi-directional amplifiers) to subscribers seeking a solution to weak signal reception within specific indoor locations. Based on advice received from our legal advisors, we have not requested building permits under the Planning and Building Law for outdoor rooftop repeaters, which are a small part of the repeaters that have been installed. It is unclear whether other types of repeaters require building permits. Some repeaters require specific permits and others require a general permit from the Ministry of Environmental Protection in respect of their radiation level, and we are required to ensure that each repeater functions within the parameters of the applicable general permit. The Israeli courts have not yet addressed the question of whether building permits are required for the installation of repeaters. Should it be established that the installation of repeaters (including those already installed) requires a building permit, we will perform cost-benefit analyses to determine whether to apply for permits for existing repeaters or to remove them and whether to apply for permits for new repeaters.

In addition, we construct and operate microwave sites as part of our transmission network. The various types of microwave sites receive permits from the Ministry of Environmental Protection in respect of their radiation level. Based on advice received from our legal advisors, we believe that building permits are not required for the installation of these microwave facilities on rooftops, and, to the best of our knowledge, this issue has not yet been considered by the Israeli courts. If courts determine that building permits are necessary for the installation of these sites, it could have a negative impact on our ability to obtain environmental permits for these sites and to deploy additional microwave sites and could hinder the extent, quality and capacity of our transmission network coverage and our ability to continue to market our landline services effectively.

Indemnification obligations

In January 2006, the Planning and Building Law was amended to provide that as a condition for issuing a building permit for a cell site, local building and planning committees shall require letters of indemnification from cellular operators indemnifying the committees for possible depreciation claims under Section 197 of the Planning and Building Law, in accordance with the directives of the National Planning Council. Section 197 establishes that a property owner whose property value has been depreciated as a result of the approval of a building plan that applies to his property or neighboring properties may be entitled to compensation from the local building and planning committee. In February 2007, the Israeli Minister of Interior Affairs extended the limitation period within which depreciation claims may be brought under the Planning and Building Law from three years from approval of the

building plan to the later of one year from receiving a building permit under National Zoning Plan 36 for a cell site and six months from the construction of a cell site. The Minister retains the general authority to extend such period further. This extension of the limitation period increases our potential exposure to depreciation claims.

The National Planning Council’s guidelines issued in January 2006 provide for an undertaking for full indemnification of the planning and building committees by the cellular companies, in the form published by the council. The form allows the indemnifying party to control the defense of the claim. These guidelines will remain in effect until replaced by an amendment to National Zoning Plan 36.

Since January 2006, we have provided over 150 indemnification letters in order to receive building permits. In addition, prior to January 2006, we provided three undertakings to provide an indemnification letter to local planning and building committees. Local planning and building committees have sought to join cellular operators, including us, as defendants in depreciation claims made against them even though indemnification letters were not provided. We were joined as defendants in a small number of cases. It is possible that the joining of cellular operators as defendants to similar claims will continue notwithstanding the absence of an indemnification letter. We expect that we will be required to continue to provide indemnification letters as the process of deploying our cell sites continues. As a result of the requirement to provide indemnification letters, we may decide to construct new cell sites in alternative, less suitable locations, to reduce capacity coverage or not to construct them at all, should we determine that the risks associated with providing such indemnification letters outweigh the benefits derived from constructing such cell sites, which could impair the quality of our service in the affected areas.

Construction and operating permits from the commissioner of environmental radiation

Under the Non Ionizing Radiation Law (and previously under the Israeli Pharmacists Regulations (Radioactive Elements and their Products), 1980), it is prohibited to construct cell sites without a permit from the Ministry of Environmental Protection. The Commissioner of Environmental Radiation is authorized to issue two types of permits: construction permits, for cell site construction; and operating permits, for cell site operation.

These permits contain various conditions that regulate the construction or operating of cell sites, as the case may be. Our cell sites routinely receive both construction and operating permits from the Commissioner within the applicable time frames. The Pharmacists Regulations provide that each of the two kinds of permits is valid for one year from the date of its issuance, or for a shorter period of time as determined by the Commissioner. We submitted annual reports regarding radiation surveys conducted on our cell sites, which, according to the Commissioner, automatically renews the permits for additional one-year terms.

Some repeaters require specific permits and others require general permits from the Commissioner in respect of their radiation level, and we are required to ensure the repeaters function within the parameters of their general permit.

Under the Pharmacists Regulations, the Commissioner may issue orders to take appropriate action should he believe a cell site or other facility poses a threat to the health or welfare of individuals, the public or the environment. Failure to comply with the Pharmacists Regulations, the terms of a permit or the instructions of the Commissioner can lead to sanctions, including the revocation or suspension of the permit.

Pursuant to the Non-Ionizing Radiation Law, which has become effective, for the most part, on January 1, 2007, the construction and operation of cell sites and other facilities requires the prior approval of the Ministry of Environmental Protection. The validity of a construction permit will be for a period not exceeding three months, unless otherwise extended by the Commissioner, and the validity of an operating permit will be for a period of five years and we are required to submit to the Commissioner annual reports regarding radiation surveys conducted on our cell sites. Permits that were issued under the Pharmacists Regulations were deemed, for the remainder of their term, as permits issued under the Non-Ionizing Radiation Law. An applicant must first receive a construction permit from the Commissioner and only then may the applicant receive a building permit from the planning and building committee. In order to receive an operating permit from the Commissioner, certain conditions must be met, such as presenting a building permit or an exemption. See “Item 4. Information on the Company – B. Business Overview - Government Regulations - Site licensing“ above for additional details in regards to obtaining a building permits and/or relying on an exemption.

The Non-Ionizing Radiation Law also regulates permitted exposure levels, documentation and reporting requirements, and provisions for supervision of cell site and other facility operation. The Non-Ionizing Radiation Law grants the Commissioner authority to issue eviction orders if a cell site or other facility operates in conflict with its permit, and it imposes criminal sanctions on a company and its directors and officers for violations of the law. Failure to comply with the Non-Ionizing Radiation Law or the terms of a permit can lead to revocation or suspension of the permit, as well as to withholding the grant of permits to additional cell sites of that operator.

The draft Israeli Non-Ionizing Radiation Regulations approved by the Interior and Environmental Protection Committee of the Knesset in October 2007 includes additional restrictions in relation to the operation of cell sites and other facilities. If these restrictions are adopted in their current draft format, they will, among other things, limit our ability to construct new sites and renew operating permits for a number of our existing sites, specifically in residential areas.

Handsets

The Israeli Consumer Protection Regulations (Information Regarding Non-Ionizing Radiation from Cellular Telephones), 2002, regulate the maximum permitted level of non-ionizing radiation from end-user cellular equipment that emits non-ionizing radiation, which mainly refers to cellular phones, according to the European standard, for testing GSM devices, and the American standard, for testing TDMA devices. They also require cellular operators to attach an information leaflet to each equipment package that includes explanations regarding non-ionizing radiation, the maximum permitted level of non-ionizing radiation and the level of radiation of that specific model of equipment. The Radiation Regulations further require that such information also be displayed at points-of-sale, service centers and on the Internet sites of cellular operators.

Pursuant to procedures published by the Ministry of Communications at the end of 2005, end-user cellular equipment must comply with all relevant standards, including specific absorption rate, or SAR, level standards. We obtain type-approval from the Ministry of Communications for each handset model imported or sold by us. We include information published by the manufacturer regarding SAR levels with all of our handsets. SAR levels are a measurement of non-ionizing radiation that is emitted by a hand-held cellular telephone at

its specific rate of absorption by living tissue. SAR tests are performed by handsets manufacturers on prototypes of each model handset, not for each and every handset. We do not perform independent SAR tests for equipment and rely for this purpose on information provided by the manufacturers. As the manufacturers’ approvals refer to a prototype handset, we have no information as to the actual SAR level of the equipment throughout their lifecycle, including in the case of equipment repair.

According to these procedures, in the event of equipment repair, SAR levels must be tested again and if they are not tested, the repairing entity is required to inform the customer that there may be changes in the SAR levels by affixing a label to the equipment. The Ministry of Communications has appointed a consultant to create guidelines in that regard. We and the other cellular operators have met with this consultant. In August 2006, the consultant submitted his findings to the Ministry of Communications, but the Ministry of Communications has not yet issued any guidelines. We are awaiting the publication of these guidelines before implementing these requirements.

Obtaining a license for importing or trading in spare parts that are likely to affect the level of non-ionizing radiation requires receipt of compliance approvals from the manufacturer of the parts or from a laboratory authorized by the Ministry of Communications. To the best of our knowledge, to date no spare parts manufacturer has provided any cellular operator with such an approval and no laboratory has been authorized by the Ministry of Communications to issue such approvals.

Royalties

Under the Communications Law, the Israeli Communications Regulations (Royalties), 2001, and the terms of our general license from the Ministry of Communications, in 2007 we were required to pay the State of Israel royalties equal to 2.5% of our 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 to 3.5% in 2004 and 2005, to 3% in 2006 and to 2.5% in 2007. It will continue to be reduced by 0.5% per year, until reaching a rate of 1%. A public committee appointed by the Ministry of Communications to review various issues in the Israeli communications market published its recommendations on March 2008, including that our obligation to pay royalties be annulled. See “Item 4. Information on the Company – B Business Overview – Competition.”

Number Portability

As a result of an amendment to the Communications Law in March 2005, cellular and landline telephone operators were required to implement number portability by September 1, 2006. Despite efforts to introduce the requisite technology and coordinate the transition to number portability by September 1, 2006, no cellular or landline operator has implemented number portability by that date. Number Portability was implemented in Israel in December 2, 2007. Number portability permits cellular and landline network subscribers in Israel to change network operators (from one cellular operator to another and from one landline operator to another) without having to change their telephone numbers. Number portability has further increased the competition in our market, as it removed a deterrent to switching providers. Since implementation of number portability, churn rates have slightly increased, but, to date, have not led to a significant change in the market shares of the cellular operators. In light of other countries' experience of an increased churn following number portability implementation, churn may still increase, though at present, some three months after its implementation, we are seeing signs of stabilization in the market. We have maintained a

positive net subscriber additions since the introduction of number portability, in line with our expectations. Number portability has become an integral part of our operation and currently accounts to less than 20% of our sale transactions, the balance continues to be traditional sale transactions.

In May 2007, the Ministry of Communications notified its intention to impose monetary sanctions on telephony companies, including us, following non-implementation and operation of Number Portability, as of September 1, 2006. The intended monetary sanction applicable to us for the period commencing September 1, 2006 and ending November 30, 2007, is approximately NIS 6 million. We have submitted our objection to the aforementioned intended sanctions, to the Ministry of Communications.

Following implementation of number portability in Israel on December 2, 2007, the petition filed with the Supreme Court of Israel, in August 2006 by us and two other cellular operators against the Government of Israel and the Ministry of Communications to show cause for their failure to act in order to postpone the deadline for the implementation of number portability, was consensually withdrawn, without prejudice to the parties’ claims, at the request of the petitioners. A similar petition filed by a landline operator was so withdrawn as well.

Frequency Fees

Frequency allocations for our cellular services are governed by the Wireless Telegraph Ordinance. We pay frequency fees to the State of Israel in accordance with the Israeli Wireless Telegraph Regulations (Licenses, Certificates and Fees), 1987. We are currently in dispute with the Ministry of Communications over a sum of NIS 69 million (including interest and CPI linkage differences) as of December 31, 2007, in GSM and UMTS frequency fees. For further information, see “Item 8 – Financial Information - Legal Proceedings.”

Mobile Virtual Network Operator

A mobile virtual network operator, or MVNO, is a cellular operator that does not own its own spectrum and usually does not have its own network infrastructure. Instead, MVNOs have business arrangements with existing cellular operators to use their infrastructure and network for the MVNO’s own customers. The introduction of the operation of MVNOs in the Israeli cellular market could increase competition, which may adversely affect our revenues.

In August 2007, the Israeli government instructed the Ministry of Communications to take all measures necessary to allow any MVNO, wishing to provide cellular services to the public using the network of a cellular operator to do so as of December 31, 2007. In the event that an MVNO and the cellular operator will not have reached an agreement as to the provision of service by way of MVNO within six months from the date the MVNO has approached the cellular operator, the Ministry of Communications is authorized to examine the causes thereof. Should the Ministry of Communications determine that the failure to reach agreement is due to anticompetitive behavior of the cellular operator or due to a market failure, the Ministry of Communications may use its authority to provide instructions. Such instructions may include intervening in the terms of the agreement, including by setting the price of the service.

In October 2007, the Ministry of Communications published an abstract of the recommendations of an international consulting firm hired by the Ministry of

Communications in order to examine the competition in the Israeli cellular market and advise the Ministry on the introduction of MVNOs. The consulting firm found the Israeli cellular market to be very competitive and recommended that the Ministry of Communications refrain from forcefully introducing MVNOs into the Israeli cellular market. It also recommended to encourage their entrance by granting licenses and that the regulator interfere only in case of market failure. In March 2008, a public committee, appointed by the Ministry of Communications, further recommended an acceleration of the procedures necessary to allow the entry of MVNOs see “Item 4. Information on the Company – B. Business Overview – Competition” To the best of our knowledge, the Ministry of Communications has not taken any additional steps to further the entrance of MVNOs.

Emergency Situations

We may be subject to certain restrictions and instructions regarding our activities or provision of services during national emergencies or for reasons of national security or public welfare, including taking control of our cellular or land line networks. Further, the Prime Minister and the Ministry of Communications may determine that our services are deemed essential services, in which case we may be subject to further additional limitations on our business operations.

Reporting Requirements

We are subject to extensive reporting requirements. We are required to submit to the Ministry of Communications detailed annual reports with information concerning subscribers, revenues by service, the number of new subscribers and churn, annual financial statements and prior notice of tariff increases. In addition, under our license we may be required by the Ministry of Communications to file additional reports, such as reports on complaints, network problems and the development of the network.

C. ORGANIZATIONAL STRUCTURE

The IDB Group

Our majority shareholder, DIC, is a majority-owned subsidiary of IDB Development Corporation Ltd., or IDB Development, which in turn is a majority-owned subsidiary of IDB Holding Corporation Ltd., or IDB, one of Israel’s largest business groups. IDB, IDB Development and DIC are public Israeli companies traded on the Tel Aviv Stock Exchange. See the footnote to the table under “Item 7.A – Major Shareholders” for information on the holdings in IDB. We do not have any significant subsidiaries.

D. PROPERTY, PLANT AND EQUIPMENT

Headquarters

In August 2003, we entered into a long-term agreement for the lease of our headquarters in Netanya, Israel. The leased property covers approximately 57,800 square meters, of which approximately 26,000 square meters consist of underground parking lots. The lease has an initial term of ten years and is renewable for three additional periods of five years each, upon our notice.

Real Estate in Modi’in

In November 2001, we were awarded a tender by the Israel Land Administration, or the ILA, for the development of a plot covering an area of approximately 74,500 square meters in Modi’in, Israel. According to the development agreement, we were to complete the development of the plot by November 2004. At that time, we had plans to establish our headquarters and logistics center in Modi’in, but we subsequently decided to establish our headquarters in Netanya. As a result, we did not develop the plot. In May 2006, we and the ILA signed a leasing agreement for the plot, for a period of 49 years beginning in November 2001 , with an option which may be exercised by us to extend the lease period for additional 49 years. The lease agreement is subject to the performance of our undertakings according to the development agreement. Additionally, the lease agreement includes our undertaking to complete the construction of the industrial buildings on the property by May 2007. We did not construct the buildings as originally contemplated.

In December 2007, we entered into an agreement with Bayside Land Corporation Ltd., or Bayside, a public company controlled by our controlling shareholders, for the sale of the plot to Bayside, in consideration of NIS 39 million plus value added tax. The transaction is subject to obtaining the consent of ILA to the transfer of our rights in the plot. In case the ILA does not give its consent to the transfer of rights, each party will be entitled to terminate the agreement, in which case any sums previously paid or placed in escrow by Bayside will be returned to Bayside. In case the ILA demands consent fees and/or any other payment following a claim (if made) as to our alleged failure to comply with the terms of the development agreement and/or the lease agreement, the parties will contest such demands. If such demands are not revoked, we will bear their cost. In case such demands exceed 3% of the consideration (plus applicable VAT), we will be entitled to terminate the agreement, unless the parties or either one of us, decide to pay the difference between the said 3% and the ILA’s demands.

The Agreement includes other terms which are customary in similar transactions.

Service centers, points of sale and cell sites

As of December 31, 2007, we leased approximately 40 service centers, points of sale and other facilities, which are used for marketing, sales and customer service. Lease agreements for our retail stores and service centers are generally for periods of two to three years, with extension options that vary by location.

In addition, we lease from various parties, including the ILA, municipalities and private entities sites for the establishment, maintenance and operation of cell sites for our cellular network.

The duration of these lease agreements varies and ranges, in most cases, from two to six years, with an option to extend the lease for successive similar periods. The lease agreements also differ from each other in aspects such as payment terms and exit windows that enable us to terminate the agreement prior to its scheduled expiration. In some of the agreements, the lessor is entitled to terminate the agreement at any time without cause, subject to prior notice. Based on our past experience, we encounter difficulties in extending the term of approximately 5% of the lease agreements for cell sites, which at times results in our having to pay substantially higher rent in order to remain in the same locations or to find alternative sites.

Authorization agreement with land regulatory authorities

In October 2005, we entered into an authorization agreement with the ILA (which manages the lands of the Development Authority and the Jewish National Fund) that authorizes us to use lands managed by the ILA for the establishment and operation of cell sites. The authorization agreement is effective for a term of five years commencing January 1, 2004.

The authorization agreement provides that subject to the receipt of approval from the ILA, we will be entitled to establish and operate cell sites on the lands leased to third parties throughout the agreement’s term. In connection with the authorization agreement we undertook to vacate at the end of the agreement’s term all facilities installed in the authorized area unless the authorization period is extended.

Under the authorization agreement, the ILA is entitled to revoke authorizations granted to us in the event of changes in the designation of the land on which a cell site was erected, in the event that we violate a fundamental condition of the authorization agreement, in the event that the holders of rights in the properties on which we erected cell sites breach the agreements between them and the ILA and in the event that the land on which a cell site was erected is required for public use.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following operating and financial review and prospects should be read in conjunction with “Item 3. Key Information – A- Selected Financial Data” and our consolidated financial statements and accompanying notes appearing elsewhere in this annual report. Our financial statements have been prepared in accordance with Israeli Generally Accepted Accounting Principles, or Israeli GAAP, which differ in certain respects from U.S. Generally Accepted Accounting Principles, or U.S. GAAP. Note 28 to the audited consolidated financial statements provides a description of the principal differences between Israeli GAAP and U.S. GAAP, as they relate to us, a reconciliation to U.S. GAAP of income and total shareholders’ equity, a description of how operating income under U.S. GAAP was determined, a condensed financial statement of cash flows under U.S. GAAP.

In accordance with the instructions of the Israeli Accounting Standard No. 29, “Adoption of International Financial Reporting Standards (IFRS)”, which was published in July 2006, we have adopted IFRS as issued by the International Accounting Standards Board, with effect from January 1, 2008, based upon the guidance in IFRS 1, "First-time adoption of IFRSs" and will prepare our future financial statements according to IFRS. Following the adoption of IFRS, in our financial statements for the year 2008, we will be required to present comparative financial statements as at and for the year ended December 31, 2007, prepared in accordance with IFRS. In addition, we are required to disclose in our financial statements as of December 31, 2007 included elsewhere in this annual report, the balance sheet for that date and the income statement for the year then ended prepared in accordance with IFRS. For further details, see note 2.U.5. to our consolidated financial statements included elsewhere in this annual report.

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 consumer price index. Accordingly, among other things, non-monetary items (such as fixed assets) were adjusted based on the changes in the Israeli CPI from the Israeli CPI published for the month in which the transaction relating to the asset took place up to the Israeli CPI at the date of the balance sheet. Starting January 1, 2004, the adjustment of financial statements for the impact of the changes in the purchasing power of the Israeli currency was discontinued. The adjusted amounts included in the financial statements as of December 31, 2003 constitute the starting point for the nominal financial report as of January 1, 2004. Any additions made from January 1, 2004 are included at their nominal values.

This discussion contains forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under “Item 3. Key Information – D. Risk Factors” and elsewhere in this annual report.

A. OPERATING RESULTS

Overview

General

We are the leading provider of cellular communications services in Israel in terms of number of subscribers, revenues from services, EBITDA and EBITDA margins as of December 31, 2007, providing services to approximately 3.073 million subscribers in Israel with an estimated market share of 34.4%.

We earn revenues and generate our primary sources of cash by offering a broad range of cellular services through our network covering substantially all of the populated territory of Israel. These services include basic and advanced cellular telephone services, text and multimedia messaging services and advanced cellular content and data services. We also provide international roaming services to our subscribers in 171 countries as of December 31, 2007 as well as to subscribers of foreign networks visiting Israel. We offer our subscribers a wide selection of handsets of various leading global manufacturers as well as extended warranty services. We have an advanced fiber-optic transmission infrastructure of over 1,300 kilometer. Together with our complementary microwave-based infrastructure, our fiber-optic infrastructure connects the majority of our cell sites with the remainder connected using supplemental transmission capacity leased from Bezeq, the incumbent landline operator. Having our own transmission network enables us to save substantial operating cash lease costs that would be associated with complete reliance on Bezeq’s infrastructure, although these savings are partially offset by maintenance costs and microwave spectrum fees. It also allows us to sell transmission and data services to business customers and telecommunications operators. In April 2006, we received a license to provide landline telephone services in Israel as well and we began to offer these services to selected businesses in July 2006 and as of February 2008, we offer additional advanced landline services to selected landline business customers through our NGN system. Although we do not expect revenues from landline telephony services to amount to a material portion of our revenues in 2008, we consider landline telephone services to be a future growth opportunity and we believe that revenues from these services will increase significantly in 2008.

Our management evaluates our performance through focusing on our key performance indicators: number of subscribers, churn rate, average minutes of usage per subscriber, or MOU, average revenue per subscriber, or ARPU, EBITDA (as defined in “Results of Operations”) and operating income. These key performance indicators are primarily affected by the competitive and regulatory landscape in which we operate and our ability to adapt to the challenges posed. We have modified our process for calculating our number of subscribers at various times in the past. This modification impacts the comparability of our subscriber count and other key performance indicators.

Our competitive landscape is characterized by a highly penetrated cellular market. Competition is intense and attracting new subscribers and retaining existing subscribers has become increasingly difficult and costly. The competition in our market has further increased as a result of the implementation of number portability in December 2007, as it has removed a deterrent to switching providers. We intend to drive revenue growth primarily by: maintaining and enhancing our strong brand; retaining our existing subscribers; increasing our ARPU by offering new and advanced services as well as increasing our content, roaming and land line services revenues; and attracting new subscribers, mainly from other cellular operators. In particular, in addition to being an important factor in selecting a cellular provider, we believe that content and other value-added services are a potential growth engine for increasing revenues. Since the full launch of our 3.5G HSDPA based services, our revenues from our content and data services have demonstrated a growth beyond our expectations. The cellular industry is primarily regulated by the Ministry of Communications. See “Item 4. Information on the Company – B. Business Overview - Government Regulations.” While our pricing is not generally regulated, certain of our rates are subject to regulation. In particular, the annual reduction of interconnect tariffs by the Ministry of Communications commencing in March 2005 and ending in 2008, has adversely affected our results and requires us to find alternative sources of revenues to compensate for these reductions. Commencing January 1, 2009, the basic airtime charging unit, as well as the interconnect tariff unit, will decrease from the current 12-second basic charging unit to a one-second basic charging unit and in September 2007, our general license was further amended in a manner that prevents us from offering our subscribers calling plans using airtime charging units other than the basic airtime charging unit. These changes may result in a decrease in our revenues. We have been taking steps to address the effects of these amendments including initiating new and innovative marketing plans, such as "Cellcom by the Second" and "buckets of minutes" plans.

The construction and operation of our cell sites and other transmission facilities are highly regulated and require us to obtain various consents and permits. See “Item 4. Information on the Company – B. Business Overview - Government Regulations—Permits for Cell Site Construction.” We have experienced difficulties in obtaining some of these consents and permits, particularly in obtaining building permits for cell sites from local planning and building authorities. See “Item 3. Key Information – D. Risk Factors. We may not be able to obtain permits to construct and operate cell sites.” However, even though 28 criminal and administrative proceedings (with four cell sites subject to demolition orders) are outstanding as of December 31, 2007, we do not expect that the demolition of these facilities would have a material impact on our results of operations and financial condition. We are also monitoring the legislative process with respect to the draft Non-Ionizing Radiation Regulations and National Zoning Plan 36, but until the process is completed and final drafts are enacted, we will not be in a position to assess their potential impact on our results of operations and financial condition. Moreover, if we are unable to obtain or renew consents

and permits or rely on exceptions from obtaining permits for our existing sites or other facilities, we will be required to demolish or relocate these cell sites and facilities. Our inability to relocate cell sites or other facilities in a timely manner and/or our inability to obtain the permits and consents for new cell sites, could adversely affect our existing network resulting in the loss of subscribers, prevent us from meeting the network coverage and quality requirements contained in our license and adversely impact our network build-out, all of which may have a material adverse result on our results of operations and financial condition.

Our profitability is also affected by other factors, including changes in our cost of revenues and selling, general and administrative expenses, including depreciation and finance expenses.

Following the acquisition by IDB of a majority interest in us in September 2005, IDB brought in a new management team, including Ami Erel, the Chairman of our Board of Directors, who has been President and CEO of Bezeq, Amos Shapira, our Chief Executive Officer who has been chief executive officer of Kimberly-Clark’s Israeli subsidiary and of El Al Airlines, Tal Raz, our Chief Financial Officer, one of the founders and formerly a director of Partner, one of our principal competitors and Adi Cohen, our VP Marketing, who had been marketing manager of Shufersal, Israel's largest retail chain, and previously, Partner's marketing manager. Our management team has implemented a series of initiatives to drive growth, including the continued enhancement of our distinctive brand, greater focus on customer service and new sales campaigns, including the launch of new content services. In addition, from January 2006 to December 2006, our management’s cost-reduction efforts involved the reduction of our overall workforce, including higher-cost temporary workers, by over 6%, primarily through the elimination of over 18% of non-customer facing positions. In 2007 we further reduced our non-customer facing positions by 5%. This streamlining has improved our operating cost structure and reduced our general and administrative expenses. Following implementation of these initiatives, our revenues and operating income increased in 2006 by approximately 10% and 37%, respectively and in 2007 by approximately 8% and 30%, respectively (compared with 2006). During the second half of 2007, as part of our strategy to constantly improve service level and customer satisfaction and in preparation for the implementation of number portability, we enlarged our work force. Thereafter, we began to reduce the workforce recruited in preparation for number portability, while maintaining an enlarged customer service and improved level of service. Notwithstanding these savings and management’s continued focus on cost cutting initiatives, we expect that selling expenses will continue to increase as a result of the increasing competition in the industry, due to the number portability and increased marketing efforts. Further, the higher cost of 3G enabled handsets to support our advanced content and data services may increase the costs related to both subscriber acquisition and subscriber retention.

Our results are also impacted by currency fluctuations. While substantially all of our revenues are denominated in NIS, for 2007, approximately 34% of cash outflow was denominated in, or linked to, other currencies, mainly U.S. dollars. These payments included capital expenditures, some cell site rental fees, payments to equipment suppliers and payments of principal and interest on our credit facility (voluntarily prepaid in full in March 2008) . Changes to the Israeli CPI, may also impact our results as our debentures and some of our expenses are linked to the Israeli CPI. Any devaluation of the NIS against the U.S. dollar or other non-NIS currencies will therefore increase the NIS cost of our expenses that are not denominated in NIS or are linked to those currencies and any increase in the Israeli CPI will increase the financial expenses associated with our debentures. We enter into

derivative instruments to mitigate the effect of the various market risks associated with these expenses. See “Item 11 —Quantitative and Qualitative Disclosures About Market Risk.”

Further, we incurred significant debt in late 2005 and in the first half of 2006, which increased our financial expenses compared with historical results. We issued approximately NIS 2.0 billion principle amount of two series of debentures which bear interest at the rates of 5.0% and 5.3% and are linked to the Israeli CPI. In addition, in October 2007, we issued two new series of debentures to the public in Israel, for a total principal amount of approximately NIS 1,072 million and in February 2008 we issued additional debentures of the two new series, for a total principal amount of approximately NIS 574.8 million. See “Item 5. Operating and Financial Review and Prospects – A. Debt Service”.

In February 2006, our Board of Directors adopted a policy to distribute each year at least 75% of our annual net income as determined under Israeli GAAP as dividends, subject to compliance with applicable law, our license and contractual obligations, and so long as the distribution would not be detrimental to our cash needs or any plans approved by our Board of Directors. In March 2007, our Board resolved to distribute dividends within the boundaries of the February 2006 dividend policy and until resolved otherwise, on a quarterly basis. During 2006, we distributed cash dividends in the aggregate amount of NIS 3.83 billion mainly from retained earnings accumulated over the previous years. Prior to 2006, we had not distributed dividends since our inception.

With respect to the first nine months of 2007, we distributed cash dividends in the aggregate amount of approximately NIS 655 million. Our board of directors has also declared a cash dividend for the fourth quarter of 2007 of NIS 1.78 per share, or approximately NIS 173 million in the aggregate, and a one-time extraordinary dividend for the year 2007 of NIS 5.40 per share or approximately NIS 527 million in the aggregate. When taken together, the fourth quarter dividend and the one-time extraordinary dividend for 2007 amount to NIS 7.18 per share, or approximately NIS 700 million, in the aggregate. The fourth quarter dividend and the one-time extraordinary dividend for the year 2007 will be funded out of a combination of net income for the fourth quarter and existing retained earnings at December 31, 2007.

Any dividends must be declared by our Board of Directors, which will take into account the factors set out in “Item 8. Financial Information – A. Statements and Other Financial Information - Dividend Policy”. The one-time extraordinary dividend for 2007 does not reflect any change to our dividend policy set out above. Further, the dividend per share that we will pay for the fourth quarter of 2007 does not reflect the level of dividends that will be paid for future quarterly periods, which can change at any time in accordance with the policy set out above. See “Item 8. Financial Information – A. Statements and Other Financial Information - Dividend Policy” and “—Liquidity and Capital Resources—Dividend payments.” Also, In the future, our Board of Directors may determine that our cash needs for debt service, capital expenditures or operations may increase and that it would not be prudent to distribute dividends.

On February 9, 2007, we closed the initial public offering of our ordinary shares and their listing on the NYSE. The offering was made solely by certain of our existing shareholders, and we did not receive any proceeds. The selling shareholders agreed to bear the out-of-pocket expenses of the offering. This offering fulfilled the agreement of our majority shareholder, DIC, with some of our other shareholders to endeavor to cause us to undertake an initial public offering by 2009 and will enable us to take advantage of the equity

and debt capital raising opportunities available to a public company in the capital markets, to have the ability to use equity based compensation schemes as a tool to incentivize management to generate positive operating results and to provide access to certain of our shareholders to sell their shares. In July 2007, our shares were dual listed on the TASE. As a public dual-listed company, our legal and financial compliance costs are higher than as a private company and some activities are more time-consuming and costly.

New Israeli accounting standard affecting measurement of fixed assets

In September 2006, the Israeli Accounting Standards Board published Israeli Accounting Standard No. 27, “Property, plant and equipment” which prescribes rules for the presentation, measurement and recognition of fixed assets and related disclosure. Starting January 1, 2007, when this new standard took effect, we retroactively separated each individual material component of our network that has an estimated useful life that differs from the dominant asset within the network, mainly transmission equipment such as fiber-optic cables and infrastructure. Then, each component was retroactively depreciated over its own useful life. The retroactive application of this standard increased our retained earnings as of January 1, 2007 by approximately NIS 285 million and had the following effect on our results of operations for all of the periods reported herein.

	Year Ended December 31,
	2003			2004			2005			2006
	(In NIS millions)
Decrease in depreciation expense		46			46			52			53
Decrease (increase) in deferred tax expense		(17	)		(4	)		(2	)		(10	)
Increase in capital loss		—			—			(2	)		(1	)
Increase in net income		29			42			48			42
Increase in basic and diluted earnings per ordinary shares		0.30			0.43			0.49			0.43

It also had a significant effect on our results of operations for 2007 and is expected to have significant effect on future periods. See “—New Accounting Standards—Israeli Accounting Standard No. 27, “Property, plant and equipment”.”

Adoption of International Financial Reporting Standards

In July 2006, the Israeli Accounting Standards Board published Israeli Accounting Standard No. 29, “Adoption of International Financial Reporting Standards ("IFRS")”, under which we have to prepare our financial statements for periods beginning on and after January 1, 2008 according to IFRS. In accordance with this standard, we included certain balance sheet data as of December 31, 2007, and income statement data for the year then ended, that were prepared according to the recognition, measurement and presentation principles of IFRS in our annual financial statements for December 31, 2007.

2006 Share Incentive Plan

In September 2006, our Board of Directors approved an option plan for our employees, officers and directors. The plan has an initial pool of 2,500,000 shares in respect of which options and restricted stock units, or RSUs, may be granted. In October and November 2006, we 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 to each of Ami Erel, our Chairman of the Board, and Amos Shapira, our Chief Executive Officer. The remainder of the options grants was made to our senior employees. In March 2007, we granted options to purchase an aggregate of 30,786 ordinary shares at an

exercise price of $12.60 per share to certain of our senior employees, under the terms of the plan. During 2007, 4,721 options were exercised by senior employees, 3,234 options were canceled (due to our net exercise mechanism) and 40,078 options previously granted to senior employees were revoked and returned to the option pool. As of December 31, 2007, the number of outstanding options to purchase ordinary shares amounted to 2,396,896. However, the terms of the 2006 Share Inventive Plan provide for a net exercise mechanism, the result of which is to require us to issue a smaller number of ordinary shares than represented by the outstanding options. Unless the Board of Directors otherwise approves, the number of ordinary shares issuable by us upon the exercise of an option will represent a market value that is equal to the difference between the market price of the ordinary shares and the option exercise price of the exercised options, at the date of exercise.

In general, the options and RSUs vest in four equal installments on each of the first, second, third and fourth anniversaries of the date of grant. Under Israeli GAAP, we are required to expense the grant date fair value of the options over their vesting period in accordance with Israeli Accounting Standard No. 24. The treatment under U.S. GAAP in accordance with SFAS 123R is the same. In accordance with these standards, we estimate the total compensation cost related to the options granted to be approximately NIS 53 million, of which we expensed approximately NIS 29 million in 2007. This cost will be recognized over the vesting period commencing on February 9, 2007, the date of completion of our initial public offering. However, the vesting of options and RSUs will be accelerated upon certain corporate events, including a merger, a consolidation, a sale of all or substantially all of our consolidated assets, or a sale of our ordinary shares held by IDB that leads to any reduction in IDB’s ownership to below 50.01%. If we distribute cash dividends before the exercise of these options, the exercise price of each option will be reduced by an amount equal to the gross amount of the dividend per share distributed.

Revenues

We derive our revenues primarily from the sale of cellular network services (such as airtime), handsets and other services, including content and value added services, extended handset warranties and the provision of transmission and landline services. Revenues from airtime are derived from subscribers originating calls on our network and from interconnect revenues from other operators for calls terminating on our network. Revenues also include roaming charges that we bill to our subscribers for the use of the networks of our roaming partners outside Israel, to which we refer to as outbound roaming, and charges that we bill to our roaming partners whose subscribers use our network, to which we refer to as inbound roaming.

Cost of revenues

The principal components of our cost of revenues are interconnect fees, the purchase of handsets, accessories and spare parts, content cost, cell site leasing costs, outbound roaming services fees, royalty payments to the government of Israel, salaries and network development and maintenance. Our cost of revenues also includes depreciation of the cost of our network equipment and amortization of our spectrum licenses. See “—Application of Critical Accounting Policies and Use of Estimates—Long-lived assets - depreciation.”

Selling and marketing expenses

Selling and marketing expenses consist primarily of sales force salaries and commissions, advertising, public relations and promotional expenses. We compensate our

sales force through salaries and incentives. As we continue to focus our efforts on increasing sales of our products and services, we expect our sales commissions to rise accordingly.

General and administrative expenses

General and administrative expenses consist primarily of salaries and compensation, professional and consultancy fees, leases and maintenance of our offices, bad debt allowance, and other administrative expenses. Our general and administrative expenses also include depreciation and maintenance fees, mainly for our billing and information systems.

Financial income and expenses

Financial income and expenses consist primarily of interest expense on long-term and short-term loans and interest on our debentures, the interest income component of handset long-term installment sales, the effects of fluctuations in currency exchange rates, Israeli CPI adjustments related to the Israeli CPI-linked debentures and other expenses, and income or losses relating to financial derivative instruments that do not qualify for hedge accounting according to Israeli GAAP.

Other income and expenses

Other income and expenses consist primarily of capital gains or losses from sale of capital assets.

Income Tax

Generally, Israeli companies were subject to corporate tax on their taxable income at the rate of 35% for the 2004 tax year and 34% for the 2005 tax year. Following an amendment to the Israeli Income Tax Ordinance [New Version], 1961, which came into effect on January 1, 2006, the corporate tax rate was decreased to 31% for the 2006 tax year, 29% for the 2007 tax year and is scheduled to further decrease as follows: 27% for the 2008 tax year, 26% for the 2009 tax year and 25% for the 2010 tax year and thereafter. Israeli companies are generally subject to capital gains tax at a rate of 25% for capital gains (other than gains deriving from the sale of listed securities) derived from assets purchased after January 1, 2003. A deferred tax asset or liability is created for temporary differences between income recognized for tax purposes and for accounting purposes.

On November 20, 2006, the Israeli Supreme Court overturned a previous ruling made by the Israeli District Court regarding the deductibility for tax purposes of financing expenses that might be attributed by the Israeli tax authorities to the financing of dividends. Following this ruling, we recorded in 2006 and in the six month ending June 30, 2007, an additional tax provision of NIS 72 million, based on the possibility that part of our financing expenses accrued in 2006 will not be recognized as a deductible expense for tax purposes. In October 2007, following new rulings by the Israeli Supreme Court, readdressing its previous ruling of November 2006, and based on our legal counsels' opinion, we have released the aforesaid tax provision and reduced the income tax expenses by approximately NIS 72 million, of which approximately NIS 55.5 million were recorded in 2006, during the three month period ended September 30, 2007.

Results of Operations - Comparison of 2005, 2006 and 2007

The following table sets forth key performance indicators for the periods indicated:

	Year Ended December 31,									Change*
	2005			2006			2007			2006 vs. 2005			2007 vs. 2006
Subscribers at end of period(1) (in thousands)		2,603			2,884			3,073			10.8	%		6.6	%
Period churn rate(1)(2)		15.0	%		16.8	%		16.3	%		1.8	pp		(0.5	pp%)
Average monthly usage per subscriber (MOU) (in minutes)(1)(3)		321			333			348			3.7	%		4.5	%
Average monthly revenue per subscriber (ARPU) (1)(4) (in NIS)		151			149			149			(1.3	%)		0.0	%
Operating income (in NIS millions) **		754			1,034			1,341			37.1	%		29.7	%
Net income (in NIS millions) **		531			559			873			5.3	%		56.2	%
EBITDA(5) (in NIS millions)		1,643			1,864			2,115			13.5	%		13.5	%
Operating income margin(6) **		14.7	%		18.4	%		22.1	%		3.7	pp		3.7	pp
EBITDA margin(7)		32.1	%		33.2	%		35.0	%		1.1	pp		1.8	pp

__________

*	pp denotes percentage points and this measure of change is calculated by subtracting the 2005 measure from the 2006 measure and the 2006 measure from the 2007 measure, respectively.

**	Restated due to initial implementation of a new Israeli Accounting Standard No. 27 (see note 2.U.2. to our consolidated financial statements included elsewhere in this annual report).

(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 deducted 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. Commencing July 1, 2006, we adopted a six-month method of calculating our subscriber base, since many subscribers that were inactive for three months become active again before the end of six months. We 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 2005 but we have not restated prior subscriber data to conform to the new presentation. We estimate that 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. MOU for 2006 was restated to reflect the impact of the change in the methodology of calculating our subscriber base implemented in July 2006, to allow comparison with 2007. If the methodology of calculating our subscriber base had not changed in July 2006, the MOU for the years ended December 31, 2006 and December 31, 2007, would have been 343 and 357 minutes, respectively, which represents an increase of 6.9% and 11.2%, respectively, 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. 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. ARPU for 2006 was restated to reflect the impact of the change in the methodology of calculating our subscriber base implemented in July 2006, to allow comparison to 2007. If the methodology of calculating our subscriber base had not changed in July 2006, the ARPU for the year ended December 31, 2006 and for the year ended December 31, 2007 would have been NIS 153, which represents an increase of 1.3% compared with the corresponding period in 2005.

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

	Year Ended December 31,
	2005		2006		2007
	(In NIS millions, except number of subscribers and months)
Revenues		5,114		5,622		6,050
less revenues from equipment sales		565		636		663
less other revenues*		38		61		93

Revenues used in ARPU calculation (in NIS millions)		4,511		4,925		5,294
Average number of subscribers		2,489,453		2,757,133		2,955,855
Months during period		12		12		12
ARPU (in NIS, per month)**		151		149		149

* Other revenues include revenues from repair services, transmission services and land line services.

(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) and the age of, and depreciation expenses associated with, fixed assets (affecting relative depreciation expense 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 annual report, may not be comparable to similarly titled measures reported by other companies due to differences in the way these measures are calculated.

The following is a reconciliation of EBITDA with net income and operating income:

	Year Ended December 31,
	2005			2006		2007
	(In NIS millions)
Net income		* 531			* 559		873
Financial expenses (income), net		(24	)		155		156
Other expenses (income), net		* 13			* 6		3
Income taxes		* 234			* 314		309
Operating income		* 754			* 1,034		1,341
Depreciation and amortization		* 889			* 830		774
EBITDA		1,643			1,864		2,115

* Restated due to initial implementation of a new Israeli Accounting Standard No. 27 (see note 2.U.2. to our consolidated financial statements included elsewhere in this annual report).

(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.

The following table sets forth our selected consolidated statements of operations as a percentage of total revenues from operations for the periods indicated:

	Year Ended December 31,
	2005			2006			2007
Revenues		100.0	%		100.0	%		100.0	%
Cost of revenues		60.2	%		58.2	%		55.7	%
Gross profit		39.8	%		41.8	%		44.3	%
Selling and marketing expenses		12.2	%		11.7	%		11.3	%
General and administrative expenses		12.8	%		11.7	%		10.8	%
Operating income		14.8	%		18.4	%		22.2	%
Financial income (expenses), net		0.5	%		(2.8	%)		(2.6	%)
Other income (expenses), net		(0.3	%)		(0.1	%)		(0.1	%)
Income before taxes		15.0	%		15.5	%		19.5	%
Income tax		4.6	%		5.6	%		5.1	%
Net income		10.4	%		9.9	%		14.4	%

Revenues

	Year Ended December 31,						Change
	2005		2006		2007		2006 vs. 2005			2007 vs. 2006
	(In NIS millions)
Revenues		5,114		5,622		6,050		9.9	%		7.6	%

The increase in revenues in 2007 was due mainly to an increase of approximately 6.6% in our subscriber base, which led to an increase of approximately 12% in airtime usage (outgoing and incoming). Revenues also benefited from an increase in revenues from content and value added services (including SMS), an increase in roaming services and increase in revenues from sale of handsets and accessories, as well as significant increase in revenues from land-line services. The increase in revenues was partially offset by the reduction of interconnect tariffs by the Ministry of Communications in March 2007, the regulation in relation to calls ending in voicemail which came into effect in January 2007 and the ongoing airtime price erosion.

The increase in revenues in 2006 was due primarily to an increase of approximately 10.8% in our subscriber base (approximately 7.7% if our calculation methodology had not changed in 2006, as discussed above) and an increase in the average usage per subscriber leading to increased airtime usage. Revenues also benefited from a relatively significant increase in roaming services and in content services. In addition, revenues from handsets and accessories in 2006 increased compared with 2005. The increase in revenues was offset in part by the reduction of interconnect tariffs by the Ministry of Communications in March 2005 and again in March 2006. ARPU in 2006 remained the same as in 2005 due to the increase in revenue from content and roaming services and in airtime usage, being offset by the reduction in interconnect tariffs.

The following table sets forth the breakdown of our revenues for the periods indicated based on the various sources thereof:

	2005				2006				2007
	Revenues		% of Total Revenues		Revenues		% of Total Revenues		Revenues		% of Total Revenues
	(NIS in millions)				(NIS in millions)				(NIS in millions)
Voice services:
Outgoing air time*		2,552		49.9%		2,683		47.7%		2,833		46.8%
Incoming air time		1,072		21.0%		1,145		20.4%		1,188		19.7%
Roaming		300		5.9%		379		6.7%		424		7.0%
Total voice services		3,924		76.8%		4,207		74.8%		4,445		73.5%
Content and value added services**		255		5.0%		338		6.0%		492		8.1%
Other services***		370		7.2%		441		7.9%		450		7.4%
Total services		4,549		89.0%		4,986		88.7%		5,387		89.0%
Handsets and accessories		565		11.0%		636		11.3%		663		11.0%
Total		5,114		100.0%		5,622		100.0%		6,050		100.0%

*	Including air time packages and interconnect.

**	Consists of content services, text messages and data services.

***	Consists of fixed monthly subscription fees, extended warranty fees, transmission and landline services and others.

During 2007, revenues from services (comprising approximately 89% of total revenues) increased by approximately 8%, compared with 2006. This increase in revenues from services resulted mainly from an increase in our subscriber base of approximately 6.6% (mainly among “post-paid” subscribers), an increase in airtime usage and an increase in revenues from content and value added services and from roaming services. These increases were partially offset by the reduction in interconnect tariffs, the regulation in relation to calls ending in voicemail and the ongoing airtime price erosion.

During 2006 revenues from services (comprising approximately 89% of total revenues) increased by approximately 10%, compared with 2005. This increase in revenues from services was primarily as a result of an increase in our customer base of approximately 10.8% (approximately 7.7% if our calculation methodology had not changed, as discussed

above) (mainly among “post-paid” subscribers), an increase in average subscriber usage and an increase in revenues originating in content and roaming services. These increases were partially offset by the reduction in interconnect tariffs.

During 2007, revenues from content and value added services increased by approximately 46% compared with 2006, mainly as a result of the growth in content services, text messages and sales of data packages, which is significantly attributable to the growth of our 3G subscriber base. As a percentage of service revenues, revenues from content and value added services increased to 9.1% in 2007 from 6.8% in 2006 and, as percentage of total revenues, from 6.0% to 8.1%.

From 2005 to 2006, the revenues from content and value added services, as a percentage of service revenues, increased from 5.6% to 6.8% respectively and, as percentage of total revenues, from 5.0% to 6.0%.

During 2007, revenues from other services slightly increased mainly as a result of the growth in extended warranty fees and sales of transmission and landline services, which was partially offset by a decrease in fixed monthly subscription fees. As a percentage of revenues, revenues from other services decreased to 7.4% in 2007 from 7.9% in 2006, although the total amount of revenues from those services increased from NIS 441 million in 2006 to NIS 450 million in 2007.

From 2005 to 2006, the revenues from other services, as a percentage of revenues, increased from 7.2% to 7.9% correspondingly, and the amount of those services increased from NIS 370 million in 2005 to NIS 441 million in 2006.

Handset and accessories revenues (comprising approximately 11% of total revenues) during 2007 increased by 4.2% compared with 2006. This increase primarily resulted from a larger amount of handsets sold during 2007, which was offset in part by a decrease in the average handset sale price, resulting from aggressive sales campaigns, mainly those launched in the fourth quarter of 2007.

Our revenues from the sale of handsets and accessories increased during 2006 by 12.6%, compared with 2005, as the result of an increase in the average handset sale price due to larger sales of advanced, more expensive, handsets in 2006.

The following table sets forth the breakdown of our revenues for the periods indicated based on the types of subscribers:

	2005				2006				2007
	Revenues		% of Total Revenues		Revenues		% of Total Revenues		Revenues		% of Total Revenues
	(NIS in millions)				(NIS in millions)				(NIS in millions)
Individual*		2,805		54.8%		4,029		71.7%		4,377		72.3%
Business*		2,137		41.8%		1,437		25.5%		1,524		25.2%
Other**		172		3.4%		156		2.8%		149		2.5%
Total		5,114		100.0		5,622		100.0%		6,050		100.0%

We now classify our SOHO (Small Office Home Office) derived revenues as private (Individual) or Business. Previously, all SOHO revenues were presented as revenues related to Business subscribers. Revenues for 2006 were reclassified . We didn’t reclassify revenues for 2005 and therefore, the Individual and Business revenues for 2005 are not comparable to those for 2006 and 2007.

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

A breakdown of revenues according to types of subscribers (individual and business) during 2007 shows an approximately 9% increase in revenues attributable to individual

subscribers and an approximately 6% increase in revenue attributable to business subscribers, compared with 2006. These increases are the result of a higher subscriber base and increased usage.

The following table sets forth the breakdown of our revenues for the periods indicated based on the types of subscription plans:

	2005				2006				2007
	Revenues		% of Total Revenues		Revenues		% of Total Revenues		Revenues		% of Total Revenues
	(NIS in millions)				(NIS in millions)				(NIS in millions)
Pre-paid		682		13.3%		714		12.7%		729		12.0%
Post-paid		4,260		83.3%		4,752		84.5%		5,172		85.5%
Other*		172		3.4%		156		2.8%		149		2.5%
Total		5,114		100.0%		5,622		100.0%		6,050		100.0%

____________

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

A breakdown of revenues according to types of subscription plans (pre-paid and post-paid) shows that the increase in revenues in 2007 compared with 2006 resulted mainly from post-paid subscribers. This increase is primarily the result of an increase in revenues from services resulting from an increase in usage, in content and value-added services, in roaming services and from the expansion of our subscriber base.

A breakdown of revenues according to types of subscription plans (pre-paid and post-paid) shows that the increase in revenues in 2006 compared with 2005 resulted mainly from post-paid subscribers. This increase is the result of an increase in the amount of advanced handsets sold, and an increase in revenues from services resulting from an increase in usage, an increase in content revenues and the expansion of our subscriber base.

Cost of revenues and gross profit

	Year Ended December 31,						Change
	2005		2006		2007		2006 vs. 2005		2007 vs. 2006
	(In NIS millions)
Cost of revenues-services		* 2,398		* 2,493		2,572		4.0%		3.2%
Cost of revenues-equipment		683		780		800		14.2%		2.6%
Total cost of revenues		3,081		3,273		3,372		6.2%		3.0%
Gross profit		2,033		2,349		2,678		15.5%		14.0%

* Restated due to initial implementation of a new Israeli Accounting Standard No. 27 (see note 2.U.2 to our consolidated financial statements included elsewhere in this annual report).

The increase in cost of revenues-services in 2007 resulted mainly from an increase in interconnect fees due to an increase in the number of outgoing calls ended in other operators' networks, and an increase in cost of content and value-added services due to increased usage. This increase also resulted from an increase in handsets repair cost due to higher maintenance cost for the advanced handsets sold.

The increase in cost of revenues-services in 2006 compared with 2005 resulted mainly from an increase in cost of content services, such as fees to content providers. This increase was also affected by an increase in outbound roaming activity, resulting in an increase in payments to international cellular operators.

The increase in cost of revenues-equipment in 2007 resulted primarily from a larger amount of handsets sold during 2007, which was partially offset by increased efficiency in handset procurement, as well as a decline in the cost of accessories sold during 2007.

The increase in cost of revenues-equipment in 2006, compared with 2005, resulted mainly from an increase in the average handset cost due to a larger number of more expensive and advanced handsets sold.

The increase in gross profit in 2007 resulted mainly from increases in airtime usage, revenues from content and value added services and revenues from roaming services. These increases were partially offset by the reduction in interconnect tariffs, the regulation in relation to calls ending in voicemail and the ongoing airtime price erosion.

The improvement in gross profit in 2006, compared with 2005, was due primarily to higher airtime usage, an increase in roaming activity and an increase in content services. This improvement was partially offset by the increase in our subsidizing of the cost of handsets sold.

Selling and marketing expenses and general and administrative expenses

	Year Ended December 31,						Change
	2005		2006		2007		2006 vs. 2005			2007 vs. 2006
	(In NIS millions)
Selling and marketing expenses		623		656		685		5.3	%		4.4	%
General and administrative expenses		656		659		652		0.5	%		(1.1	%)
Total		1,279		1,315		1,337		2.8	%		1.7	%

The increase in selling and marketing expenses in 2007 was due mainly to an increase in payroll expenses resulting from the expansion of our services and sales teams, as part of our strategy to constantly improve service level and customer satisfaction and in preparation for the implementation of number portability. The increase also resulted from an increase in customer retention expenses and marketing efforts, which included, among other things, innovative marketing campaigns. As a result of the expanded marketing of innovative new plans with a guaranteed income during 2007, we are required to defer sales commissions related to acquisition and retention of subscribers with guaranteed revenues and to recognize such commissions as intangible assets, to be amortized over the expected life of such subscribers' guaranteed revenues. We commenced deferring these commissions in the fourth quarter of 2007. The deferred sales commissions in the fourth quarter of 2007 amounted to approximately NIS 19 million. The effect of deferral of sales commissions offsets in part the increase in other selling and marketing expenses in 2007.

Selling and marketing expenses increased in 2006 compared with 2005 as a result of investments in customer services and an increase in sales commissions as a result of higher handsets sales and expansion of our sale channels, which were partially offset by a decrease in our advertising expenses due to a reduced advertising budget in 2006 compared with 2005.

General and administrative expenses decreased in 2007 as a result of a decrease in bad debts and doubtful accounts expenses, in data processing expenses and in depreciation expenses. These decreases were partially offset by an increase in salaries expenses related to our share incentive plan and in professional services expenses, partially due to our becoming a publicly traded company.

General and administrative expenses remained steady in 2006 compared with 2005, primarily due to our streamlining measures, which started at the end of 2005 and included the elimination of over 18% of non-customer facing positions during 2006. In addition, there were decreases in insurance premiums and professional services expenses, which were offset by an increase in a specific provision for bad debts.

Financial and other income (expenses), net

	Year Ended December 31,
	2005			2006			2007
	(In NIS millions)
Financial income (expenses), net		24			(155	)		(156	)
Other income (expenses), net		*(13	)		*(6	)		(3	)

* Restated due to initial implementation of a new Israeli Accounting Standard No. 27 (see note 2.U.2 to our consolidated financial statements included elsewhere in this annual report).

Financial expenses remained steady in 2007, compared with 2006, resulting primarily from an increase in interest and CPI linkage expenses associated with our debentures, due to the increase in our outstanding indebtedness following the issuance of our new series of debentures in October 2007 and the increased inflation rate of 2.8% in 2007 compared with deflation of 0.3% in 2006. This increase was offset by an increase in income from our hedging portfolio, constituting mainly gains from our CPI hedging transactions, a decrease in interest expenses related to our credit facility and an increase in interest income on our short term deposits.

The increase in financial expenses in 2006, compared with 2005, was due primarily to increased interest expenses as a result of the increase in our outstanding indebtedness following the issuance of our debentures in late 2005 and the first half of 2006, as well as the credit facility with a syndicate of Israeli and international banks arranged by Citibank that we entered into during the first quarter of 2006, raising a total of approximately NIS 3.6 billion. See “— Liquidity and Capital Resources — Debt service — Credit facility from bank syndicate.”

Interest and CPI linkage expenses associated with the principal amount of the debentures, and interest expenses resulting from the credit facility with the bank syndicate led by Citibank incurred during 2007 and 2006 were approximately NIS 238 million and NIS 179 million, respectively.

Income tax

	Year Ended December 31,						Change
	2005		2006		2007		2006 vs. 2005			2007 vs. 2006
	(In NIS millions)
Income tax		* 234		* 314		309		34.2	%		(1.6	%)

* Restated due to initial implementation of a new Israeli Accounting Standard No. 27 (see note 2.U.2 to our consolidated financial statements included elsewhere in this annual report).

Income tax in 2007 decreased by 1.6%, compared with 2006, resulting from the release of the additional tax provision in the amount of approximately NIS 72 million, of which NIS 55.5 million was recorded in 2006, and from a reduced income tax rate of 29% in 2007 compared with 31% in 2006. This decrease was partially offset by the increase in income before tax.

The increase in income tax in 2006 compared with 2005 was primarily due to an additional tax provision of NIS 55.5 million following a decision of the Israeli Supreme Court in a case to which we were not a party. On November 20, 2006, the Israeli Supreme Court overturned a previous ruling made by the Israeli District Court regarding the deductibility for tax purposes of financing expenses that might be attributed by the Israeli tax authorities to the financing of dividends. Following this ruling, we recorded an additional tax provision of NIS 55.5 million in 2006, based on the possibility that part of our financing expenses accrued in 2006 will not be recognized as a deductible expense for tax purposes. While we believe that we had reasons justifying the recognition of these expenses, or part of them, for tax purposes, as of the date of the financial statements for the year ended December 31, 2006, the level of certainty required in order to recognize these expenses did not exist.

The increase in income tax in 2006 was also due to a higher income before income tax, which was partially offset due to a lower income tax rate of 31% in 2006 compared with 34% in 2005.

Net income

	Year Ended December 31,						Change
	2005		2006		2007		2006 vs. 2005			2007 vs. 2006
	(In NIS millions)
Net income		* 531		* 559		873		5.3	%		56.2	%

* Restated due to initial implementation of a new Israeli Accounting Standard No. 27 (see note 2.U.2 to our consolidated financial statements included elsewhere in this annual report).

The increase in net income in 2007 was due primarily to an increase of 7.6% in revenues and an increase of only 2.6% in total operating expenses, leading to an increase of 35.4% in income before taxes. The increase also resulted from a decrease of 1.6% in income tax, due to the release of the tax provision recorded in 2006 and the reduction in income tax rate.

The increase in net income in 2006 compared with 2005, was due primarily to a significant increase in revenues, which was partially offset by the increase in income tax and a significant increase in financial expenses as a result of our new capital structure.

U.S. GAAP Results

For the years ended December 31, 2005, 2006 and 2007, our net income in accordance with Israeli GAAP was NIS 531 million, NIS 559 million and NIS 873 million compared with NIS 491 million, NIS 494 million and NIS 869 (on a combined basis), respectively under U.S. GAAP. Note 28 to our consolidated financial statements summarizes the principal differences between Israeli and U.S. GAAP that affect our financial results. Our net income is not significantly different under U.S. GAAP from the results under Israeli GAAP due to the offsetting impact of some of the differences. The principal differences affecting our results of operations is:

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.

B. LIQUIDITY AND CAPITAL RESOURCES

General

Our liquidity requirements relate primarily to working capital requirements, debt service, capital expenditures for the expansion and improvement of our networks and payment of dividends. Until the end of 2005, these requirements had been funded largely through funds generated from operations and bank borrowings. However, in late 2005 and the first half of 2006, we raised significant additional capital by issuing two series of debentures in the aggregate principal amount of approximately NIS 2.0 billion ($520 million) and by establishing a credit facility of $350 million (voluntarily prepaid in full and terminated in March 2008). Our Board, at the request of our shareholders, determined to incur such debt, and pay dividends in excess of the amount of such debt with available cash and proceeds of the borrowings, to increase the leverage in our capital structure and improve our shareholders’ expected rate of return on our equity. In addition, in October 2007, we issued two new series of debentures to the public in Israel, for a total principal amount of approximately NIS 1,072 million and in February 2008 we issued, in a private placement, additional debentures of these two new series, for a total principal amount of approximately NIS 574.8 million.

We believe that our financial reserves will be sufficient to fund our anticipated cash needs for working capital, capital expenditures and debt service for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of spending to support marketing and subscriber retention efforts, the expansion of sales and marketing activities and the timing of introductions of new products and enhancements to existing products.

In February 2006, our Board of Directors adopted a policy to distribute each year at least 75% of our annual net income as determined under Israeli GAAP, subject to compliance with applicable law, our license and contractual obligations and so long as the distribution would not be detrimental to our cash needs or to any plans approved by our Board of Directors. See “Item 8. Financial Information – A. Consolidated Statements and Other Financial Information – Dividend Policy.” It is possible that our Board of Directors’ estimate of our cash needs will be incorrect, or that events could occur that could increase our cash needs beyond anticipated. If that occurs, we may not have sufficient cash to cover these needs as a result of prior dividend payments, and we would need to identify additional sources of financing, which could include equity or debt financing. We may not be able to obtain such financing on acceptable terms or at all.

Dividend payments

During 2007, we distributed cash dividends in the aggregate amount of NIS 655 million ($170 million) based on net income and existing retained earnings. During 2006, we distributed cash dividends in the aggregate amount of NIS 3.83 billion ($996 million) based on retained earnings accumulated since our inception. We did not distribute any dividends prior to 2006.

Debt service

Public debentures

In December 2005 and January 2006, we issued two series of debentures to institutional and other investors in private placements. In May 2006, we issued additional debentures of the existing two series. The debentures are listed on the Tel Aviv Stock Exchange. The debentures consist of NIS 1.065 billion ($277 million) aggregate principal amount of Series A Debentures and approximately NIS 925 million ($241 million) aggregate principal amount of Series B Debentures. The Series A Debentures bear interest at the rate of 5.0% per year, linked to the Israeli CPI. The principal is payable in nine semiannual payments commencing in July 2008, and the interest is payable semiannually commencing in July 2006. The Series B Debentures bear interest at the rate of 5.3% per year, linked to the Israeli CPI. The principal is payable in five annual payments commencing in January 2013, and the interest is payable annually commencing in January 2007.

The Series A and B debentures are unsecured and do not restrict our ability to issue additional debentures of any class or distribute dividends in the future. The Series A and B debentures contain standard terms and obligations including restriction on our ability to create liens on our assets, other than fixed liens on assets provided in connection with financing the purchase of such assets.

In October 2007 we issued two new series of debentures (Series C and Series D) to the public in Israel. The debentures are listed for trading on the Tel Aviv Stock Exchange.

The new Series C and D Debentures were issued for a total principal amount of NIS 245 million and approximately NIS 827 million, respectively. The Series C principal is payable in nine equal semiannual payments on March 1 and September 1, for each of the years 2009 through 2012 (inclusive) and on March 1, 2013. The interest on Series C debentures will be paid semiannually on March 1 and on September 1, for each of the years 2008 through 2012 (inclusive) and on March 1, 2013. The Series D principal is payable in five equal annual payments on July 1, for each of the years 2013 through 2017 (inclusive). The interest on Series D debentures will be paid annually on July 1, for each of the years 2008 through 2017 (inclusive). Series C and D debentures bear an annual interest of 4.60% and 5.19%, respectively and are linked (principal and interest) to the Israeli CPI for August 2007.

In February 2008 we issued, in a private placement, additional debentures of Series C in a principal amount of NIS 81 million and additional Series D Debentures in a principal amount of approximately NIS 493.8 million.

The Series C and D debentures are unsecured and do not restrict our ability to issue additional debentures of any class or distribute dividends in the future. The Series C and D debentures contain standard terms and obligations.

Credit facility from bank syndicate

In March 2006, we entered into an unsecured syndicated facility agreement with a number of Israeli and international banks arranged by Citibank N.A. and Citibank International plc, which provided for a term loan of $280 million and a revolving credit facility of up to $70 million. In April 2006, we converted part of the dollar based loan into a shekel based loan. In November 2007 we voluntarily prepaid a principal amount of

approximately $140 million (comprising of $85 million denominated in US$ and approximately NIS 253 million denominated in NIS), representing approximately 50% of the balance of the loan and in March 2008 we voluntarily prepaid the balance of the loan (approximately $140 million, comprising of $85 million denominated in US$ and approximately NIS 253 million denominated in NIS) and terminated the facility. As at December 31, 2007, the balance of the loan totaled approximately NIS 580 million ($85 million denominated in US$ and NIS 253 million denominated in NIS) and the revolving credit facility was not used.

Other credit facilities

As of December 31, 2007, there were no other credit facilities outstanding.

Capital expenditures

Our accrual capital expenditure in 2005, 2006 and 2007 amounted to NIS 747 million, NIS 521 million and NIS 573 million, respectively. Accrual capital expenditure is defined as investment in fixed assets and intangible assets, such as spectrum licenses, during a given period. For the periods under review, a key focus of our capital investment has been the introduction of our 1800MHz GSM/GPRS/EDGE network and the build out of our UMTS/HSPA network.

Cash flows from operating activities

Cash flows from operating activities increased by 11.3% in 2007 to NIS 1,644 million from NIS 1,477 million in 2006, due primarily to the increase in operating income.

In 2006, our cash flows from operating activities increased by 16.0%, to NIS 1,477 from NIS 1,272 million in 2005, due primarily to the increase in operating income.

Cash flows from investing activities

The net cash flows from operating activities is the main capital resource for our investment activities. In 2005, 2006 and 2007, our net cash used in investing activities amounted to NIS 619 million, NIS 633 million and NIS 571 million, respectively. The payments were primarily for the expansion of the technological network and information systems infrastructures.

Cash flows from financing activities

In 2007, the net cash used in financing activities amounted to NIS 218 million compared with NIS 2,560 in 2006.

During 2007 we voluntarily prepaid NIS 645 million of long-term loans and received net amount of NIS 1,066 million from the issuance of two new series of debentures in October 2007. Furthermore, during 2007, we paid cash dividends in the amount of NIS 639 million (excluding withholding tax for the last dividend distribution, which was paid subsequent to balance sheet date

The net cash used in financing activities during 2006 amounted to NIS 2,560 million, compared with net cash provided by financing activities of NIS 1,114 million during 2005.

During 2006 we received long-term loans in the amount of NIS 1.6 billion under the credit facility and repaid NIS 0.4 billion during the fourth quarter of 2006, and NIS 250 million was received as the result of the issuance of additional debentures of the same series issued in December 2005 and January 2006. Furthermore, we paid cash dividends during 2006 in the amount of NIS 3.83 billion.

In 2005, net cash provided by financing activities amounted to NIS 1,114 million, which was generated by the issue of our debentures of NIS 1.7 billion and offset by a repayment of NIS 592 million of bank loans, including NIS 533 million for long-term loans and NIS 59 million for short-term loans.

During 2006 and 2007, the average outstanding amount of long-term liabilities (long-term loans and debentures) was NIS 3.2 billion.

During 2005, the monthly average outstanding amount of short-term credit was NIS 50 million. For the same period, the average outstanding amount of long-term loans was NIS 544 million.

Working capital

Our working capital as of December 31, 2007 was NIS 771 million, compared with working capital of NIS 237 million as of December 31, 2006. The increase in working capital is mainly the result of the increase in cash and cash-equivalents, resulting mainly from the issuance of our two new series of debentures in October 2007, which was partially offset by an increase in our short-term credit.

Our working capital as of December 31, 2006 was NIS 237 million, compared with working capital of NIS 1,909 million as of December 31, 2005. The decline in working capital was the result of the decline in cash and cash-equivalents, resulting from the payment of cash dividends to our shareholders during 2006.

Trade receivables

Trade receivables consist of outstanding amounts due from customers, mainly for cellular services and handsets and accessories, net of the allowance for doubtful accounts. Most of our handset sales are made on an installment basis (generally, 36 monthly payments). Installments due in the twelve months following the balance sheet date are included in current trade receivables; the remaining installments are included in long-term receivables. As of December 31, 2007, net trade receivables amounted to NIS 1,385 million compared to NIS 1,242 million as at December 31, 2006. This increase was primarily due to the increase in our revenues. The current maturity of long-term receivables as of December 31, 2007 was NIS 626 million.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

[Not applicable.]

D. TREND INFORMATION

Trend information is included throughout the other sections of this Item 5.

E. OFF-BALANCE SHEET ARRANGEMENTS

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

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

Set forth below is a description of our contractual cash obligations, in millions of NIS, as of December 31, 2007.

	Total		2008		2009- 2011	2012-2013	2014 and Beyond
Long-term debt obligations (including interest)(1)(2)		4,684		537	1,663	879		1,605
Capital (finance) lease obligations		—		—	—	—		—
Operating lease obligations		1,626		243	596	230		557
Purchase obligations		235		235	—	—		—
Other long-term liabilities reflected on our balance sheet under GAAP		—		—	—	—		—
Total		6,545		1,015	2,259	1,109		2,162

Set forth below is a proforma table of our contractual obligations, in millions of NIS, to reflect the issuance of our additional debentures, Series C and D, in February 2008 and the voluntary prepayment of the balance of our loan under the credit facility in March 2008. Other parameters remain as presented as at December 31, 2007.

	Total		2008		2009- 2011	2012-2013	2014 and Beyond
Long-term debt obligations (including interest)(1)(2)		5,422		879	1,434	1,057		2,052
Capital (finance) lease obligations		—		—	—	—		—
Operating lease obligations		1,626		243	596	230		557
Purchase obligations		235		235	—	—		—
Other long-term liabilities reflected on our balance sheet under GAAP		—		—	—	—		—
Total		7,283		1,357	2,030	1,287		2,609

(1)	Interest on our credit facilities is calculated using two-month LIBOR plus a margin of 0.8% and two-month TELBOR plus a margin of 0.97%, using LIBOR and TELBOR in effect in November 2007. Because the interest rate under the credit facility is variable, actual payments may differ.

(2)	Interest does not include (a) payments that could be required under our interest-rate swap agreements; such 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.

Application of Critical Accounting Policies and Use of Estimates

The preparation of our financial statements requires management to make estimates and assumptions that affect the amounts reflected in the consolidated financial statements and accompanying notes, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience, where applicable, and on other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and could have a material impact on our reported results.

In many cases, the accounting treatment of a particular transaction, event or activity is specifically dictated by accounting principles and does not require management’s judgment in its application, while in other cases, management’s judgment is required in the selection of the most appropriate alternative among the available accounting principles, that allow different accounting treatment for similar transactions.

We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our historical and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate and (2) changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.

Revenue recognition

Nature of critical estimate items

As described in Note 2.L to our consolidated financial statements included elsewhere in this annual report, we recognize revenues from services as they are provided and revenues from sales of handsets and accessories upon delivery.

Assumptions / approach used

We recognize service revenues based upon minutes used, net of credits and adjustments for service discounts. As a result of the cutoff times of our multiple billing cycles each month, we are required to estimate the amount of service revenues earned during the period, but not yet billed, from the end of each billing cycle to the end of each reporting period. These estimates are primarily based on historical usage and billing patterns.

The accounting estimates used in the results of operations related to the recognition of revenue require us to make assumptions about possible future billing adjustments arising from disputes with subscribers and discounts not taken into consideration at the time of billing.

Effect if different assumptions used

Management believes that the provisions (relevant to revenue recognition) recorded for each reporting period represent its best estimate of future outcomes, but the actual outcomes could differ from the estimate selected. The impact of variances in actual performance versus the amounts recorded could have an adverse effect on the accounts receivable reported on the balance sheet and the results reported in the statements of operations, and could be material to our financial condition.

Long-lived assets – depreciation

Nature of critical estimate items

The cellular communications industry is capital intensive. The depreciation of operating assets constitutes a significant operating cost for us. We have substantial investments in tangible long-lived assets, primarily our communications networks.

Assumptions / approach used

Until December 31, 2006, we depreciated our network equipment by the straight-line method, on the basis of the estimated useful lives of the dominant asset within each group of assets, mainly over 6.7 years (15% per year). On January 1, 2007, a new Israeli accounting standard came into effect, pursuant to which we retroactively separated individual

components with estimated useful lives that are different from the entire network, mainly transmission equipment (such as fiber-optic cables) and infrastructures. The retroactive application of this depreciation of individual components had a material effect on our results of operations and financial position for all of the reported periods. See “—New Accounting Standards—Israeli Accounting Standard No. 27, “Property, plant and equipment”.” Leasehold improvements are depreciated over the shorter of their estimated useful lives or lease terms that are reasonably assured. We periodically review changes in our technology and industry conditions to determine adjustments to estimated remaining useful lives and depreciation rates. Such adjustments would affect depreciation prospectively.

Effect if different assumptions used

Changes in technology or changes in our intended use of these assets can cause the estimated period of use or the value of these assets to change. Actual economic lives may differ from estimated useful lives. Periodic reviews could result in a change in our assets’ depreciable lives, and therefore, in our depreciation expense in future periods.

Impairment of long-lived assets

Nature of critical estimate items

We review finite-lived long-lived assets, principally consisting of property, plant and equipment, and spectrum licenses for impairment based on the requirements of Israeli Accounting Standard No. 15, or whenever events or changes in circumstances indicate that their carrying values may not be recoverable through the present value of anticipated cash flows from the continued use of the asset, including those expected at the time of its future retirement and disposal. If necessary, we write down the assets to their estimated fair values.

Assumptions / approach used

In analyzing finite-lived long-lived assets for potential impairment, significant assumptions that are used in determining the discounted cash flows of the asset group include:

·	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.

Effect if different assumptions used

The use of different estimates of assumptions within our discounted cash flow modes (e.g., growth rates, future economic conditions, estimates of residual values) could result in discounted cash flows that are lower than the current carrying value of an asset group, thereby requiring the need to compare the carrying value of the asset group to its fair value.

The use of different discount rates when determining the fair value of the asset group could result in different fair values, and impact any related impairment charges.

Since our incorporation, we have written down an aggregate amount of NIS 10 million of the value of our real estate property in Modi’in, Israel, which was reversed in December 2007, as a result of a periodic review of the value of the aforesaid asset, in accordance with Israeli Accounting Standard No. 15.

Accounts receivable - bad debt and allowance for doubtful accounts

Nature of critical estimate items

We maintain an allowance for doubtful accounts to reflect estimated losses resulting from the inability of certain subscribers to make required payments.

Assumptions / approach used

We regularly evaluate the adequacy of our allowance for doubtful accounts by taking into account variables such as past experience, age of the receivable balance and current economic conditions of the party owing the receivable balance. If the financial conditions of certain subscribers were to deteriorate, resulting in impairment in their ability to make payments, additional allowance for doubtful accounts may be required.

Effect if different assumptions used

We believe that our allowance for doubtful accounts is adequate to cover estimated losses in customer accounts receivable balances under current conditions. However, changes to the allowance for doubtful accounts may be necessary in the event that the financial condition of our customers improves or deteriorates.

Liabilities arising from litigation

We are involved in various claims and legal actions arising in the ordinary course of business. We make provisions for liabilities arising from litigation in accordance with SFAS No. 5, which requires us to provide for liabilities arising from litigation when the liabilities become probable and estimable. We continually evaluate our pending litigation to determine if any developments in the status of litigation require an accrual to be made. It is often difficult to accurately estimate the ultimate outcome of the litigation. These variables and others can affect the timing and amount we provide for certain litigation. Our accruals for legal claims are therefore subject to estimates made by us and our legal counsel, which are subject to change as the status of the legal cases develops over time. Such revision in our estimates of the potential liability could materially impact our financial condition, results of operations or liquidity.

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

Following its acquisition in September 2005, DIC held a 94.5% controlling interest in our outstanding share capital, and 100% control of our voting rights. As a result, SEC Staff Accounting Bulletin Topic 5J, requires the acquisition by the parent company to be “pushed-down,” meaning the post-transaction financial statements of the acquired company should reflect a new basis of accounting. In accordance with Israeli GAAP, reflecting the September 2005 transaction through a new basis of accounting is not permitted.

The purchase price paid as a result of this transaction has been allocated to a proportionate amount of our underlying assets and liabilities based upon DIC’s acquired interests in the respective fair market values of our assets and liabilities at the date of the

transaction. The excess of the purchase price over the identified assets and liabilities is considered as goodwill.

Goodwill and other identifiable assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment losses are not reversed. Impairment is determined by assessing the recoverable amount of the Company. If the recoverable amount of the Company is less than the carrying amount, an impairment loss is recognized. Any future impairment which might be required, could materially impact our financial condition or results of operations.

Estimates were used in the course of the acquisition by DIC to determine the fair value of the assets and liabilities acquired.

The application of purchase accounting required that the total purchase price be allocated to the fair value of assets acquired and liabilities assumed based on their fair values at the acquisition date. The allocation process required an analysis of all such assets and liabilities including acquired contracts, customer relationships, licenses, contractual commitments and legal contingencies to identify and record the fair value of all assets acquired and liabilities assumed. In valuing acquired assets and assumed liabilities, fair values were based on, but were not limited to: future expected cash flows; current replacement cost for similar capacity for certain property, plant and equipment; market rate assumptions for contractual obligations; estimates of settlement costs for litigation and contingencies; and appropriate discount rates and growth rates. The approach to the estimation of the fair values of our intangible assets involved the following steps: preparation of discounted cash flow analyses; deduction of the fair values of tangible assets; determination of the fair value of identified significant intangible assets; reconciliation of the individual assets’ returns with the weighted average cost of capital; and allocation of the excess purchase price over the fair value of the identifiable assets and liabilities acquired to goodwill.

Determining the particular asset economic lives for intangible assets and for tangible fixed assets involves the exercise of judgment and can materially affect the reported amounts for amortization of intangible assets and depreciation of tangible fixed assets.

Income taxes

We account for income taxes under Israeli Accounting Standard No. 19, “Taxes on Income.” Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets and liabilities are classified as current or non-current items in accordance with the nature of the assets or liabilities to which they relate. When there are no underlying assets or liabilities, the deferred tax assets and liabilities are classified in accordance with the period of expected reversal. Income tax expenses represent the tax payable for the period and the changes during the period in deferred tax assets and liabilities.

To compute provisions for taxes, estimates need to be made. Estimates are also necessary to determine whether valuation allowances are required against deferred tax assets. These involve assessing the probabilities that deferred tax assets resulting from deductible temporary differences will be utilized. Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the complexity, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate adjustments to tax income and expense in future periods. We establish reasonable provisions for possible consequences of tax audits. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by ourselves and the tax authorities.

New Accounting Standards

Israeli Accounting Standard No. 26, “Inventory”

In August 2006, the Israel Accounting Standards Board published Israeli Accounting Standard No. 26, “Inventory.” This standard provides guidelines for determining the cost of inventory and its subsequent recognition as an expense as well as for determining impairment in value of inventory written down to net realizable value of the inventory. This standard also provides guidelines regarding cost formulas used to allocate costs to various types of inventory. This standard applies to financial statements for periods beginning on or after January 1, 2007. Implementation of Standard No. 26 did not have a material effect on our results of operations and financial position.

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

In September 2006, the Israel Accounting Standards Board published Israeli Accounting Standard No. 27, “Property, plant and equipment.” Standard No. 27 prescribes rules for the presentation, measurement and recognition of fixed assets and for the disclosure required in respect thereto. Standard No. 27 provides among other things the following:

Revaluation of assets

Standard No. 27 provides that a group of similar fixed asset items should be measured at cost net of accumulated depreciation, less impairment losses, or alternatively, at its revalued amount less accumulated depreciation, whereas an increase in the value of the asset to above its initial cost as a result of the revaluation will be directly included in shareholders’ equity under a revaluation reserve.

Asset retirement obligations

Standard No. 27 provides, that upon the initial recognition of a fixed asset, the cost of the item should include all the costs expected to be incurred in respect of a liability to dismantle and remove the item and to restore the site on which it was located.

Components depreciation

Standard No. 27 provides that if an item of property, plant and equipment consists of several components with different estimated useful lives, the individual significant components should be depreciated over their individual useful lives.

Standard No. 27 applies to financial statements for periods beginning on January 1, 2007, and was adopted on a retroactive basis, except for asset retirement obligations, for which the initial adoption was in accordance with the provisions of Standard No. 27.

The initial implementation of Standard No. 27 had the following effects:

Asset retirement obligations

Implementation of Standard No. 27 resulted in the initial recognition of liabilities to dismantle and remove assets and to restore the site with respect to our cell sites, retail stores and general and administrative facilities, and accordingly increased our net book value of the fixed assets and our long-term liabilities due to the obligation for asset retirement. Also, there was a decrease in retained earnings as of January 1, 2007, in the amount of approximately NIS 5 million, net of related taxes. The additional cost will be recognized over the useful life of the asset. The obligation is recognized at fair value, and the accretion expense will be recognized over time as the discounted liability is accreted to its expected settlement value.

Components depreciation

Before adoption of Standard No. 27, we utilized group depreciation for our network and transmission equipment and depreciation had been calculated on the basis of the estimated useful life of the dominant asset within each group. Upon adoption of Standard No. 27, starting January 1, 2007, we retroactively separated individual components with estimated useful lives that are different from the entire network, mainly transmission equipment such as fiber-optic cables and infrastructure. The retroactive application of this components depreciation increased our retained earnings as of January 1, 2007, in the amount of approximately NIS 290 million. It is expected to have a significant effect on our results of operations for future periods.

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

In July 2006, the Israel Accounting Standards Board published Accounting Standard No. 29, “Adoption of International Financial Reporting Standards (“IFRS”)”, under which, we have to prepare our financial statements for periods beginning on and after January 1, 2008 according to IFRS. The standard permits early adoption for financial statements released after July 31, 2006.

In accordance with this standard, we are required to include in our annual financial statements for December 31, 2007, balance sheet data as at December 31, 2007 and statement of operations data for the year then ended, that have been prepared according to the recognition, measurement and presentation principles of IFRS. For details, see note 2.U.5 to our consolidated financial statements included elsewhere in this annual report.

Presented below is a description of the principal anticipated effects on our financial statements of the transition to IFRS, including the changes that may occur in our accounting policy as a result of this transition:

·	In accordance with IFRS a provision should be created if as at balance sheet date it is more likely than not that a commitment will be fulfilled. In accordance with Israeli GAAP, we create a provision if it is probable that economic resources will be used to settle the liability.

In accordance with IFRS, embedded derivatives are separated from hybrid instruments. The separated embedded derivatives are measured according to fair value at each balance sheet date, with the changes in fair value being recognized in the income statement for the period. Israeli GAAP does not require the separation of embedded derivatives from hybrid instruments.

Impact of Recently Issued U.S. GAAP Accounting Standards

In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, “Fair Value Measurements”. This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The provisions of this standard are effective for us beginning January 1, 2008. The Financial Accounting Standards Board issued a Staff Position to defer the effective date of this standard for one year for all non financial assets and non financial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis. We do not expect the adoption of this standard will have material impact on our consolidated financial statements.

In February 2007, the Financial Accounting Standards Board issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. This standard permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. The provisions of this standard are effective for us beginning January 1, 2008. We do not expect the adoption of this standard will have an impact on our consolidated financial statements.

In December 2007, the Financial Accounting Standards Board issued SFAS No. 141 (revised 2007), “Business Combinations”. This standard establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. This standard also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This standard is effective for fiscal years beginning after December 15, 2008. Earlier adoption is prohibited. We are currently evaluating the potential impact, if any, of the adoption of this standard on our consolidated results of operations and financial condition.

In December 2007, the Financial Accounting Standards Board issued SFAS No. 160, “Non controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51". This standard requires that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We do not expect the adoption of this standard will have significant impact on our consolidated financial statement.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

The following table sets forth information regarding our directors, executive officers and other key employees as of December 31, 2007:

Name	Age	Position
Ami Erel (2), (3)	60	Chairman of the Board
Nochi Dankner (3)	53	Director
Isaac Manor	66	Director
Shay Livnat (2), (3)	49	Director
Raanan Cohen (1), (2), (4)	40	Director
Oren Lieder (1), (2)	59	Director
Avraham Bigger	61	Director
Rafi Bisker (2) (4)	56	Director
Shlomo Waxe (1), (2), (4)	61	Independent Director
Joseph Barnea (1), (2), (3), (4)	72	Independent / External Director
Ronit Baytel (1)	40	Independent / External Director
Amos Shapira	58	President and Chief Executive Officer
Tal Raz	46	Chief Financial Officer
Adi Cohen	42	Vice President of Marketing
Eliezer (Lipa) Ogman	54	Chief Technology Officer
Isaiah Rozenberg	47	Vice President of Engineering and Network Operation
Itamar Bartov	45	Vice President of Executive and Regulatory Affairs
Refael Poran	59	Vice President of Business Customers
Meir Barav	50	Vice President of Sales and Services
Ronit Ben-Basat	40	Vice President of Human Resources
Amos Maor	44	Vice President of Operations and Supply Chain
Liat Menahemi-Stadler	41	General Legal Counsel
Gil Ben-Itzhak	42	Controller

__________

(1)	Member of our Audit Committee; As of February 2008, the Audit Committee consists of independent directors solely: Messrs. Barnea (chairman), Baytel and Waxe.

(2)	Member of our Cost Analysis Committee.

(3)	Member of our Option Committee. Mr. Barnea was appointed to the option committee in January 2008.

(4)	Member of our Security Committee.

Ami Erel has served as Chairman of our Board of Directors since 2005. Mr. Erel has served as President and Chief Executive Officer of Discount Investment Corporation Ltd. since 2001. From March to December 2007, Mr. Erel also served as the Chief Executive Officer of NetVision Ltd., where he served prior to March 2007 and continues to serve from January 2008, as Chairman of the board of directors. From 1999 to 2001, he served as President of Elron Electronic Industries Ltd., where he continues to serve as a member of the Board of Directors and also served, until January 2007, as Chairman of the board of directors. From 1997 to 1999, he served as President and Chief Executive Officer of Bezeq – The Israeli Telecommunications Corporation Ltd. Mr. Erel also serves as the Chairman of the board of directors of Koor Industries Ltd. and as a member of the boards of directors of Makhteshim-Agan Industries Ltd., Shufersal Ltd., Property and Building Corporation Ltd. and other IDB group companies. Mr. Erel has served as the chairman of the executive committee of the Manufacturers Association of Israel since 2005. Mr. Erel holds a B.Sc. in electrical engineering from the Technion, Israel Institute of Technology.

Nochi Dankner has served as a member of our Board of Directors since 2005. Mr. Dankner currently serves as Chairman of the board of directors and Chief Executive Officer of IDB Holding Corporation Ltd. Mr. Dankner also serves as Chairman of the boards of directors of IDB Development Corporation Ltd., Discount Investment Corporation Ltd., Clal Industries and Investments Ltd., Ganden Holdings Ltd. and various private companies, and as a member of the boards of directors of Elron Electronic Industries Ltd., Clal Insurance Enterprises Holdings Ltd., Clal Insurance Company Ltd., Shufersal Ltd., Property and Building Corporation Ltd., American Israeli Paper Mills Ltd., Koor Industries Ltd., Makhteshim-Agan Industries Ltd. and various private companies. Mr. Dankner also serves as the Chairman of the IDB fund “For the Community” (a non-profit organization), as a member of “Matan-Your Way to Give” (a non-profit organization), as a member of the management committee of the Association of Friends of the Tel Aviv Sourasky Medical Center, and as a member of the board of trustees of Tel Aviv University. Mr. Dankner holds an L.L.B. and a B.A. in political science, both from Tel Aviv University.

Isaac Manor has served as a member of our Board of Directors since 2005. Mr. Manor has served as the Deputy Chairman of the board of directors of IDB Holding Corporation Ltd. since 2003. From 1976 to 2001, he served as Chief Executive Officer of companies in the automobile sector of the David Lubinsky group, the importer of Peugeot and Citroen automobiles to Israel, where he currently serves as the Chairman of the board of directors. Mr. Manor also serves as a member of the board of directors of IDB Development Corporation Ltd., Discount Investment Corporation Ltd., Clal Industries and Investments Ltd., Shufersal Ltd., Property and Building Corporation Ltd., American Israeli Paper Mills Ltd., Clal Insurance Enterprises Holdings Ltd., Union Bank of Israel Ltd., Koor Industries Ltd., Makhteshim-Agan Industries Ltd. and various private companies. Mr. Manor holds an executive M.B.A. from the Hebrew University.

Shay Livnat has served as a member of our Board of Directors since 2005. Mr. Livnat has served as the Chief Executive Officer of Zoe Holdings Ltd., a holding company that manages a diverse portfolio of international telecommunications operations and hi-tech companies, which was founded by him in 1988, since 2001. From 1988 to 1998, he served as Chief Executive Officer of Tashtit Ltd. Mr. Livnat also serves as a member of the boards of directors of IDB Development Corporation Ltd., Clal Industries and Investments Ltd., Clal Insurance Enterprises Holdings Ltd., Elron Electronic Industries Ltd. and various private companies. Mr. Livnat serves as a member of the executive committee of the University of Haifa. Mr. Livnat holds a B.A. in electrical engineering from Fairleigh Dickinson University in New Jersey, USA.

Raanan Cohen has served as a member of our Board of Directors since 2000. Mr. Cohen has served as Chief Executive Officer of Koor Industries Ltd. since July 2006. From 2004 to 2006, he served as Chief Executive Officer of Scailex Corporation Ltd.. Since 2001 he has served as Vice President of Discount Investment Corporation Ltd., having previously served, from 1999 to 2001, as executive assistant to the chief executive officer of Discount Investment Corporation Ltd. From 1997 to 1999, he was an associate at McKinsey & Company Inc., London. Mr. Cohen also serves as a member of the boards of directors of Makhteshim-Agan Industries Ltd., Property and Building Corporation Ltd. and various private companies.. Mr. Cohen is a member of the Israeli Bar Association and holds an L.L.B. and a B.A. in economics from Tel Aviv University and an M.B.A. in management from the J.L. Kellogg Graduate School of management of Northwestern University.

Oren Lieder has served as a member of our Board of Directors since 2005. Mr. Lieder has served as Senior Vice President and Chief Financial Officer of Discount Investment Corporation Ltd. since 2003. From 1997 to 2002, he served as the Chief Financial Officer of Bezeq – The Israeli Telecommunications Corporation Ltd. From 1989 to 1996, he served as Chief Financial Officer of Zim Israel Navigation Company Ltd. Mr. Lieder also serves as a member of the boards of directors of Ham-Let (Israel Canada) Ltd., Shufersal Ltd., Makhteshim-Agan Industries Ltd., Property and Building Corporation Ltd., Bayside Land Corporation Ltd. and various private companies. Mr. Lieder serves as a member of the board of trustees and investment committee of the University of Haifa. Mr. Lieder holds a B.A. in economics and statistics from the University of Haifa.

Avraham Bigger has served as a member of our Board of Directors since 2005. Mr. Bigger is the owner and managing director of three family-owned companies. Since October 2006, Mr. Bigger has served as the Chairman, and since January 2007 he has also served as Chief Executive Officer of Makhteshim-Agan Industries Ltd. From June 2003 to July 2007, Mr. Bigger served as the Chairman of the board of directors of Shufersal Ltd. Mr. Bigger also serves as the chairman of the boards of directors of various private companies; as the Deputy Chairman of the Caesarea Edmond Benjamin De Rothschild Foundation and the Caesarea Edmond Benjamin De Rothschild Development Corporation Ltd.; and as a member of the boards of directors of the First International Bank of Israel Ltd. and various private companies. Mr. Bigger holds a B.A. in economics and an M.B.A. from the Hebrew University.

Rafi Bisker has served as a member of our Board of Directors since 2006. Mr. Bisker currently serves as Chief Executive Officer of Ganden Real Estate Ltd., co-Chairman of Shufersal Ltd. and as the Chairman of Property and Building Corporation Ltd., Bayside Land Corporation Ltd. and various private companies. From 2000 to 2005, he served as Chief Executive Officer of Ganden Holdings Ltd. From 1989 to 1999, he served as Chief Executive Officer of Dankner Investments Ltd. Mr. Bisker also serves as a member of the boards of directors of IDB Holding Corporation Ltd., IDB Development Corporation Ltd., Discount Investment Corporation Ltd., Clal Industries and Investments Ltd., Koor Industries Ltd., Ganden Holdings Ltd., ISPRO The Israel Properties Rental Corporation Ltd., Mehadrin Ltd., and various private companies. Mr. Bisker holds a B.Sc. in civil engineering from the Technion, Israel Institute of Technology.

Shlomo Waxe has served as a member of our Board of Directors since 2006. Mr. Waxe has served as Director General of the Israel Association of Electronics and Software Industries since 2006. From 2002 to 2005, he worked in the field of communications management and consultancy. From 1999 to 2001, he served as Chief Executive Officer of Zeevi Communications Ltd. From 1997 to 1999, he served as a consultant to cellular communications projects in Sao Paulo, Brazil and in Northeast Brazil. From 1993 to 1997, he served as the Director General of Israel’s Ministry of Communications. From 1990 to 1993, he served as commanding officer of the signal, electronics and computer corps of the Israel Defense Forces and he is a retired brigadier general. Mr. Waxe also serves as a member of the boards of directors of Tambour Ltd., C. Mer Industries Ltd. and Shrem, Fudim – Technologies Ltd. Mr. Waxe holds a B.A. in political science from the University of Haifa.

Joseph Barnea has served as a member of our Board of Directors since May 2007. Mr Barnea is a retired businessman. He served as the Chief Executive Officer of Oxygen & Argon Works Ltd. from 1987 to 2005 and continued to serve as a member of its management until 2006. From 1985 to 1987, he served as the Chief Executive Officer of Telkoor Ltd.

From 1980 to 1985, he served as a Vice President of Elscint Medical Imaging Ltd. Mr. Barnea is a member of the Presidency of the Israeli Industrialists Association and until recently served as the Chairman of its Chemistry and Environment Association, and from 2005 a member of the boards of the Israeli Export Institute and the Israeli Standards Institute. From 2001 to 2004 he served as Chairman and President of the International Oxygen Manufacturers Association (IOMA) USA. He served as Deputy Commander of the signal, electronics and computer corps of the Israeli Defense Forces. Mr. Barnea holds a B.Sc. in electrical engineering from the Technion, Israel Institute of Technology and an M.Sc. in electrical engineering from Columbia University, New York, USA.

Ronit Baytel has served as a member of our Board of Directors since May 2007. Ms. Baytel is a director in the finance department of Ormat Technologies, Inc., a company listed on the NYSE, in charge of SOX internal controls in the preparation of financial statements and, tax and special projects. From 1998 to 2005 she served as senior manager at Kesselman & Kesselman, a certified public accountants firm in Israel, which is a member of the international PriceWaterhouseCoopers Accountants firm. Ms. Baytel is a certified public accountant and holds a B.A. in economics and accountancy from the Tel Aviv University and an M.B.A. from the Hebrew University.

Amos Shapira has served as our President and Chief Executive Officer since 2005. From 2003 to 2005, Mr. Shapira served as Chief Executive Officer of El Al Israel Airlines Ltd. From 1993 to 2003, he served as Chief Executive Officer of Hogla-Kimberly Ltd., a company owned by Kimberly-Clark USA. He joined the board of directors of Elron Electronic Industries Ltd. in 2006. Mr. Shapira holds an M.Sc. in industrial administration from the Technion, Israel Institute of Technology and a B.A. in economics from the University of Haifa.

Tal Raz has served as our Chief Financial Officer since 2005. From 2002 to 2005, Mr. Raz served as Chief Financial Officer of Elron Electronic Industries Ltd. From 2001 to 2002, he served as the President and Chief Executive Officer of Elbit Ltd. From 1997 to 2001, he served as Elbit’s Chief Financial Officer, having previously served in the same capacity at Agentsoft Ltd. and Paul Winston Corporation. Prior to that, he was a senior auditor at Deloitte & Touche’s New York office. Until January 2007, Mr. Raz served as a director of NetVision Ltd. He is a member of the steering committee of the Israeli CFO Forum and is a certified public accountant. He holds a B.A. in accounting and business administration and an M.B.A. in business administration, from the City University of New York.

Adi Cohen has served as our Vice President of Marketing since 2006. From 2003 to 2006, Mr. Cohen served as marketing manager of Shufersal Ltd. From 2002 to 2003, he served as Chief Executive Officer of ERN Israel Ltd. From 1998 to 2003, he served as marketing manager of Partner Communications Company Ltd. Mr. Cohen holds a B.A. in economics and an M.B.A., both from the Hebrew University.

Eliezer (Lipa) Ogman has served as our Chief Technology Officer since 2000. From 1997 to 2000, Mr. Ogman served as our Vice President of Engineering and Network Operation, and from 1994 to 1997 he served as manager of our network design department. Prior to joining us, he served in the signal, electronics and computer corps of the Israel Defense Forces, reaching the rank of lieutenant colonel. Mr. Ogman holds a B.Sc. in Electrical Engineering from the Technion, Israel Institute of Technology, an M.B.A. in business administration and an M.Sc. in electrical engineering from Tel Aviv University.

Isaiah Rozenberg has served as our Vice President of Engineering and Network Operation since 2005. From 2000 to 2005, Mr. Rozenberg served as manager of our radio and switch engineering department. Mr. Rozenberg holds a B.Sc. and an M.Sc. in electrical and electronics engineering from Ben-Gurion University of the Negev.

Itamar Bartov has served as our Vice President of Executive and Regulatory Affairs since 2005. From 2004 to 2005, Mr. Bartov served as Vice President of Customer Services of El Al Israel Airlines Ltd., and from 2002 to 2004 he served as El Al’s Corporate Secretary. From 2000 to 2002, he served as the Israel Postal Authority’s Vice President of Business Development in Overseas Commerce and from 1996 to 2000 he served as the Israel Postal Authority’s Vice President of Planning and Control. From 1993 to 1996, he served as senior advisor to the Minister of Communications. Mr. Bartov holds an L.L.B. from the Hebrew University in Jerusalem.

Refael Poran has served as our Vice President of Business Customers since 2006. From 1992 to 2004, Mr. Poran served as Chief Executive Officer of Adanet Communications Ltd. From 2005 to 2006, he served as head of the information technology section of the Haifa Port Company Ltd. Mr. Poran holds a B.Sc. in electrical engineering from the Technion, Israel Institute of Technology.

Meir Barav has served as our Vice President of Sales and Services since 2005. From 2001 to 2005, Mr. Barav served as Vice President of Operations and Logistics of D.B.S. Satellite Services (1998) Ltd. From 1997 to 2000, he served as Vice President of Sales and Logistics of Strauss Ice Creams Ltd.. Mr. Barav holds a B.A. in economics and statistics from the Open University.

Ronit Ben-Basat has served as our Vice President of Human Resources since 2004. From 1999 to 2004, Ms. Ben-Basat served in various positions for Cisco Systems in Israel, Europe and San-Jose, California, as a senior human resources manager. From 1991 to 1999, she served as human resources and finance manager of LSI Logic. Ms. Ben-Basat holds a B.A. in social work and an M.Sc. in organizational development management, both from Tel Aviv University, and she also completed an executive M.B.A. program at Cisco Systems, through INSEAD, France and IMD, Switzerland.

Amos Maor has served as our Vice President of Operations and Supply Chain since 2004. From 2002 to 2004, Mr. Maor served as manager of Supply Chain of Elite Industries Ltd., and from 2000 to 2002, he served as manager of Elite’s sales division headquarters. Mr. Maor holds a B.Sc. in industry and management engineering from the Technion, Israel Institute of Technology.

Liat Menahemi Stadler has served as our General Legal Counsel and Corporate Secretary since 2006. From 2000 to 2006, Ms. Menahemi Stadler served as head of the technology and general purchasing division of our legal department. She has been a member of our legal department since 1998. Ms. Menahemi Stadler holds an LL.B. and a B.A. in English and French language and literature, both from the University of Haifa.

Gil Ben-Itzhak has served as our Controller since 2006. From 2003 to 2006, Mr. Ben-Itzhak served as Chief Financial Officer of Paul Winston-Eurostar LLC in New York. From 2002 to 2003, he served as Chief Financial Officer of Elron Telesoft Ltd. and from 1996 to 2002, he served as Controller of Elbit Ltd. Mr. Ben-Itzhak is a certified public accountant and holds a B.A. in accounting and economics from the University of Haifa.

B. COMPENSATION

Executive Officer and Director Compensation

The aggregate direct compensation we paid to all our executive officers and directors as a group (25 persons) for 2007 was approximately NIS 21.3 million, of which approximately NIS 9.6 million relates to 2006 bonuses paid in 2007 and approximately NIS 2.1 million was set aside or accrued to provide for pension, retirement, severance or similar benefits. These amounts do not include expenses we incurred for other payments, including dues for professional and business associations, business travel and other expenses and benefits commonly reimbursed or paid by companies in Israel. In addition, we recorded the sum of approximately NIS 20.7 million in 2007, as a compensation cost related to the options granted to all our executive officers and the Chairman of the board of directors under the share incentive plan.

We pay no cash compensation to our directors who are affiliated with DIC for their services as directors, but we pay DIC NIS 2.0 million per year for management services. We pay Shlomo Waxe, our independent director, a monthly director’s fee of $3,000 plus Israeli value-added tax. Each of our two external directors are entitled to a director’s fee in the amount of NIS 100,000 (approximately $26,000) per year and NIS 3,000 (approximately $780) per meeting, payable in accordance with the regulations promulgated under the Israeli Companies Law, as adjusted for changes in the Israeli CPI.

Employment Agreement of Amos Shapira

Mr. Amos Shapira, our President and Chief Executive Officer, is entitled to a gross monthly salary of NIS 120,000, linked to the Israeli CPI. He is also entitled to a company car, the use of a cellular phone and to reimbursement of incidental private expenses in the amount of NIS 9,000 per year. Mr. Shapira is entitled to a fixed bonus equal to six month’s salary per year, in respect of which no social benefits are accrued. He received a one-time signing bonus of NIS 3.4 million and he is entitled to an annual bonus based on our annual profits, in an amount not to exceed NIS 2.8 million. Mr. Shapira is also entitled to participate in a share option plan, which was adopted in September 2006. Mr. Shapira’s agreement contains provisions for vacation days, sick leave, managers’ insurance and an education fund. The agreement is for an unspecified period of time and can be terminated by either party with advance notice of three months. Mr. Shapira will continue to receive his salary and benefits for a period of nine months after termination by either party, unless we terminate the agreement for cause. The aggregate monthly cost to us of Mr. Shapira’s employment in 2007 amounted to approximately NIS 176,000 (approximately $45,800). In addition, in 2007, we paid Mr. Shapira a bonus in the amount of NIS 3.5 million and recorded an aggregate yearly expense of NIS 5.4 million in relation to the options granted to Mr. Shapira under the share incentive plan.

C. BOARD PRACTICES

Corporate Governance Practices

We are incorporated in Israel and therefore are subject to various corporate governance practices under the Israeli Companies Law, 1999, or the Companies Law, relating to such matters as external directors, the audit committee and the internal auditor. These matters are in addition to the requirements of the New York Stock Exchange and other relevant provisions of U.S. securities laws. Under the New York Stock Exchange rules, a

foreign private issuer may generally follow its home country rules of corporate governance in lieu of the comparable New York Stock Exchange requirements, except for certain matters such as composition and responsibilities of the audit committee and the independence of its members. We follow the Companies Law, the relevant provisions of which are summarized in this annual report, and comply with the New York Stock Exchange requirement to solicit proxies from our shareholders in respect of each meeting of shareholders. For a summary of significant differences between our corporate governance practices, as a foreign private issuer and those required of U.S. domestic companies under NYSE Listing Standards, see our website at www.cellcom.co.il under “Investor Relations –Legal & Corporate". Under the Companies Law, our Board of Directors must determine the minimum number of directors having financial and accounting expertise, as defined in the regulations, that our Board of Directors should have. In determining the number of directors required to have such expertise, the Board of Directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our Board of Directors has determined that we require at least two directors with the requisite financial and accounting expertise and that Messrs. Dankner, Erel, Lieder, Manor, Bigger and Cohen have such expertise. The Companies Law and the regulations promulgated thereunder also require that at least one of our External Directors has financial and accounting expertise and consider a person who is an audit committee independent financial expert according to a foreign law, to comply with that requirement. Our Board of Directors has determined that Ms. Ronit Baytel qualifies as an "audit committee financial expert" as defined by the SEC in Item 16 of Form 20-F.

Board of Directors and Officers

Our Board of Directors currently consists of eleven directors, including three independent directors under the rules of the Sarbanes-Oxley Act applicable to audit committee members, of which two also qualify as external directors under the Companies Law. Nine of our current directors, including the independent directors, were elected at our annual shareholders meeting held on May 2007. The external directors were appointed for an initial period of three years. Two additional directors, Messrs. Dankner and Manor, were appointed by DIC, as founding shareholder, in accordance with our license and articles of association’s requirement that at least 20% of our directors be appointed by Israeli citizens and residents from among our founding shareholders. Our articles of association provide that we must have at least five directors.

Each director (other than external directors and directors required to be appointed by Israeli citizens and residents from among our founding shareholders) will hold office until the next annual general meeting of our shareholders following his or her election and until his or her successor shall be elected and qualified. The approval of at least a majority of the voting rights represented at a general meeting and voting on the matter is generally required to remove any of our directors from office (other than external directors and directors required to be appointed by Israeli citizens and residents from among our founding shareholders), provided that directors appointed by the Board of Directors may also be removed by the Board of Directors. A majority of our shareholders at a general meeting may elect directors or fill any vacancy, however created, in our Board of Directors (other than external directors and directors required to be appointed by Israeli citizens and residents from among our founding shareholders). In addition, directors, other than an external director or a director required to be appointed by Israeli citizens and residents from among our founding shareholders, may be appointed by a vote of a majority of the directors then in office.

Our articles of association provide, as allowed by Israeli law, that any director may, by written notice to us, appoint another person who is not a director to serve as an alternate director (subject to the approval of the chairman of the Board of Directors; and in the case of an appointment made by the chairman, such appointment shall be valid unless objected to by the majority of other directors) and may cancel such appointment. The term of appointment of an alternate director is unlimited in time and scope unless otherwise specified in the appointment notice, or until notice is given of the termination of the appointment. No director currently has appointed any other person as an alternate director. The Companies Law stipulates that a person who serves as a director may not serve as an alternate director except under very limited circumstances. An alternate director has the same responsibility as a director.

Each of our executive officers serves at the discretion of our Board of Directors and holds office until his or her successor is elected or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.

External Directors

Qualifications of external directors

Companies incorporated under the laws of the State of Israel whose shares are listed on a stock exchange are required by the Companies Law to appoint at least two external directors. External directors are required to possess professional qualifications as set out in regulations promulgated under the Companies Law. The appointment of our external directors was approved by our shareholders in May 2007 . The Companies Law provides that a person may not be appointed as an external director if the person, or the person’s relative, partner, employer or any entity under the person’s control, has or had during the two years preceding the date of appointment any affiliation with the company or any entity controlling, controlled by or under common control with the company.

The term affiliation includes:

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.

The term “office holder” is defined in the Companies Law as a director, general manager, chief business manager, deputy general manager, vice general manager, any other manager directly subordinate to the general manager or any other person assuming the responsibilities of any of the foregoing positions, without regard to such person’s title. Each person listed above under “Item 6.A - Directors and Senior Management,” except Gil Ben-Itzhak, is an office holder for this purpose.

No person may serve as an external director if the person’s position or other business interests creates, or may create, a conflict of interest with the person’s responsibilities as a director or may otherwise interfere with the person’s ability to serve as a director. If at the

time an external director is appointed all current members of the board of directors are of the same gender, then that external director must be of the other gender.

Until the lapse of two years from termination of office, a company may not appoint an external director as an office holder and cannot employ or receive services from that person for pay, either directly or indirectly, including through a corporation controlled by that person.

Election of external directors

External directors are elected by a majority vote at a shareholders’ meeting, provided that either:

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.

The initial term of an external director is three years and he or she may be reelected to one additional term of three years. Thereafter, he or she may be reelected by our shareholders for additional periods of up to three years each only if the audit committee and the board of directors confirm that, in light of the external director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period is beneficial to the company. An external director may only be removed by the same percentage of shareholders as is required for his or her election, or by a court, and then only if the external director ceases to meet the statutory qualifications or violates his or her duty of loyalty to the company. If an external directorship becomes vacant, a company’s board of directors is required under the Companies Law to call a shareholders’ meeting promptly to appoint a new external director.

Each committee of a company’s board of directors that has the right to exercise a power delegated by the board of directors is required to include at least one external director, and the audit committee is required to include all of the external directors. An external director is entitled to compensation as provided in regulations adopted under the Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with services provided as an external director.

Israeli-Appointed Directors

Our license requires, and our articles of association provide, that at least 20% of our directors will be appointed and removed by shareholders who are Israeli citizens and Israeli residents from among our founding shareholders. If our Board of Directors is comprised of 14 directors or less, the Israeli shareholders will be entitled to appoint two directors, and if our Board of Directors is comprised of between 15 and 24 directors, the Israeli shareholders will be entitled to appoint three directors. Our articles of association provide that DIC, as founding shareholder, is responsible for complying with the requirement under our license that Israeli citizens and residents from among our founding shareholders hold at least 20% of our outstanding shares, and that so long as DIC so complies, it will be entitled to appoint and remove these directors.

Board Committees

Our Board of Directors has established an audit committee, cost analysis committee, option committee and a security committee.

Audit committee

Under the Companies Law, the board of directors of a public company must establish an audit committee. The audit committee must consist of at least three directors and must include all of the company’s external directors. The audit committee may not include the chairman of the board, any director employed by the company or providing services to the company on an ongoing basis, a controlling shareholder or any of a controlling shareholder’s relatives. The members of the audit committee are also required to meet the independence requirements established by the SEC in accordance with the requirements of the Sarbanes-Oxley Act, subject to the phase-in requirements described below.

Our audit committee provides assistance to our Board of Directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting and internal control functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. The audit committee also oversees the audit efforts of our independent accountants and takes those actions as it deems necessary to satisfy itself that the accountants are independent of management. Under the Companies Law, the audit committee is required to identify deficiencies in the management of the company, including by consulting with the internal auditor or the independent accountants, and recommending remedial actions to the board of directors, and is responsible for reviewing and approving certain related party transactions, as described below. The audit committee may not approve such a related party transaction unless at the time of approval the two external directors were serving as members of the audit committee and at least one of them was present at the meeting at which the approval was granted.

As of February 2008, our audit committee is composed entirely of independent members (and includes all the external directors)- Messrs. Joseph Barnea (chairman), Shlomo Waxe and Ronit Baytel. Prior to February 2008 (and within 90 days of our initial public offering on February 9, 2007), our audit committee included said independent directors and also Oren Lieder (Chairman) and Raanan Cohen. Our board of directors determined Ms. Ronit Baytel to be qualified to serve as an "audit committee financial expert" under the Sarbanes Oxely Act and SEC rules.

Cost analysis committee

Our cost analysis committee reviews our costs and recommends ways to achieve cost efficiency in our activities to our Board of Directors. Our cost analysis committee consists of Messrs. Lieder (Chairman), Erel, Cohen, Livnat, Bisker, Waxe and Barnea.

Option committee

Our option committee administers the issuance of options under our 2006 Share Incentive Plan to our employees who are not office holders, as well as any actions and decisions necessary for the ongoing management of the plan. Our option committee consists of Messrs. Erel (Chairman), Dankner, Livnat and Barnea.

Security committee and observer

Our security committee, which we were required to appoint once we became a public company pursuant to our license, deals 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. The committee is required to be comprised of at least four members, including at least one external director. 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. Such an observer was recently appointed. Our security committee consists of Messrs. Waxe, Bisker Cohen and Barnea.

Internal Auditor

Under the Companies Law, the board of directors of a public company must appoint an internal auditor nominated by the audit committee. The role of the internal auditor is to examine whether a company’s actions comply with applicable law and orderly business procedure. Under the Companies Law, the internal auditor may not be an interested party or an office holder, or a relative of any of the foregoing, nor may the internal auditor be the company’s independent accountant or its representative. An interested party is generally defined in the Companies Law as a 5% or greater shareholder, any person or entity who has the right to designate one director or more or the chief executive officer of the company or any person who serves as a director or as the chief executive officer. Our internal auditor is Mr. Eli Nir, CPA.

Approval of Specified Related Party Transactions under Israeli Law

Fiduciary duties of office holders

The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company. The duty of care requires an office holder to act with the degree of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means, in light of the circumstances, to obtain:

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.

The duty of loyalty of an office holder includes a duty to act in good faith and for the best interests of the company, including to:

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

The Companies Law requires that an office holder disclose any personal interest that he or she may have and all related material information known to him or her relating to any existing or proposed transaction by the company promptly and in any event no later than the first meeting of the board of directors at which such transaction is considered. If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by the office holder’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of these people.

Under the Companies Law, an extraordinary transaction is a transaction:

·	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.

Under the Companies Law, once an office holder complies with the above disclosure requirement, the transaction can be approved, provided that it is not adverse to the company’s interest. A director who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee will generally not be present at this meeting or vote on this matter unless a majority of the directors or members of the audit committee have a personal interest in the matter. If a majority of the directors have a personal interest in the matter, the matter also requires approval of the shareholders of the company. Under the Companies Law, unless the articles of association provide otherwise, a transaction with an office holder, or a transaction with a third party in which the office holder has a personal interest, requires approval by the board of directors. If it is an extraordinary transaction or an undertaking to indemnify or insure an office holder who is not a director, audit committee approval is required, as well. Arrangements regarding the compensation, indemnification or insurance of a director require the approval of the audit committee, board of directors and shareholders, in that order. Our articles of association provide that a non-extraordinary transaction with an office holder, or with a third party in which an office holder has a personal interest, may be approved by our Board of Directors, by our Audit Committee or, if the transaction involves the provision of our communications services and equipment or involves annual payments not exceeding NIS 250,000 per transaction, by our authorized signatories.

Personal interests of a controlling shareholder

Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. A controlling shareholder is a shareholder who has the ability to direct the activities of a company, including a shareholder that owns 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights, but excluding a shareholder whose power derives solely from his or her position on the board of directors or any other position with the company. Accordingly, DIC, and entities and persons that directly or indirectly control DIC, are considered to be our

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controlling shareholders. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and the terms of compensation of a controlling shareholder or his or her relative, who is an employee or director, require the approval of the audit committee, the board of directors and a majority of the shareholders of the company. In addition, the shareholder approval must fulfill one of the following requirements:

·	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.

Duties of shareholders

Under the Companies Law, a shareholder has a duty to refrain from abusing his or her power in the company and to act in good faith in exercising its rights in, and performing its obligations to the company and other shareholders, including, among other things, voting at general meetings of shareholders on the following matters:

·	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.

In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholders’ vote and any shareholder who, under the company’s articles of association, can appoint or prevent the appointment of an office holder or holds any other right in respect of the company, is required to act with fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.

Approval of Private Placements

Under the Companies Law, a private placement of securities requires approval by the board of directors and the shareholders of the company if it will cause a person to become a controlling shareholder or if:

·	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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D. EMPLOYEES

Our ability to achieve our strategic goals largely depends on our employees. Consequently, we strive to recruit the most suitable candidates for each position, to give our employees the best training needed to qualify them for their tasks within our organization and aim to keep them satisfied while being productive and efficient. We implement a comprehensive review system that periodically analyzes our employees’ performance in order to improve their performance and in order to enable us to properly compensate, retain and promote our best employees. Since we are committed to provide the best service to our subscribers, approximately 80% of our work force is engaged in customer facing positions.

During the second half of 2007, as part of our strategy to constantly improve service level and customer satisfaction and in preparation for the implementation of number portability, we enlarged our work force. Thereafter, we began to reduce the workforce recruited in preparation for number portability, while maintaining an enlarged customer service and improved level of service.

The numbers and breakdowns of our full-time equivalent employees as of the end of the past three years are set forth in the following table:

	Number of Full-Time Equivalent Positions
Unit	December 2005**		December 2006**		December 2007**
Management and headquarters		39		32		34
Human resources		105		44		46
Marketing		86		73		74
Customers*		2,560		2,597		3,709
Finance		140		120		113
Technologies		898		700		654
Total		3,828		3,566		4,630

* Includes the customer facing units: business customers, sales and services, operations and supply chain. During 2006 some of the functions of some of the units above (such as security, purchasing and administration departments and logistic teams from other units) were transferred to the customer facing units.

**Including an estimated number of 265, 114 and 30 higher cost temporary workers, most of whom belonged to the Technologies unit at December 2005, 2006 and 2007, respectively.

Israeli labor laws govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days and other conditions of employment. Israeli law generally requires severance pay upon the retirement or death of an employee or termination of employment. In addition, as of January 2008, under an order issued by the Ministry of Industry, Commerce and Labor, all Israeli employers are obligated to contribute to a pension plan amounts equal to a certain percentage of the employee's wages, for all employees, after a certain minimum period of employment. We are complying with this obligation. For those of our employees who are entitled to a pension arrangement according to their employment agreement, we fund future severance pay obligations by contributing to managers’ insurance or other pension arrangements in the amount of 8.3% of the employee’s wages. We have no unfunded liability in respect of these employees. Under the new order, additional employees are entitled to contribution to a pension plan, which shall increase gradually until 2013 and up to 5% of the employee’s wages, with additional identical contribution for severance pay. A provision in our financial reports covers severance pay to those employees who were not entitled to managers’ insurance or other pension arrangements or for the balance between

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future severance pay according to the law and the contribution for severance payment, made according to said order. Furthermore, we and our employees are required to make payments to the National Insurance Institute, which is similar to the U.S. Social Security Administration. Such amounts also include payments by the employee for health insurance. The total payments to the National Insurance Institute are equal to approximately 17.7% of an employee’s wages (up to a specified amount), of which the employee contributes approximately 12% and the employer contributes approximately 5.7%.

We enter into personal employment agreements with our employees on either a monthly (in most cases, full-time positions) or hourly basis. Employment agreements with most of our employees are at will. Substantially all of our employees have signed non-disclosure and non-competition agreements, although the enforceability of non-competition agreements is limited under Israeli law.

Our employee compensation structure is aimed at encouraging and supporting employee performance towards enabling us to meet our strategic goals. Approximately 2,900 of our employees are entitled to performance-based incentives, which are granted mainly to customer-facing personnel, such as sales and service employees. Moreover, substantially all employees, with the exception of customer service representatives who are eligible to additional compensation based on individual performance, are entitled to an annual bonus based on our overall performance, subject to the discretion of our Board of Directors. We intend to pay these employees a yearly bonus for the year 2007 in an aggregate amount of approximately NIS 62 millions. We also contribute funds on behalf of some of our employees to an education fund.

We have entered into agreements with a number of manpower agencies and programming companies under which they provide us with temporary workers.

Our employees are not represented by any labor union. Since our inception, we have not experienced labor-related work stoppages and believe that our relations with our employees are good.

E. SHARE OWNERSHIP

As of February 29, 2008, one of our directors, Mr. Nochi Dankner may be deemed to beneficially own 56,650,000, or approximately 58.10%, of our ordinary shares. These ordinary shares are beneficially owned by DIC, of which Mr. Dankner is the Chairman of the board of directors. Mr. Dankner is also a controlling shareholder, the Chairman of the board of directors and Chief Executive Officer of IDB and the Chairman of the board of directors of IDB Development. Mr. Dankner and each of our other directors who are affiliated with IDB or DIC, disclaims beneficial ownership of such shares.

Except as described above, none of our executive officers or directors beneficially owns 1% or more of our outstanding ordinary shares.

2006 Share Incentive Plan

In September 2006, our Board of Directors approved an option plan for our employees, directors, consultants and sub-contractors and to those of our affiliates and our shareholders’ affiliates. The plan has an initial pool of 2,500,000 options or restricted stock

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units, or RSUs and is intended to qualify for capital gains tax treatment under Section 102 of the Israeli Income Tax Ordinance.

Under the plan, our Board of Directors (or an option committee to which such authority may be delegated by our Board of Directors) is authorized to determine the terms of the awards, including the identity of grantees, the number of options or RSUs granted, the vesting schedule and the exercise price.

The options / RSUs have a term of six years and vest in four equal installments on each of the first, second, third and fourth anniversary of the date of grant. Under the plan, unvested options / RSUs terminate immediately upon termination of employment or service. The plan defines acceleration events of options/ RSUs granted, including a merger, a consolidation, a sale of all or substantially all of our consolidated assets, or any reduction in share ownership by DIC and its affiliates to less than 50.01% of our outstanding share capital. The plan terminates upon the earlier of ten years from its adoption date or the termination of all outstanding options / RSUs pursuant to an acceleration event.

In October and November 2006, we granted options to purchase an aggregate of 2,414,143 ordinary shares at an exercise price of $12.60 per share on the terms set forth above. Among those grants were options to purchase up to 450,000 ordinary shares to each of Mr. Ami Erel, our Chairman of the Board, and Mr. Amos Shapira, our Chief Executive Officer. The balance of those grants was made to our officers and senior employees. Distribution of cash dividends before the exercise of these options, reduces the exercise price of each option by an amount equal to the gross amount of the dividend per share distributed. In March 2007, we granted options to purchase an aggregate of 30,786 ordinary shares at an exercise price of $12.60 per share to certain of our senior employees, under the terms of the plan.

As of December 31 2007, an aggregate of 2,396,896 ordinary shares are issuable upon exercise of options according to the terms above. However, the terms of the 2006 Share Inventive Plan provide for a net exercise mechanism, the result of which is to require us to issue a smaller number of ordinary shares than represented by the outstanding options. Unless the Board of Directors otherwise approves, the number of ordinary shares issuable by us upon the exercise of an option will represent a market value that is equal to the difference between the market price of the ordinary shares and the option exercise price of the exercised options, at the date of exercise.

In March 2007, we filed a registration statement on Form S-8 under the Securities Act covering all ordinary shares subject to outstanding options or issuable pursuant to our 2006 Share Incentive Plan. Shares registered under this Form S-8 registration statement are available for sale in the open market, subject to Rule 144 volume limitations applicable to affiliates, vesting restrictions or the contractual restrictions described below.

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

The following table sets forth information regarding beneficial ownership of our shares as of February 29, 2008, by each person, or group of affiliated persons, known to us to be the beneficial owner of 5% or more of our outstanding shares.

In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities and includes any shares issuable pursuant to options that are exercisable within 60 days of February 29, 2008. Any shares issuable pursuant to options are deemed outstanding for computing the percentage of the person holding such options but are not outstanding for computing the percentage of any other person. The percentage of beneficial ownership for the following table is based on 97,504,721 ordinary shares outstanding as of February 29, 2008. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, our major shareholders do not have different voting rights and the persons named in the table have sole voting and investment power with respect to all ordinary shares held by them.

	Shares Beneficially Owned
Name of Beneficial Owner	Number		Percent

Discount Investment Corporation Ltd.*		56,650,000		58.10	%
Directors and executive officers as a group (21 persons)**		57,089,392		58.55	%

__________

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.

IDB is controlled as follows:

Ganden Holdings Ltd., or Ganden, a private Israeli company controlled by Nochi Dankner (who is also the Chairman of the board of directors and Chief Executive Office of IDB, the Chairman of the board of directors of IDB Development and DIC and one of our directors) and his sister Shelly Bergman, holds, directly and through a wholly-owned subsidiary, approximately 52.04% of the outstanding shares of IDB;

·	Shelly Bergman, through a wholly-owned company, holds approximately 4.23% 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, a director and Deputy Chairman of the board of directors 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 12.36% 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 a director and Deputy Chairman of the board of directors of IDB, and a director of IDB Development and DIC, and their son Dori Manor is a director of IDB, IDB

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Development and DIC) holds, directly and through a majority-owned subsidiary, approximately 12.31% of the outstanding shares of IDB.

Subsidiaries of Ganden, Livnat and Manor have entered into a shareholders agreement with respect to shares of IDB held by these subsidiaries, constituting 31.02%, 10.34% and 10.34%, respectively, of the outstanding shares of IDB for the purpose of maintaining and exercising control of IDB as a group. Their additional holdings in IDB are not subject to the shareholders agreement. The term of the shareholders agreement expires in May 2023.

Most of the foregoing shares in IDB have been pledged to financial institutions as collateral for loans taken to finance the purchase of the shares. Upon certain events of default, these financial institutions may foreclose on the loans and assume ownership of or sell the shares.

Based on the foregoing, IDB and IDB Development (by reason of their control of DIC), Ganden, Manor and Livnat (by reason of their control of IDB) and Nochi Dankner, Shelly Bergman, Ruth Manor, and Avraham Livnat (by reason of their control of Ganden, Manor and Livnat, respectively) may be deemed to share with DIC the power to vote and dispose of our shares beneficially owned by DIC. Each of these entities (other than DIC) and persons disclaims beneficial ownership of such shares.

Includes 439,392 shares issuable upon the exercise of stock options that are exercisable on, or within 60 days following, February 29, 2008. However, the terms of the 2006 Share Inventive Plan provide for a net exercise mechanism, the result of which is to require us to issue a smaller number of ordinary shares than represented by the outstanding options. Unless the Board of Directors otherwise approves, the number of ordinary shares issuable by us upon the exercise of an option will represent a market value that equals the difference between the market price of the ordinary shares and the option exercise price of the exercised options, at the date of exercise. Also includes the 56,650,000 shares held, directly or indirectly, by DIC, which may be deemed to be beneficially owned by Nochi Dankner by virtue of his control of IDB. Each of our directors who is affiliated with IDB or DIC disclaims beneficial ownership of such shares.

As of February 29, 2008, we had seven holders of record of our equity securities who are, to our knowledge, U.S. persons. In aggregate, these shareholders hold approximately 54.9% of our outstanding shares (excluding DIC’s direct holdings, which are held on record by a U.S. person). One of the holders, PEC Israel Economic Corporation, a subsidiary of DIC, holds approximately 12.5% of our outstanding shares; this holding is included in DIC’s beneficial ownership entry in the table above. The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders reside since approximately 69.5% of our ordinary shares were held of record by Cede & Co. on behalf of DIC (excluding its affiliates), brokers or other nominees.

Prior to September 2005, our initial principal shareholders were DIC, which indirectly held approximately 25% of our share capital, and BellSouth Corporation and the Safra brothers of Brazil, who indirectly held together approximately 69.5% of our share capital and held the voting rights in additional 5.5% of our share capital. DIC acquired the shares and voting rights of BellSouth and the Safra brothers in September 2005 and subsequently sold an aggregate of 16.0% of our share capital to financial investors in four transactions during 2006 and an additional approximately 19.5% of our share capital as part of our initial public offering in February 2007. Also as part of our initial public offering, Goldman Sachs International, then a 5% shareholder, sold 1% of our share capital. In September 2007 and January 2008, DIC sold additional 3% and approximately 3.4%, respectively, of our issued share capital to a financial institution which informed DIC at the time of its intention to place such shares for sale outside the United States to non-US investors

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B. RELATED PARTY TRANSACTIONS

Agreements among Our Shareholders

In September 2005, DIC acquired the shares and voting rights in our company held indirectly by BellSouth and the Safra brothers. In 2006, DIC sold a portion of these shares in four transactions to six financial investors based on the price of the Safra transaction, with adjustments for dividends paid and certain additions to such price accrued during the period from the closing of the Safra transaction to the applicable sale transaction. The following summaries of the agreements between DIC and certain other shareholders relate only to provisions that survive the closing of our initial public offering.

Original 1997 shareholders agreement

Brian Greenspun, Daniel Steinmetz, Benjamin Steinmetz and Shlomo Piotrkowsky, who own, directly or indirectly, an aggregate of 5.5% of our outstanding ordinary shares, granted the voting rights in their shares to BellSouth and the Safra brothers. The voting rights were assigned to DIC in connection with its acquisition of our control in September 2005. These minority shareholders are restricted from transferring their shares without the prior written consent of DIC and subject to a right of first refusal in favor of DIC. Each of these minority shareholders is also committed not to compete, directly or indirectly, with our cellular communications business in Israel so long as he is a shareholder and for a period of one year thereafter.

Goldman Sachs 2006 share purchase agreement and shareholders agreement

In 2006, DIC sold 5% of our issued and outstanding share capital to Goldman Sachs International, an affiliate of Goldman Sachs & Co. In connection with this transaction, DIC undertook to cause us, subject to applicable law and contractual limitations, to adopt a dividend policy to distribute annually at least 75% of our annual net income, provided that any such distribution is not detrimental to our cash needs or to any plans authorized by our Board of Directors. The parties agreed that our Board of Directors would include at least seven directors, excluding external (independent) directors, with the chairman of our Board of Directors having a deciding vote on matters that are tied. For so long as DIC is our largest shareholder and holds at least 35% of our voting power, it was agreed that the parties would endeavor to cause the election of our chairman from among the directors nominated by the IDB group. The parties further agreed that they would use all their voting power to elect all nominees designated by the IDB group to our Board of Directors.

Any private transfer of shares by either party is subject to the transferee becoming a party to the shareholders agreement between the parties. The parties are prohibited from transferring their holdings to a person who is in direct competition with us in Israel, if such transfer may result in cancellation or revocation of any of our licenses, or to a person which is, or is controlled by, a resident or citizen of a country with which the State of Israel has no diplomatic relations or which is an adversary thereof. Goldman Sachs International agreed in principle that certain telecom holdings of the IDB group may be sold to us, subject to the conditions set forth in the agreement. We are not aware of any plan for such a transaction, which in any event would not be permitted by current regulatory restrictions.

As Goldman Sachs & Co. is no longer registered in our shareholders' register we do not know if it still holds any of our ordinary shares.

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Migdal 2006 share purchase agreement

In 2006, DIC sold 4% of our outstanding ordinary shares to Migdal Insurance Company Ltd. and two of its affiliates, or the Migdal shareholders. As part of this transaction, DIC granted the Migdal shareholders (i) a tag along right, in the event it sells shares resulting in it no longer being a controlling shareholder and (ii) an adjustment mechanism, in the event that, prior to April 3, 2008, it sells shares at a price per share which is less than the price of $14.71 per share paid by the Migdal shareholders (subject to adjustment for dividend distributions and other recapitalization events and a certain interest-like adjustment), according to which it will transfer to the Migdal shareholders, for no additional consideration, such number of shares that equals the price difference based on the lower price per share. In return, DIC has the right to force the Migdal shareholders to sell their shares in a transaction in which DIC sells all of its shares to a purchaser outside the IDB group.

As the Migdal shareholders are no longer registered in our shareholders' register we do not know if they still hold any of our ordinary shares.

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

In 2006, DIC sold 5% of our outstanding ordinary shares to Leumi and Co. Investment House Ltd. (an affiliate of Bank Leumi Le-Israel B.M.) and 2% of our outstanding shares to Stocofin (Israel) Ltd. (an affiliate of the First International Bank of Israel Ltd.). As part of these transactions, DIC undertook to cause us, subject to applicable law, our license and contractual limitations, to adopt a dividend policy to distribute annually at least 75% of our annual net income, provided that any such distribution is not detrimental to our cash needs or to any plans authorized by our Board of Directors. Furthermore, DIC granted these entities (i) a tag along right in the event it sells shares resulting in the purchaser becoming a controlling shareholder and (ii) an adjustment mechanism, in the event that, prior to May 29, 2008, it sells shares or we issue shares (subject to certain exceptions) at a price per share lower than the price per share paid by these entities (which was $14.87 for Leumi and Co. Investment House Ltd. and $14.20 for Stocofin (Israel) Ltd.) (subject to adjustment for dividend distributions and other recapitalization events and a certain interest-like adjustment), according to which it will transfer to such other parties, for no additional consideration, such number of shares that equals the price difference based on the lower price per share.

As Leumi and Co. Investment House Ltd. And Stocofin (Israel) Ltd. are no longer registered in our shareholders' register, we do not know if they still hold any of our ordinary shares.

Relationship with IDB

As part of the issuance of our debentures in December 2005, January 2006 and May 2006, we sold NIS 176.7 million aggregate principal amount of our Series A and Series B Debentures to investors who are members of the IDB group. The terms of participation of our affiliates in all of these transactions were the same as those of unaffiliated parties.

As part of the issuance of our debentures in October 2007, we sold NIS 15 million aggregate principal amount of our Series C and Series D Debentures to investors who are members of the IDB group. As part of the issuance of additional Series C and Series D debentures in February 2008 we sold approximately NIS 48 million aggregate principal

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amount of Series C and Series D Debentures to investors who are members of the IDB group. The terms of participation of our affiliates in all of these transactions were the same as those of unaffiliated parties.

As of December 31, 2007, an aggregate amount of approximately NIS 142 million of our Series A, Series B, Series C and Series D Debentures were held by investors who are members of the IDB group and/or entities affiliated with IDB’s principal shareholders or officers.

As of December 31, 2007, an aggregate of 1,024,861 of our ordinary shares (in addition to the holdings set forth in the Beneficial Owners' table above) were held by members of the public through, among others, provident funds, mutual funds, pension funds, exchange traded funds, insurance policies and unaffiliated third-party client accounts, which are managed by subsidiaries of IDB.

In October 2006, we entered into an agreement with DIC, to benefit from the experience that DIC has in telecommunications and in the Israeli market generally, pursuant to which DIC provides us with services in the areas of management, finance, business and accountancy in consideration of NIS 2.0 million plus VAT per year. Among the services included are consulting and assistance on managerial, economic and accounting issues, such as the preparation of an annual budget, strategic plans and central business processes for us. In addition, the provision of employees and officers of DIC and its affiliates to be directors of Cellcom is included in the agreement. This agreement is for a term of one year and is automatically renewed for one-year terms unless either party provides 60 days’ prior notice to the contrary.

In December 2007, we entered into an agreement for the sale of real estate in Modi`in to Bayside, a public company controlled by IDB. The transaction was approved by our audit committee, board of directors and shareholders meeting. For a summary of the terms of the agreement, see “Item 4. Information on the Company – D. Property Plant and Equipment – Real Estate in Modi`in”.

In the ordinary course of business, from time to time, we purchase, lease, sell and cooperate in the sale of goods and services, or otherwise engage in transactions with entities that are members of the IDB group and entities affiliated with IDB’s principal shareholders or officers. We believe that all such transactions are on commercial terms comparable to those that we could obtain from unaffiliated parties.

Registration Rights Agreement

In 2006, we entered into a registration rights agreement with DIC, two wholly-owned subsidiaries of DIC which are shareholders and six other shareholders. For a summary of the terms of the agreement, see “Item 10. Additional Information – C. Material Contracts.”

C. INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

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ITEM 8. FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Consolidated Financial Statements

See Item 17.

Legal Proceedings

General

We are served from time to time with claims concerning various matters, including disputes with customers, commercial disputes with third parties with whom we do business and disputes with government entities, including local planning and building committees and the Ministry of Communications. The disputes with customers include purported class actions regarding claims such as alleged overcharging of tariffs and interconnection fees, misleading representations, unlawful rounding of tariffs and call units, providing services not in compliance with our license’s requirements or with a subscriber’s agreement. The following is a summary of our material litigation.

Two recent legislative changes, the adoption of the Class Actions Law and the 2005 amendment to the Consumer Protection Law, include provisions that expand the causes of action for which a class of litigants may bring suit, including with regard to damages incurred prior to the effective dates of the law and the amendment, reducing the minimal requirements for certification of a class action suit and broadening and loosening the qualifications to be the leading plaintiff in a class action lawsuit. These laws have increased and may increase further, the number of requests for certification of class action lawsuits against us and have increased and may increase further, our legal exposure as a result of such class action lawsuits and our legal costs in defending against such suits. See “Item 3. Key Information – D. Risk Factors—We are exposed to, and currently are engaged in, a variety of legal proceedings, including class action lawsuits.”

All amounts noted below are nominal and, in cases where the claim is approved, will be adjusted to reflect changes in the Israeli CPI and statutory interest, from the date that each claim was filed.

Purported class actions

In September 2000, a purported class action lawsuit was filed against us in the District Court of Tel-Aviv–Jaffa by one of our subscribers in connection with VAT charges in respect of insurance premiums and the provision of insurance services that were allegedly not provided in accordance with the law. If the lawsuit is certified as a class action, the amount of the claim is estimated by the plaintiff to be NIS 402 million. In February 2006, the motion for certification as a class action was denied. In March 2006, an appeal was filed with the Supreme Court challenging the dismissal. Based on advice of counsel, we believe that we have good defenses against the appeal. Accordingly, no provision has been included in our financial statements in respect of this claim.

In August 2001, a purported class action lawsuit was filed against us in the District Court of Tel-Aviv–Jaffa by one of our subscribers in connection with our outgoing call tariffs on the “Talkman” (pre-paid) plan and the collection of a distribution fee for “Talkman”

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calling cards. If the claim is certified as a class action, the amount claimed is estimated by the plaintiff to be NIS 135 million. In June 2004, the motion for certification as a class action was denied. In September 2004, this decision was appealed to the Israeli Supreme Court. In July, 2007, the Israeli Supreme Court accepted a petition filed by both parties with mutual consent, in light of the Israeli Class Action Law, 2006, to resubmit the purported class action lawsuit for consideration in the District Court of Tel Aviv-Jaffa. Based on advice of counsel, we believe that we have good defenses against the certification of the lawsuit as a class action. . Accordingly, no provision has been included in our financial statements in respect of this claim.

In August 2001, a purported class action lawsuit was filed against us in the District Court of Tel-Aviv-Jaffa by one of our subscribers in connection with air time tariffs and subscriber fees that were allegedly collected not in accordance with the language of the agreement signed by our subscribers at the time of their joining our network. If the lawsuit is certified as a class action, the amount claimed is estimated by the plaintiff to be NIS 1.26 billion, plus punitive damages at a rate of not less than 100% of the amount of the judgment. In February 2004, the motion for certification as a class action was denied. In March 2004, this decision was appealed to the Israeli Supreme Court. In January 2006, the Supreme Court approved the plaintiff’s motion to amend his complaint to reflect the amendment to the Consumer Protection Law and return to the District Court in order to examine the amendment’s effect, if any, on the District Court ruling, which remains in effect. In October 2006, a separate motion was accepted allowing the plaintiff to further revise his complaint as a result of enactment of the Class Action Law. Based on advice of counsel, we believe we have good defenses against the certification of the lawsuit as a class action. Accordingly, no provision has been included in our financial statements in respect of this claim.

In December 2002, a purported class action lawsuit was filed against Pelephone and us in the District Court of Tel-Aviv–Jaffa in connection with our incoming call tariff to subscribers of other operators when calling our subscribers during the period before the regulation of interconnect fees. If the lawsuit is certified as a class action, the amount claimed is estimated by the plaintiff to be NIS 1.6 billion. Based on advice of counsel, we believe that we have good defenses against the certification of the lawsuit as a class action. Accordingly, no provision has been included in our financial statements in respect of this claim.

In April 2003, a purported class action lawsuit was filed against us and two other cellular operators, with the District Court of Tel-Aviv–Jaffa in connection with our incoming SMS tariff to subscribers of other operators when sending SMS messages to our subscribers during the period before the regulation of SMS interconnect fees. If the lawsuit is certified as a class action, the amount claimed is estimated by the plaintiff to be NIS 90 million, without specifying the amount claimed from us. Based on advice of counsel, we believe that we have good defenses against the certification of the lawsuit as a class action. Accordingly, no provision was included in our financial statements in respect of this claim.

In August 2003, a purported class action lawsuit was filed against us in the District Court of Tel-Aviv–Jaffa (and later transferred to the District Court of the Central Region) by one of our subscribers in connection with our method of rounding the rates of calls, our method of linking rates of calls to the consumer price index and a certain rate that was approved by the Ministry of Communications in 1996 was unlawfully approved. If the lawsuit is certified as a class action, the amount claimed is estimated by the plaintiff to be NIS 150 million. Following the amendment to the Consumer Protection Law in December

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2005, the plaintiff filed an amended statement of its claim in March 2006, to which we have replied. Based on advice of counsel, we believe that we have good defenses against the certification of the lawsuit as a class action. Accordingly, no provision has been included in our financial statements in respect of this claim.

In August 2006, a purported class action lawsuit was filed against us and two other cellular operators in the District Court of Tel-Aviv–Jaffa by one of our subscribers in connection with sums allegedly unlawfully charged for a segment of a call that was not actually carried out. If the lawsuit is certified as a class action, the total amount claimed is estimated by the plaintiffs as exceeding NIS 100 million without specifying the amount claimed from us individually. Based on advice of counsel, we believe that we have good defenses against the certification of the lawsuit as a class action. Accordingly, no provision has been made in our financial statements in respect of this claim. In November 2006 a similar purported class action was filed against us, two other cellular operators and two landline operators in the District Court of Tel-Aviv–Jaffa by four plaintiffs claiming to be subscribers of the three cellular operators. The latter was withdrawn in October 2007, by the plaintiffs, with regards to us and the other two cellular operators, following a procedural agreement reached between the plaintiffs in the latter lawsuit and the plaintiffs in former purported class action lawsuit (the two lawsuits will be heard together). Had the withdrawn lawsuit been certified as a class action, the amount claimed from us and each of the other cellular operators by the plaintiffs would have been approximately NIS 53 million (the amount claimed from all five defendants was estimated by the plaintiffs to be approximately NIS 159 million).

In January 2007, a purported class action lawsuit was filed against us, two other cellular operators and two landline operators in the District Court of Jerusalem by three plaintiffs claiming to be subscribers of some of the defendants, in connection with an alleged violation of the defendants’ statutory duty to allow their subscribers to transfer with their number to another operator, thus, allegedly, causing monetary damage to the subscribers. In March 2007, the motion for certification as a class action was dismissed without prejudice and the lawsuit was dismissed with prejudice, following request of the plaintiffs to withdraw their claim. Had the lawsuit been certified as a class action, the total amount claimed was estimated by the plaintiffs to be at least NIS 10.6 billion.

In February 2007, a purported class action lawsuit was filed against us and two other cellular operators in the District Court of Tel-Aviv, by plaintiffs claiming to be subscribers of the three cellular operators, in connection with sums that were allegedly overcharged in breach of the cellular operators’ licenses, based on charge units larger than the charge units we were allegedly authorized to charge under our licenses for calls initiated or received by the subscribers while abroad. If the lawsuit is certified as a class action, the total amount claimed from the cellular operators is estimated by the plaintiffs to be approximately NIS 449 million, of which approximately NIS 193.5 million is attributed to us. Based on advice of counsel, we believe that we have good defenses against the certification of the lawsuit as a class action. Accordingly, no provision has been made in our financial statements in respect of this claim.

In April 2007, a purported class action lawsuit was filed against us in the District Court of Tel-Aviv-Jaffa, by two plaintiffs claiming to be our subscribers, alleging that we unlawfully and in violation of our license raised our tariffs, in pricing plans that included a commitment to purchase certain services for a fixed period. The lawsuit was dismissed with

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prejudice in February 2008. If the lawsuit had been certified as class action, the amount claimed would have been approximately NIS 230 million.

In May 2007, another purported class action lawsuit alleging claims of similar nature as the April 2007 purported class action, was filed against us in the same court, by two other plaintiffs claiming to be our subscribers. If the lawsuit is certified as class action, the amount claimed is approximately NIS 875 million. Based on advice of counsel, we believe that we have good defenses against the certification of the lawsuit as a class action. Accordingly, no provision has been included in our financial statements in respect of this claim.

In September 2007, a purported class action lawsuit was filed against us and two other cellular operators in the District Court of Jerusalem, by three plaintiffs who claim to be subscribers of the defendants, alleging that the defendants charged their subscribers for SMS messages sent by them to subscribers who had disabled their ability to receive SMS messages and/or misled the senders by an indication on their cell phones that such messages were sent. If the claim is certified as a class action, the amount claimed from all three defendants is estimated by the plaintiffs to be approximately NIS 182 million, without specifying the amount claimed from us specifically. At this preliminary stage, before we have submitted our response, we believe, based on advice of counsel, that we have good defenses against the certification of the lawsuit as a class action . Accordingly, no provision has been made in the financial statements in respect of this claim.

In November 2007, a purported class action lawsuit was filed against us in the District Court of the Central Region, by a plaintiff claiming to be our subscriber, alleging we have charged our subscribers for content services without obtaining their specific consent, in a manner which complies with the provisions of our general license. If the lawsuit is certified as a class action, the amount claimed is estimated by the plaintiff to be approximately NIS 432 million. At this preliminary stage, before we have submitted our response, we believe, based on advice of counsel, that we have good defenses against the certification of the lawsuit as a class action. Accordingly, no provision has been made in the financial statements in respect of this claim.

In December 2007, a purported class action lawsuit was filed against us and two other cellular operators in the District Court of Tel Aviv-Jaffa, by plaintiffs who claim to be residing next to cell sites of the Defendants which the plaintiffs claim were built in violation of the law. The plaintiffs allege that the Defendants have created environmental hazards by unlawfully building cell sites and therefore demand that the defendants will compensate the public for damages (other than personal damages, such as depreciation of property and/or health related damages which are excluded from the purported class action), demolish existing unlawfully built cell sites and refrain from unlawfully building new cell sites. If the lawsuit is certified as a class action, the compensation claimed from the defendants (without any allocation of this amount among the defendants) is estimated by the plaintiffs to be NIS 1,000 million. At this preliminary stage, before we have submitted our response, we believe, based on advice of counsel, that we have good defenses against the certification of the lawsuit as a class action. Accordingly, no provision has been made in the financial statements in respect of this claim.

In March 2008, a purported class action lawsuit was filed against us in the District Court of Central Region, by plaintiffs claiming to be our subscribers. The plaintiffs claim that we have unlawfully charged our subscribers for providing them with call details records. If the lawsuit is certified as a class action, the total amount claimed from us is estimated by

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the plaintiffs to be approximately NIS 440 million. At this preliminary stage we are unable to assess the lawsuit's chances of success. Accordingly, no provision has been made in the financial statements in respect of this claim.

Commercial and other disputes

In April 2005, a lawsuit was filed against us in the District Court of Tel-Aviv–Jaffa by one of our former dealers and importers for the amount of NIS 28 million (reduced for court fee purposes from approximately NIS 38 million), alleging that we have breached an agreement between the parties. Based on advice of counsel, we believe that we have good defense against such claim. Accordingly, no provision has been made in our financial statements in respect of this claim.

In January 2007, a lawsuit was filed against us in an arbitration proceeding for the amount of approximately NIS 35 million by a company that purchased cellular services from us in order to sell the services to its customers, alleging, among other things, that we have breached our agreements with the plaintiff and making claims concerning our conduct. We reject all claims made by the plaintiff against us. Based on advice of counsel, we believe that we have good defense against such claim. Accordingly, no provision has been made in our financial statements in respect of this claim.

There is a dispute between the Ministry of Communications and us with respect to the payment of fees for GSM and UMTS frequencies. The amount in dispute as of December 31, 2007 is approximately NIS 69 million (including interest and CPI linkage differences). Until a final decision on this matter, we deposited about half of this amount with the Ministry of Communications. Based on advice of counsel, we believe that the method we apply is the lawful method. Accordingly, no provision was included in our financial statements in respect of the amount in dispute, including the amount we deposited. We have applied to the courts regarding this issue.

In December 2007, we were served with a petition filed with the Israeli High Court of Justice against the Ministry of Communications and another cellular operator, seeking to retroactively apply the amendment to the cellular operators’ general license, effected September 2007, which prevents the cellular operators from offering subscribers calling plans using airtime charging units other than the basic airtime charging unit, or alternatively to retroactively cancel any charges which may be imposed on subscribers when transferring, before the lapse of a predetermined period, to calling plans based on the basic airtime charging unit. We and one other cellular operator were joined as formal respondents. The court has instructed only the Ministry of Communications to submit its response. In its recently submitted response, the Ministry of Communications opposes the petition. At this preliminary stage, before the court has decided to conduct a hearing and before we have submitted any response, we believe, based on advice of counsel, the court will not grant the remedies sought. Accordingly, no provision has been made in our financial statements in respect of this petition.

In a small number of instances, local planning and building committees that were sued for depreciation of property in accordance with Section 197 of the Planning and Building Law have attempted to join cellular operators as defendants to the claims, including us, despite the fact that the cellular operators (including us) in such cases did not provide indemnification letters to such planning and building committees. Based on advice of

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counsel, we believe that we have good defenses against such claims. Accordingly, no provision has been included in our financial statements in respect of such claims.

Dividend Policy

In February 2006, our board of directors adopted a dividend policy to distribute each year at least 75% of our annual net income determined under Israeli GAAP, subject to applicable law, our license and our contractual obligations and provided that such distribution would not be detrimental to our cash needs or to any plans approved by our Board of Directors. In March 2007, our Board resolved to distribute dividends within the boundaries of the February 2006 dividend policy and until resolved otherwise, on a quarterly basis. Our Board will consider, among other factors, our expected results of operation, including changes in pricing and competition, planned capital expenditure for technological upgrades and changes in debt service needs, including due to changes in interest rates or currency exchange rates, in order to reach its conclusion that a distribution of dividends will not prevent us from satisfying our existing and foreseeable obligations as they become due. In addition, there is an agreement among the controlling shareholders of IDB, our ultimate parent company, to target a dividend distribution of at least 50% of its distributable gains each year. Dividend payments are not guaranteed and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends or to pay dividends at a ratio to net income that is less than that paid in the past. For example, our Board may determine that our cash needs for debt service, capital expenditures or operations may increase and that it would not be prudent to distribute dividends. Accordingly, shareholders should not expect that any particular amount will be distributed by us as dividends at any time, even if we have previously made dividend payments in such amount.

Our ability to pay dividends was previously subject to limitations under our credit facility, which was fully repaid and terminated in March 2008. Currently our ability to pay dividends is subject to the following limitations under Israeli law:

Israeli law provides that dividends may only be paid out of cumulative retained earnings or out of retained earnings over the prior two years, provided that there is no reasonable concern that the payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. Further, our license requires that we and our 10% or more shareholders maintain at least $200 million of combined shareholders’ equity. DIC’s shareholders’ equity was over NIS 5 billion (over $1.3 billion) at December 31, 2007.

We intend to declare dividends in NIS and convert them for payment in US$ (where applicable) based upon the daily representative rate of exchange as published by the Bank of Israel prior to the distribution date.

Prior to 2006, we had not distributed dividends. In 2006, we distributed dividends in the amount of NIS 3.83 billion ($996 million). In June 2007 we distributed a dividend in the amount of approximately NIS 198 million ($51 million). In September 2007 we distributed a dividend in the amount of approximately NIS 201 million ($52 million). In December 2007 we distributed a dividend in the amount of approximately NIS 256 million ($67 million) . The dividends distributed in 2006 constituted substantially all of our retained earnings from inception to December 31, 2005, and, for the first six months of 2006, substantially 75% of our net income in accordance with Israeli GAAP. The dividends distributed in respect of the first nine months of 2007 constituted approximately 95% of our net income in accordance

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with Israeli GAAP for the nine months ended September 30, 2007, and were funded from net income and existing retained earnings.

On March 17, 2008 our board of directors declared a cash dividend for the fourth quarter of 2007 of NIS 1.78 per share, or approximately NIS 173 million in the aggregate , and a one-time extraordinary dividend for the year 2007 of NIS 5.40 per share, or approximately NIS 527 million in the aggregate. When taken together, the fourth quarter dividend and the one-time extraordinary dividend for 2007 amount to NIS 7.18 per share, or approximately NIS 700 million in the aggregate. The fourth quarter dividend and the one-time extraordinary dividend for the year 2007 will be funded out of a combination of net income for the fourth quarter and existing retained earnings at December 31, 2007. The one-time extraordinary dividend does not reflect any change to our dividend policy set out above. Further, the dividend per share that we will pay for the fourth quarter of 2007 does not reflect the level of dividends that will be paid for future quarterly periods, which can change at any time in accordance with the policy set out above.

B. SIGNIFICANT CHANGES

No significant change has occurred since December 31, 2007, except as otherwise disclosed in this annual report.

ITEM 9. THE OFFER AND LISTING

A. OFFER AND LISTING DETAILS

Trading in Israel

Our ordinary shares have traded on the Tel Aviv Stock Exchange under the symbol CEL since July 1, 2007. Our ordinary shares do not trade on any other trading market in Israel.

The following table sets forth, for the periods indicated, the reported high and low prices in NIS for our ordinary shares on the Tel Aviv Stock Exchange.


	High		Low
	NIS		NIS
Annually		133.80		95.24
2007

Quarterly
2007

Third Quarter		110.77		95.24
Fourth Quarter		133.80		95.48

Monthly
2007
September		102.40		95.24
October		103.29		95.48
November		121.50		100.93
December		133.80		119.60
2008
January		126.30		103.90
February		117.50		107.50

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On March 13, 2008, the closing price per share of our Ordinary Shares on the TASE was NIS 111.6.

Trading in the United States

Our ordinary shares have traded on the New York Stock Exchange under the symbol CEL since February 6, 2007.

The following table sets forth, for the periods indicated, the high and low prices in $ for our ordinary shares on The New York Stock Exchange.


	High $		Low $
Annually
2007		34.11		16.81

Quarterly
2007
Second Quarter		25.34		16.81
Third Quarter		25.50		22.60
Fourth Quarter		34.11		23.52

Monthly
2007
September		24.46		23.16
October		25.91		23.52
November		32.40		25.24
December		34.11		29.98
2008
January		32.12		28.96
February		32.86		30.00

On March 13, 2008, the closing price per share of our Ordinary Shares on the NSYE was $33.17.

B. PLAN OF DISTRIBUTION

Not applicable.

C. MARKETS

Our ordinary shares are listed on the New York Stock Exchange and Tel Aviv Stock Exchange under the symbol “CEL”

D. SELLING SHAREHOLDERS

Not applicable.

E. DILUTION

Not applicable.

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F. EXPENSES OF THE ISSUE

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. SHARE CAPITAL

Not applicable.

B. MEMORANDUM AND ARTICLES OF ASSOCIATION

Objects and Purposes

Our registration number with the Israeli registrar of companies is 51-1930125. Our object is to engage, directly or indirectly, in any lawful undertaking or business whatsoever as determined by our Board of Directors, including, without limitation, as stipulated in our memorandum of association.

Transfer of Shares

Fully paid ordinary shares are issued in registered form and may be freely transferred unless the transfer is restricted or prohibited by our articles of association, applicable law, our licenses, the rules of the SEC or the rules of a stock exchange on which the shares are traded. The ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by our articles of association or the laws of the State of Israel, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.

According to our licenses, investors are prohibited from acquiring (alone or together with relatives or with other parties who collaborate on a regular basis) or transferring our shares, directly or indirectly (including a 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 from transferring 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. Our specific licenses also require approval of the Minister of Communications before acquiring the ability to effect a significant influence over us. In this context, holding 25% of our means of control is presumed to confer significant influence. In addition, according to our licenses, if you hold more than 5% of our means of control, you may not hold, directly or indirectly, more than 5% of the means of control in Bezeq or another cellular operator in Israel (subject to certain exceptions) and may not serve as an office holder of one of our competitors, other than in specific circumstances and subject to the approval of the Ministry of Communications. For more details relating to these restrictions, please see “Item 4. Information on the Company – B. Business Overview – Government Regulations—Our Principal License” and our principal license, a convenience translation of which has been filed with the SEC. See "Item 19 – Exhibits". The holding and transfer restrictions under our licenses are posted on our website at www.cellcom.co.il under “Investor Relations –. Legal & Corporate”

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Voting

Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting. Shareholders may vote at shareholder meetings either in person, by proxy or by written ballot. Shareholder voting rights may be affected by the grant of special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its other shareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matters such as changes to the articles of association, increasing the company’s registered capital, mergers and approval of related party transactions. A shareholder also has a general duty to refrain from depriving any other shareholder of their rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under the company’s articles of association, can appoint or prevent the appointment of an office holder, is required to act with fairness towards the company. The Companies Law does not describe the substance of this duty, except to state that the remedies generally available upon a breach of contract will apply also in the event of a breach of the duty to act with fairness, and, to the best of our knowledge, there is no binding case law that addresses this subject directly. As required under our license, our articles of association provide that any holdings of our ordinary shares that contravene the holding or transfer restrictions contained in our license, which are summarized under “—Transfer of Shares” and “Item 4. Information on the Company – B. Business Overview - Government Regulations—Our Principal License,” will not be entitled to voting rights. In addition, our license requires that as a condition to voting at any meeting of shareholders, in person or by proxy, each shareholder must certify that its holdings of our shares do not contravene the restrictions contained in our license.

Election of Directors

Our ordinary shares do not have cumulative voting rights for the election of directors. Rather, under our articles of association our directors (other than external directors and directors appointed by Israeli citizens and residents from among our founding shareholders) are elected at a shareholders meeting by a simple majority of our ordinary shares. As a result, the holders of our ordinary shares that represent more than 50% of the voting power represented at a shareholder meeting have the power to elect any or all of our directors whose positions are being filled at that meeting, subject to the special approval requirements for external directors described under “Item 6.A – Directors and Senior Management—External Directors” and the right of DIC to directly appoint 20% of our directors described under “Item 6.A – Directors and Senior Management—Israeli-Appointed Directors.” Directors may also be appointed for office by our Board of Directors until the next annual general meeting of shareholders.

Dividend and Liquidation Rights

Our board of directors may declare a dividend to be paid to the holders of ordinary shares on a pro rata basis. Dividends may only be paid out of our profits and other surplus funds, as defined in the Companies Law, as of our most recent financial statement or as accrued over the past two years, whichever is higher, or, in the absence of such profits or surplus, with court approval. In any event, a dividend is permitted only if there is no reasonable concern that the payment of the dividend will prevent us from satisfying our

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existing and foreseeable obligations as they become due. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares on a pro rata basis. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.

Shareholder Meetings

We are required to convene an annual general meeting of our shareholders once every calendar year within a period of not more than 15 months following the preceding annual general meeting. Our board of directors is required to convene a special general meeting of our shareholders at the request of two directors or one quarter of the members of our Board of Directors or at the request of one or more holders of 5% or more of our share capital and 1% of our voting power or the holder or holders of 5% or more of our voting power. All shareholder meetings require prior notice of at least 21 days, or up to 35 days if required by applicable law or regulation. We provide at least 40 day advance written notice, in accordance with the NYSE’s rules. The chairperson of our Board of Directors presides over our general meetings. Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between four and 40 days prior to the date of the meeting.

Quorum

Our articles of association provide that the quorum required for any meeting of shareholders shall consist of at least two shareholders present, in person or by proxy or written ballot, who hold or represent between them at least one-third of the voting power of our issued share capital. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or, if not set forth in the notice to shareholders, to a time and place set by the chairman of the meeting with the consent of the holders of a majority of the voting power represented at the meeting and voting on the question of adjournment. At the reconvened meeting, the required quorum consists of at least two shareholders present, in person or by proxy or written ballot, unless the meeting was called pursuant to a request by our shareholders in which case the quorum required is the number of shareholders required to call the meeting as described under “—Shareholder Meetings.”

Resolutions

An ordinary resolution at a shareholders meeting requires approval by a simple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Under the Companies Law, unless otherwise provided in the articles of association or applicable law, all resolutions of the shareholders require a simple majority. A resolution for the voluntary winding up of the company requires the approval by holders of 75% of the voting rights represented at the meeting, in person or by proxy or written ballot, and voting on the resolution.

Modification of Class Rights

The rights attached to any class, such as voting, liquidation and dividend rights, may be amended by written consent of holders of a majority of the issued shares of that class, or

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by adoption of a resolution by a simple majority of the shares of that class represented at a separate class meeting.

Indemnification of Directors and Officers

Under the Companies Law, an Israeli company may not exempt an office holder from liability for breach of his duty of loyalty, but may exempt in advance an office holder from liability to the company, in whole or in part, for a breach of his or her duty of care (except in connection with distributions), provided the articles of association of the company allow it to do so. Our articles of association allow us to do so.

Our articles of association provide that, subject to the provisions of the Companies Law, we may enter into a contract for insurance against liability of any of our office holders with respect to each of the following:

·	a breach of his or her duty of care to us or to another person;

·	a breach of his or her duty of loyalty to us, provided that the office holder acted in good faith and had reasonable grounds to assume that his or her act would not prejudice our interests;

·	a financial liability imposed upon him or her in favor of another person concerning an act performed in the capacity as an office holder.

We maintain a liability insurance policy for the benefit of our officers and directors.

Our articles of association provide that we may indemnify an office holder against:

a financial liability imposed on or incurred by an office holder in favor of another person by any judgment, including a settlement or an arbitrator’s award approved by a court concerning an act performed in the capacity as an office holder. Such indemnification may be approved (i) after the liability has been incurred or (ii) in advance, provided that the undertaking is limited to types of events which our Board of Directors deems to be foreseeable in light of our actual operations at the time of the undertaking and limited to an amount or criterion determined by our Board of Directors to be reasonable under the circumstances, and further provided that such events and amounts or criterion are set forth in the undertaking to indemnify;

reasonable litigation expenses, including attorney’s fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against him or her and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; and

reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or charged to him or her by a court, in proceedings instituted by us or on our behalf or by another person, or in a criminal indictment from which he or she was acquitted, or a criminal indictment in which he or she was

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convicted for a criminal offense that does not require proof of intent, in each case relating to an act performed in his or her capacity as an office holder.

We have undertaken to indemnify our directors, officers and certain other employees for certain events listed in the indemnifications letters given to them. Excluding reasonable litigation expenses, as described above, the aggregate amount payable to all directors and officers and other employees who may have been or will be given such indemnification letters is limited to the amounts we receive from our insurance policy plus 30% of our shareholders’ equity as of December 31, 2001, or NIS 486 million, and to be adjusted by the Israeli CPI.

The Companies Law provides that a company may not exempt or indemnify an office holder, or enter into an insurance contract, which would provide coverage for any monetary liability incurred as a result of any of the following:

·	a breach by the office holder of his or her duty of loyalty unless, with respect to insurance coverage or indemnification, the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;

·	a breach by the office holder of his or her duty of care if the breach was done intentionally or recklessly;

·	any act or omission done with the intent to derive an illegal personal benefit; or

·	any fine or penalty levied against the office holder.

Under the Companies Law, any exemption of, indemnification of, or procurement of insurance coverage for, our office holders must be approved by our audit committee and our Board of Directors and, if the beneficiary is a director, by our shareholders.

Mergers and Acquisitions under Israeli Law

The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to a merger have the transaction approved by its board of directors and a vote of the majority of its shares at a shareholders meeting. For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at the shareholders meeting that are held by parties other than the other party to the merger, or by any person who holds 25% or more of the shares or the right to appoint 25% or more of the directors of the other party, vote against the merger. Upon the request of a creditor of either party of the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, a merger may not be completed unless at least (i) 50 days have passed from the time that the requisite proposal for the merger has been filed by each party with the Israeli Registrar of Companies and (ii) 30 days have passed since the merger was approved by the shareholders of each party.

The Companies Law also provides that an acquisition of shares of a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a 25% or greater shareholder of the company and there is no existing 25% or

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greater shareholder in the company. An acquisition of shares of a public company must also be made by means of a tender offer if as a result of the acquisition the purchaser would become a 45% or greater shareholder of the company and there is no existing 45% or greater shareholder in the company. These requirements do not apply if the acquisition (i) occurs in the context of a private placement by the company that received shareholder approval, (ii) was from a 25% shareholder of the company and resulted in the acquirer becoming a 25% shareholder of the company or (iii) was from a 45% shareholder of the company and resulted in the acquirer becoming a 45% shareholder of the company. The special tender offer must be extended to all shareholders but the offeror is not required to purchase shares representing more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders. The special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.

If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding shares. If less than 5% of the outstanding shares are not tendered in the tender offer, all the shares that the acquirer offered to purchase will be transferred to it. The law provides for appraisal rights if any shareholder files a request in court within three months following the consummation of a full tender offer. If more than 5% of the outstanding shares are not tendered in the tender offer, then the acquirer may not acquire shares in the tender offer that will cause his shareholding to exceed 90% of the outstanding shares.

Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders who are not exempt from Israeli income tax under Israeli law or an applicable tax treaty. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies by certain shareholders are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, tax then becomes payable even if no actual disposition of the shares has occurred. For information regarding Israeli tax on the sale of our shares, please see “Item 10.E - Taxation—Israeli Tax Considerations—Capital Gains Tax on Sales of Our Ordinary Shares.”

Anti-Takeover Measures under Israeli Law

The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred or additional rights to voting, distributions or other matters and shares having preemptive rights. We do not have any authorized or issued shares other than ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new class of shares will require an amendment to our articles of association and to our memorandum, which requires the prior approval of a simple majority of our shares represented and voting at a shareholders meeting. Our articles of association provide that our Board of Directors may, at any time in its sole

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discretion, adopt protective measures to prevent or delay a coercive takeover of us, including, without limitation, the adoption of a shareholder rights plan.

C. MATERIAL CONTRACTS

For a description of our material suppliers, see “Item 4. Information on the Company – B. Business Overview – Network and Technology”, “Item 4. Information on the Company – B. Business Overview – Customer Care” and “Item 4. Information on the Company – B. Business Overview - Services and Products.”

For a description of our debt agreements, see “Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Debt Service.”

Registration Rights Agreement

Upon the sale of shares by DIC to Goldman Sachs International on March 15, 2006, we entered into a registration rights agreement with Goldman Sachs International, DIC and two other shareholders who are subsidiaries of DIC on customary terms and conditions. Upon the subsequent sales of shares by DIC to Migdal Insurance Company Ltd. and two of its affiliates, Leumi & Co. Investment House Ltd. (an affiliate of Bank Leumi Le-Israel Ltd), and Stocofin (Israel) Ltd. (an affiliate of the First International Bank of Israel Ltd.), these shareholders also joined the registration rights agreement. We refer to DIC, its two subsidiaries and these new shareholders as the registration rights holders. The shares eligible for registration under the agreement are ordinary shares held by the registration rights holders as of the respective dates they entered into the registration rights agreement and any additional ordinary shares such holders may thereafter acquire, so long as they are held by a registration rights holder or a “permitted transferee” (a person directly or indirectly controlling, controlled by or under common control with such registration rights holder) thereof. As of February 29, 2008, 51,287,500 ordinary shares, held by DIC are entitled to registration rights as well as any additional shares still held, if held, by the other shareholders who joined the agreement.

Commencing August 9, 2008, the registration rights holders are entitled to one demand registration per 12-month period, so long as such request is initiated by registration rights holders of at least 3.25% of the then outstanding registrable securities and the demand refers to a minimum of 3% of our then outstanding share capital, subject to customary deferral rights. In addition, in connection with any public offerings that we initiate in the future, if we propose to register any of our securities for our own account or for the account of any of our shareholders other than in a demand registration or in a registration relating solely to an incentive plan, the registration rights holders have piggyback rights to include their shares subject to customary underwriters’ cutback rights. In the case of a cut back, each registration rights holder that is not a member of the IDB group will be entitled to register registrable shares in an amount equal to its percentage holding of the aggregate number of registrable shares held by all registration rights holders wishing to participate in such registration, or, if such registration rights holder then holds more than 20% of its holdings as of the date it signed the registration rights agreement, registrable shares in an amount equal to twice its percentage holding of the aggregate number of registrable shares held by all registration rights holders wishing to participate in such registration. Members of the IDB group will be entitled to register a number of registrable shares equal to the aggregate number of registrable shares to be included in the registration, less the registrable shares of all the other registration rights holders being registered pursuant to the foregoing calculation.

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All registration rights terminate, with respect to any individual registration rights holder, at such time as all registrable shares of such holder may be sold without registration pursuant to Rule 144 under the Securities Act during any three-month period.. We are required to pay all expenses incurred in carrying out the above registrations, as well as the reasonable fees and expenses of one legal counsel for the selling registration rights holders, except for underwriter discounts and commissions with respect to the shares of such holders. The agreement provides for customary indemnification and contribution provisions. Our initial public offering on February 2007 was effected in accordance with the registration rights agreement, except that the selling shareholders agreed to bear the expenses of the offering.

Underwriting agreement

We entered into an underwriting agreement among Goldman, Sachs & Co., Citigroup Global Markets, Inc. and Deutsche Bank Securities, Inc., as the representatives of the underwriters, and DIC and Goldman Sachs International, as the selling shareholders, on February 5, 2007, with respect to the ordinary shares sold in our initial public offering.

We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect of such liabilities.

D. EXCHANGE CONTROLS

There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.

E. TAXATION

U.S. Federal Income Tax Considerations

The following is a general discussion of certain material U.S. federal income tax consequences of ownership and disposition of the Company’s shares by a “U.S. holder” (as defined below). This discussion does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a holder in light of the holder’s particular circumstances and does not address U.S. state, local and non-U.S. tax consequences. The discussion applies only to U.S. holders (as defined below) that hold the shares as capital assets for U.S. federal income tax purposes and it does not describe all of the tax consequences that may be relevant to holders subject to special rules, such as certain financial institutions, insurance companies, dealers and traders in securities or foreign currencies, persons holding the shares as part of a hedge, straddle, conversion transaction or other integrated transaction, persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar, partnerships or other entities classified as partnerships for U.S. federal income tax purposes, persons liable for the alternative minimum tax, tax-exempt organizations, or shareholders that own or are deemed to own 10% or more of the Company’s voting power.

This discussion is based on the Internal Revenue Code of 1986, as amended, administrative pronouncements, judicial decision and final, temporary and proposed Treasury

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regulations, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. Shareholders are urged to consult their own tax advisors regarding the U.S. federal, state, local and foreign tax consequences of purchasing, owning and disposing of shares in light of their particular circumstances.

The discussion below applies only to U.S. holders. As used herein, a “U.S. holder” is a beneficial owner of the Company’s shares that is, for U.S. federal tax purposes:

·	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.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds the shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and upon the activities of the entity. Partners or members of such entities should consult their tax advisors regarding the tax consequences of investments in the Company’s shares.

Taxation of Distributions

Distributions paid on the Company’s shares, other than certain pro rata distributions of ordinary shares, will be treated as a dividend to the extent paid out of current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Since the Company does not maintain calculations of its earnings and profits under U.S. federal income tax principles, U.S. holders will generally be required to treat such distributions as taxable dividends. Subject to applicable limitations, dividends paid to certain non-corporate U.S. holders in taxable years beginning before January 1, 2011, will be taxable at a maximum rate of 15%. The amount of a dividend will include any amounts withheld by the Company or its paying agent in respect of Israeli taxes. The amount of the dividend will be treated as foreign source dividend income and will not be eligible for the dividends received deduction generally allowed to U.S. corporations under the Code.

Dividends paid in NIS will be included in a U.S. holder’s income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt of the dividend, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. holder may have foreign currency gain or loss if the holder does not convert the amount of such dividend into U.S. dollars on the date of its receipt. Such gain or loss would generally be treated as U.S. source ordinary income or loss.

Subject to applicable limitations that may vary depending upon a holder’s particular circumstances, Israeli taxes withheld from dividends at a rate not exceeding the rate provided by the U.S.-Israel income tax treaty will be creditable against the holder’s U.S. federal income tax liability. Israeli taxes withheld in excess of the rate allowed by the treaty will not be eligible for credit against a U.S. holder’s federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. Instead of claiming a credit, a U.S. holder may, at the holder’s election, deduct the

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otherwise creditable foreign taxes in computing the taxable income for the year, subject to generally applicable limitations under U.S. law. The rules governing foreign tax credits are complex and holders should consult their own tax advisors regarding the availability of foreign tax credits and the deductibility of foreign taxes in their particular circumstances.

Sale and Other Disposition of the Company’s Shares

For U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of shares will be capital gain or loss, and will be long-term capital gain or loss if the U.S. holder held the shares for more than one year. The amount of gain or loss will be equal to the difference between the tax basis in the shares disposed of and the amount realized on the disposition. Such gain or loss will generally be U.S. source gain or loss for foreign tax credit purposes.

Passive Foreign Investment Company Rule

The Company believes that it was not a “passive foreign investment company” for U.S. federal income tax purposes, or PFIC, for the taxable year of 2007. The Company also believes that it will not be a PFIC for the taxable year of 2008. However, since PFIC status depends upon the composition of a company’s income and assets and the market value of its assets (including, among others, equity investments in less than 25%-owned entities) from time to time, there can be no assurance that the Company will not be considered a PFIC for any taxable year. If the Company were to be treated as a PFIC for any taxable year during which a U.S. holder held a share in the Company, certain adverse consequences could apply to the U.S. holder. Specifically, gain recognized by a U.S. holder on a sale or other disposition of a share would be allocated ratably over the U.S. holder’s holding period for the share. The amounts allocated to the taxable year of the sale or other exchange and to any year before the Company became a PFIC would be taxed as ordinary income in the current year. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, and an interest charge would be imposed on the amount allocated to such taxable year. Further, any distribution in excess of 125% of the average of the annual distributions received by the U.S. holder during the preceding three years or the U.S. holder’s holding period, whichever if shorter, would be subject to taxation as described above. Certain elections may be available (including a mark-to-market election) to U.S. holders that may mitigate the adverse consequences resulting from PFIC status. In addition, if we were to be treated as a PFIC in a taxable year in which we pay a dividend or the prior taxable year, the 15% dividend rate discussed above with respect to dividends paid to certain non-corporate holders would not apply.

Information Reporting and Backup Withholding

Payment of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and to backup withholding unless (i) the U.S. holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. holder provides a correct taxpayer identification number and certifies that the U.S. holder is not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against the U.S. holder’s U.S. federal income tax liability and may entitle the U.S. holder to a refund, provided that the required information is furnished to the Internal Revenue Service.

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Israeli Tax Considerations

The following is a discussion of certain material Israeli tax consequences to purchasers of our ordinary shares. The discussion also contains a description of certain relevant material provisions of the current Israeli income tax structure applicable to companies in Israel, with special reference to its effect on us. To the extent that the discussion is based on new tax legislation that has not been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion.

This discussion applies to purchasers that will hold our ordinary shares as capital assets and does not address all of the tax consequences that may be relevant to purchasers of our ordinary shares in light of their particular circumstances or certain types of purchasers of our ordinary shares subject to special tax treatment. Because individual circumstances may differ, purchasers should consult their tax advisor to determine the applicability of the rules discussed below to them, including the application of Israeli or other tax laws. The discussion below is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.

Taxation of Israeli Companies

General Corporate Tax Structure

Generally, Israeli companies are subject to corporate tax at the rate of 29% for the 2007 tax year and at the rate of 27% for the 2008 tax year, and are generally subject to capital gains tax at a rate of 25% on capital gains derived after January 1, 2003, other than capital gains from the sale of listed securities, which are generally subject to the corporate tax rate in effect (unless a company was not subject to the Inflationary Adjustments Law (see below) or certain regulations prior to the time of publication of a certain amendment to the Israeli tax laws (as further explained below) in which case the tax rate is 25%). Following an amendment to the Israeli Income Tax Ordinance [New Version], 1961, referred to as the Tax Ordinance, which came into effect on January 1, 2006, the corporate tax rate is scheduled to decrease as follows: 26% for the 2009 tax year and 25% for the 2010 tax year and thereafter.

Special Provisions Relating to Taxation under Inflationary Conditions

We are subject to the provisions of the Income Tax Law (Inflationary Adjustments), 1985, referred to as the Inflationary Adjustments Law, which attempts to overcome the problems presented to a traditional tax system by an economy undergoing rapid inflation. The Inflationary Adjustments Law is highly complex. The features that are material to us can be described as follows:

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 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.

128

·	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.

On February 26, 2008 the Israeli parliament approved an amendment to the Inflationary Adjustments Law which limits the applicability of such law, so that it will cease to apply after the 2007 tax year.

Capital Gains Tax on Sales of Our Ordinary Shares

Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli resident companies, by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. In calculating capital gain, the law distinguishes between real gain and inflationary surplus. The inflationary surplus is the portion of the total capital gain equal to the increase in the relevant asset’s value that is attributable to the increase in the Israeli CPI between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus. A non-resident that invests in taxable assets with foreign currency, or any individual that holds securities the price of which is stated in foreign currency, may elect to calculate the amount of inflationary surplus in that foreign currency.

Taxation of Israeli Residents

The tax rate applicable to real capital gains derived from the sale of shares, whether listed on a stock market or not, is 20% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 25%. Additionally, if such shareholder is considered to be a significant shareholder at any time during the 12-month period preceding such sale, the tax rate will be 25%. For this purpose, a significant shareholder is one that holds, directly or indirectly, including with others, at least 10% of certain means of control in a company. Israeli companies are generally subject to the corporate tax rate (see above) on capital gains derived from the sale of shares listed on a stock market, unless such companies were not subject to the Inflationary Adjustments Law (or certain regulations) at the time of publication of a certain amendment to the Tax Ordinance that came into effect on January 1, 2006, in which case the applicable tax rate is generally 25%.

Taxation of Non-Israeli Residents

Non-Israeli residents are generally exempt from Israeli capital gains tax on any gains derived from the sale of shares of Israeli companies publicly traded on the Tel Aviv Stock Exchange or a recognized stock exchange outside of Israel (including the New York Stock Exchange), provided that such shareholders did not acquire their shares prior to the issuer’s initial public offering, that the gains were not derived from a permanent establishment maintained by such shareholders in Israel and that such shareholders are not subject to the

129

Inflationary Adjustments Law. Shareholders that do not engage in activity in Israel generally should not be subject to such law. However, a non-Israeli corporation will not be entitled to the exemption from capital gains tax if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation or (ii) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.

In addition, under the Convention between the Government of the United States of America and the Government of Israel with respect to Taxes on Income, as amended, referred to as the U.S.-Israel tax treaty, the sale of our ordinary shares by a shareholder who qualifies as a resident of the United States within the meaning of the U.S.-Israel tax treaty and who is entitled to claim the benefits afforded to such person by the U.S.-Israel tax treaty, referred to as a treaty U.S. resident, and who holds its ordinary shares as a capital asset is also exempt from Israeli capital gains tax unless either (i) the treaty U.S. resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale or (ii) the capital gains arising from such sale are attributable to a permanent establishment of the treaty U.S. resident that is located in Israel. However, under the U.S.-Israel tax treaty, a treaty U.S. resident would be permitted to claim a credit for taxes paid in Israel against the U.S. federal income tax imposed on the sale, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel tax treaty does not relate to U.S. state or local taxes.

Taxation of Dividends Paid on Our Ordinary Shares

Taxation of Israeli Residents

Israeli resident individuals are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 20%, unless the recipient is a significant shareholder (as defined above) at any time during the 12-month period preceding the distribution in which case the applicable tax rate will be 25%. The company distributing the dividend is required to withhold tax at the source at the rate of 20%. Israeli resident companies are generally exempt from income tax on the receipt of dividends from another Israeli company, unless the source of such dividends is located outside of Israel in which case tax will generally apply at a rate of 25%.

Taxation of Non-Israeli Residents

Non-residents of Israel are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 20% unless the recipient is a significant shareholder at any time during the 12-month period preceding the distribution in which case the applicable tax rate will be 25%. The company distributing the dividend is required to withhold tax at the source at the rate of 20%.

Under the U.S.-Israel tax treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of our ordinary shares who is a treaty U.S. resident is 25%. Furthermore, the maximum rate of withholding tax on dividends that are paid in certain circumstances to a U.S. corporation holding 10% or more of our outstanding voting power throughout the tax year in which the dividend is distributed as well as the previous tax year, is 12.5%.

A non-resident of Israel who has dividend income derived from or accrued in Israel, from which tax was withheld at source, is generally exempt from the duty to file tax returns

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in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by such non-Israeli resident.

F. DIVIDENDS AND PAYING AGENTS

Not applicable.

G. STATEMENT BY EXPERTS

Not applicable.

H. DOCUMENTS ON DISPLAY

We are sub ject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, referred to as the Exchange Act, applicable to foreign private issuers. As a foreign private issuer, we are exempt from certain rules and regulations under the Exchange Act prescribing the content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act, with respect to their purchase and sale of our ordinary shares. In addition, we are not required to file reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we file annual reports with the SEC on Form 20-F containing financial statements audited by an independent accounting firm. We also furnish reports to the SEC on Form 6-K containing unaudited financial information for the first three quarters of each fiscal year and other material information, in accordance with the reporting requirements applicable to us as a dual listed company and as required due to our controlling shareholder's reporting obligations with respect to us. You may read and copy any document we file, including any exhibits, with the SEC without charge at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. Copies of such material may be obtained by mail from the Public Reference Branch of the SEC at such address, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Substantially all of our SEC filings are also available to the public at the SEC's website at http://www.sec.gov and as of July 2007 also at the TASE's website at http://maya.tase.co.il and at the Israeli Securities Authority at http://www.magna.isa.gov.il .

I. SUBSIDIARY INFORMATION

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the course of our normal operations, we are exposed to market risks including fluctuations in foreign currency exchange rates, interest rates and the Israeli CPI. We are exposed to currency risks primarily as a result of purchasing inventory and fixed assets mainly in U.S. dollars while almost all of our cash receipts are in NIS. A substantial amount of our cash payments are incurred in, or linked to, non-NIS currencies. In particular, in 2006 and 2007, such payments represented approximately 25% and 34% respectively, of total cash outflows. Also, we are exposed to interest rate risks through our bank and hedging instruments and to possible fluctuations in the Israeli CPI through our debentures.

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In order to protect ourselves from fluctuations in foreign currency exchange rates, we have established a foreign currency hedging program. Under this program, we currently hedge part of our U.S. dollar liabilities, firm commitments and budgeted expenditures for the next 6 to 12 months using foreign currency forward exchange contracts and currency options. A foreign currency forward exchange contract is a contract whereby we agree to buy or sell a foreign currency at a predetermined exchange rate at a future date. A currency option is an option to buy or sell a foreign currency at a predetermined exchange rate at a future date. The exchange rate fluctuations that impact our foreign currency denominated financial liabilities, firm commitments and budgeted expenditures are intended to be offset by gains and losses on these hedging instruments.

The goal of our hedging program is to limit the impact of exchange rate fluctuations on our transactions denominated in U.S. dollars. We do not hold derivative financial instruments for trading purposes. Nevertheless, under Israeli GAAP, we are required to treat our hedges of budgeted expenditures for which there is no contractual commitment as though they were speculative investments. As a result, we are required to value these hedge positions at the end of each fiscal quarter and record a gain or loss equal to the difference in their market value from the last balance sheet date, without any reference to the change in value to the related budgeted expenditures. Accordingly, these differences could result in significant fluctuations in our reported net income.

Prior to the full repayment of our credit facility in March 2007, we protected ourselves from fluctuations in foreign currency rates in respect of our U.S. dollar long-term loans in the amount of $85 million as of December 31, 2007, by utilizing compound foreign currency and interest swaps, throughout the entire period of the loan.

Also, as of December 31, 2007, we had four outstanding series of debentures, which are linked to the Israeli CPI, in an aggregate principal amount of approximately NIS 3.06 billion and during February 2008 we issued additional debentures in an aggregate principal amount of NIS 574.8 million. As of December 31, 2007, we had forward Israeli CPI / NIS transactions, in a total amount of NIS 1.8 billion, with an average maturity period of 10 (ten) months, in order to hedge our exposure to fluctuations in the Israeli CPI. We periodically review the possibility of entering into additional transactions in order to lower the exposure in respect of the debentures.

Set forth below is the composition of the derivative financial instruments at the following dates:

	As of December 31
	2005				2006					2007
	Par Value		Fair Value		Par Value		Fair Value			Par Value		Fair Value
	(In NIS millions)
Forward contracts on exchange rate (mainly US$– NIS)		654		1		507		(26	)		537		(28	)
Forward contracts on Israeli CPI rate		—		—		500		(15	)		1,800		24
Options on the exchange rate (mainly US$– NIS)		925		4		659		(1	)		530		1
Compounded foreign currency and interest swap		—		—		718		(70	)		792		(61	)
		1,579		5		2,384		(112	)		3,659		(64	)

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Sensitivity information

Without taking into account our hedging instruments and based upon our debt outstanding as at December 31, 2007, fluctuations in foreign currency exchange rates, interest rates or the Israeli CPI would affect us as follows:

·	an increase of 0.1% of the Israeli CPI would result in an increase of approximately NIS 3.1 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 5 million; and

·	an increase in NIS interest rates of 100 basis points would increase our annual interest expense by approximately NIS 3 million ($0.8 million). An increase in U.S. dollar interest rates of 100 basis points would increase our annual interest expense by approximately $0.85 million.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

We did not receive any proceeds from our initial public offering on the NYSE.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of December 31, 2007, have concluded that, as of such date, our disclosure controls and procedures were effective and ensured that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Internal Control Over Financial Reporting

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Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

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

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

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

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

Our management assessed the effectiveness of our internal control over financial reporting, as of December 31, 2007. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment, management believes that as of December 31, 2007 our internal control over financial reporting is effective based on this criteria.

Our independent auditors have issued an audit report on the effectiveness of our internal control over financial reporting. This report is included in page F-2 of this Form 20-F.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

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Our board of directors has determined that Messrs. Lieder, Cohen and Bigger and Ms. Baytel qualify as “audit committee financial experts” as defined in Item 16A of Form 20-F. Ms. Baytel qualifies as an independent director under the independence standards applicable to listed company audit committee members, pursuant to Rule 10A-3 under the Securities Exchange Act. See Item 16D below.

ITEM 16B. CODE OF ETHICS

Our Code of Ethics applies to all of our officers, directors and employees. Our Board of Directors amended our Code of Ethics during 2007 by updating and clarifying a number of matters, including: conflicts of interest between our employees and our vendors or customers, including the receipt of gifts; personal relationships between an employee and his or her or manager; the monitoring of employees’ use of our computer systems, and our privacy policy more generally; the window period for the sale or purchase of our securities; and reporting to the general counsel of general violations of laws, rules and regulations as well as the Code of Ethics. We have posted a copy of our updated Code of Ethics on our website at www.cellcom.co.il under “Investor Relations – About Cellcom – License & Other.”

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Somekh Chaikin, a member of KPMG International, has served as our independent auditors for 2006 and 2007. These accountants billed the following fees to us for professional services in each of those fiscal years:

	2007		2006
	(NIS in thousands)
Audit Fees		1,535		786
Audit-Related Fees (1)		872		3,600
Tax Fees		71		48
Total		2,478		4,434

(1)	“Audit-related fees” includes mainly fees for services performed in connection with our registration statement on Form F-1 for our offering in February 2007. The registration statement expenses were reimbursed to the Company by the shareholders who sold shares during the offering.

“Audit Fees” are the aggregate fees billed for the audit of our annual financial statements. This category also includes services that generally the independent accountant provides, such as consents and assistance with and review of documents filed with the SEC. “Audit-Related Fees” are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit and are not reported under Audit Fees. These fees include mainly accounting consultations regarding the accounting treatment of matters that occur in the regular course of business, implications of new accounting pronouncements and other accounting issues that occur from time to time. “Tax Fees” are the aggregate fees billed for professional services rendered for tax compliance, tax advice, other than in connection with the audit. Tax compliance involves preparation of original and amended tax returns, tax planning and tax advice.

Our Audit Committee has adopted a pre-approval policy for the engagement of our independent accountant to perform certain audit and non-audit services. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee pre-approves annually a catalog of specific audit and non-audit services in the categories of audit service, audit-related service and tax services that may be performed by our independent accountants, and the maximum pre-approved fees that

135

may be paid as compensation for each pre-approved service in those categories. Any proposed services exceeding the maximum pre-approved fees require specific approval by the Audit Committee.

The Audit Committee has delegated part of its pre-approval authority to the chairman of the Audit Committee, subject to ratification by the entire Audit Committee.

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

In reliance upon exemptions for newly public companies under Rule 10A-3(b)(1)(iv) under the Exchange Act, until May 2007, one of the four members of our audit committee, Mr. Shlomo Waxe, was independent under the independence standards applicable to listed company audit committee members, pursuant to Rule 10A – 3 under the Securities Exchange Act. In May 2007 we appointed Mr. Barnea and Ms. Baytel, elected as external directors, who are also independent under such independence standards, to our audit committee. After these appointments and the resignation of Mr. Bigger from this committee, a majority of the members of our audit committee was independent. As of February 2008, following the resignation of Mr. Lieder and Mr. Cohen from this committee, the committee is composed entirely of independent members. We do not believe that our reliance on these exemptions has materially adversely affected the ability of our audit committee to act independently or to satisfy the other applicable requirements of Sarbanes-Oxley Act.

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

None.

PART III

ITEM 17. FINANCIAL STATEMENTS

See pages F-1 through F-71 of this annual report.

ITEM 18. FINANCIAL STATEMENTS

See Item 17.

ITEM 19. EXHIBITS

Exhibit Number		Description
1.1		Articles of Association and Memorandum of Association †
2.1		Form of Ordinary Share Certificate †
4.1		Series A Indenture dated December 21, 2005 and an addendum dated February 27, 2006 between Cellcom and Aurora Fidelity Trust Ltd. †
4.2		Series B Indenture dated December 21, 2005 and an addendum dated February 27, 2006 between Cellcom and Hermetic Trust (1975) Ltd. †

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Exhibit Number		Description
4.3		Series C Indenture dated September 20, 2007, between Cellcom and Aurora Fidelity Trust Ltd.*
4.4		Series D Indenture dated September 20, 2007, between Cellcom and Hermetic Trust (1975) Ltd.*
4.5		2006 Share Incentive Plan †
4.6		Registration Rights Agreement dated March 15, 2006 among Cellcom, Goldman Sachs International, DIC, DIC Communication and Technology Ltd. and PEC Israel Economic Corporation †
4.7		Amended Non-Exclusive General License for the Provision of Mobile Radio Telephone Services in the Cellular Method dated June 27, 1994 *
8.1		Subsidiaries of the Registrant †
12.1		Certification of Principal Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act *
12.2		Certification of Principal Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act *
13.1		Certification of Principal Executive Officers pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act *
15		Consent of Independent Registered Public Accounting Firm*

___________

*	Filed herewith.

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

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Cellcom Israel Ltd.
By:	/s/ Amos Shapira
	Name:	Amos Shapira
	Title:	President and Chief Executive Officer

Date: March 18, 2008

138

Report of Independent Registered Public Accounting Firm

To The Shareholders of

Cellcom Israel Ltd.

We have audited the accompanying consolidated balance sheets of Cellcom Israel Ltd. and subsidiaries (hereinafter – “the Company”) as of December 31, 2007 and 2006, and the related statements of income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007. We also have audited the Company’s internal control over financial reporting as of December 31, 2007, based on criteria established in “Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”. The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

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

F-2

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with generally accepted accounting principles in Israel. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in “Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission”.

Accounting principles generally accepted in Israel vary in certain significant respects from accounting principles generally accepted in the United States of America. Information related to the nature and effect of such differences is presented in Note 28 of the consolidated financial statements.

As explained in Note 2B(2) to the consolidated financial statements, the consolidated financial statements are presented in New Israeli Shekels, in conformity with accounting standards issued by the Israeli Accounting Board.

As discussed in Note 2U(2) to the consolidated financial statements, the Company retroactively adopted Israeli Accounting Standard No. 27, “Property, plant and equipment”, as for all of the reporting periods.

The accompanying consolidated financial statements as of and for the year ended December 31, 2007 have been translated into United States dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial statements expressed in NIS have been translated into dollars on the basis set forth in Note 2C to the consolidated financial statements.

/s/ Somekh Chaikin

Somekh Chaikin

Certified Public Accountants (Isr.)

Member Firm of KPMG International

Tel Aviv, Israel

March 17, 2008

F-3

Cellcom Israel Ltd. and Subsidiaries

Consolidated Balance Sheets

All amounts are in millions except for share and per share data

									Convenience translation into U.S. dollar (Note 2C)
			December 31 2006			December 31 2007			December 31 2007
	Note		NIS			NIS			US$
Current assets
Cash and cash equivalents		3		56			911			237
Trade receivables, net		4		1,242			1,385			360
Other receivables		5		123			133			34
Inventory		6		131			245			64

				1,552			2,674			695

Long-term receivables		7		526			545			142

Property, plant and equipment, net		8		(*)() 2,550			2,368			616

Intangible assets, net		9		(**) 695			685			178

Total assets				5,323			6,272			1,631

Current liabilities
Short-term credit		10		-			353			92
Trade payables and accrued expenses		11		819			1,007			262
Other current liabilities		12		496			543			141

				1,315			1,903			495

Long-term liabilities
Long-term loans from banks		13		1,208			343			89
Debentures		14		1,989			2,983			776
Deferred taxes		24		(*) 212			196			51
Other long-term liabilities				2			17			4

				3,411			3,539			920

Commitments and contingent liabilities		16

Shareholders’ equity		17
Ordinary shares of NIS 0.01 par value as of December 31, 2006 and 2007: Authorized – 300,000,000 shares at December 31, 2006 and 2007; issued and outstanding 97,500,000 and 97,504,721 shares at December 31, 2006 and 2007, respectively				1			1			-
Capital reserve				(24	)		(4	)		(1	)
Retained earnings				(*) 620			833			217

Total shareholders’ equity				597			830			216

Total liabilities and shareholders’ equity				5,323			6,272			1,631

(*)	Restated due to initial implementation of a new Israeli Accounting Standard (See Note 2U(2))
(**)	Reclassified due to initial implementation of a new Israeli Accounting Standard (See Note 2U(4))

The accompanying notes are an integral part of the financial statements.

F-4

Cellcom Israel Ltd. and Subsidiaries

Consolidated Income Statements

All amounts are in millions except for share and per share data

											Convenience translation into U.S. dollar (Note 2C)
			Year ended December 31								Year ended December 31
			2005		2006			2007			2007
	Note		NIS (Note 2B)								US$
Revenues		18		5,114		5,622			6,050			1,573

Cost of revenues		19		* 3,081		* 3,273			3,372			877

Gross profit				2,033		2,349			2,678			696

Selling and marketing expenses		20		623		656			685			178

General and administrative expenses		21		656		659			652			169

Operating income				754		1,034			1,341			349

Financial income (expenses), net		22		24		(155	)		(156	)		(41	)

Other expenses, net		23		* 13		* 6			3			1

Income before income tax				765		873			1,182			307

Income tax		24		* 234		* 314			309			80

Net income				531		559			873			227

Earnings per share

Basic earnings per share in NIS (see Note 2T)				* 5.44		* 5.73			8.95			2.33

Diluted earnings per share in NIS (see Note 2T)				* 5.44		* 5.73			8.87			2.31

Weighted-average number of shares used in the
calculation of basic earnings per share
(in thousands)				97,500		97,500			97,500			97,500

Weighted-average number of shares used in the
calculation of diluted earnings per share
(in thousands)				97,500		97,500			98,441			98,441

(*)	Restated due to initial implementation of a new Israeli Accounting Standard (See Note 2U(2))

The accompanying notes are an integral part of the financial statements.

F-5

Cellcom Israel Ltd. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

All amounts are in millions

	Share capital amount		Capital reserve			Cash dividend declared subsequent to balance sheet date			Retained earnings			Total			Convenience translation into U.S. dollar (Note 2C)
	NIS (Note 2B)														US$
Balance as of January 1, 2005		-		-			-			* 3,361			3,361			874

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		-		-			-			* 531			531			138
Balance as of December 31, 2005		-		5			3,400			492			3,897			1,013

Changes in the year ended December 31, 2006
Allotment to dividend share (Note 17B)		1		-			-			(1	)		-			-
Movement in capital reserve in respect of hedging transactions, net		-		(29	)		-			-			(29	)		(7	)
Cash dividend paid		-		-			(3,400	)		(430	)		(3,830	)		(996	)
Net income		-		-			-			* 559			559			145
Balance as of December 31, 2006		1		(24	)		-			620			597			155

Changes in the year ended December 31, 2007
Influence of first time implementation of new accounting standards as of January 1, 2007 (ARO- Note 2U(2))		-		-			-			(5	)		(5	)		(1	)
Movement in capital reserve in respect of hedging transactions, net		-		(9	)		-			-			(9	)		(2	)
Stock based compensation		-		29			-			-			29			7
Cash dividend paid		-		-			-			(655	)		(655	)		(170	)
Cash dividend declared subsequent to balance sheet date		-		-			700			(700	)		-			-
Net income		-		-			-			873			873			227
Balance as of December 31, 2007		1		(4	)		700			133			830			216

(*)	Restated due to initial implementation of a new Israeli Accounting Standard (See Note 2U(2))

The accompanying notes are an integral part of the financial statements.

F-6

Cellcom Israel Ltd. and Subsidiaries

Consolidated Statements of Cash Flows

All amounts are in millions

										Convenience translation into U.S. dollar (Note 2C)
	Year ended December 31									Year ended December 31
	2005			2006			2007			2007
	NIS (Note 2B)									US$
Cash flows from operating activities:
Net income		* 531			* 559			873			227
Addition required to present cash flows from
operating activities (a)		* 741			* 918			771			200
Net cash provided by operating activities		1,272			1,477			1,644			427

Cash flows from investing activities:
Addition to property, plant and equipment		**(473	)		**(526	)		(466	)		(121	)
Proceeds from sales of property, plant and equipment		12			15			4			1
Investment in intangible assets		**(158	)		**(122	)		(97	)		(25	)
Investment in long term deposit		-			-			(12	)		(3	)
Net cash used in investing activities		(619	)		(633	)		(571	)		(148	)

Cash flows from financing activities:
Repayments under short-term bank credit facility		(4,953	)		(1,222	)		-			-
Borrowings under short-term bank credit facility		4,894			1,222			-			-
Borrowings of long-term loans from banks		-			2,155			-			-
Payment of long-term loans from banks		(533	)		(1,175	)		(645	)		(168	)
Proceeds from issuance of debentures, net of issuance costs		1,706			290			1,066			277
Paid dividend		-			(3,830	)		(639	)		(166	)
Net cash provided by (used in) financing activities		1,114			(2,560	)		(218	)		(57	)

Increase (decrease) in cash and cash equivalents		1,767			(1,716	)		855			222

Balance of cash and cash equivalents at beginning of the period		5			1,772			56			15

Balance of cash and cash equivalents at end of the period		1,772			56			911			237

(*)	Restated due to initial implementation of a new Israeli Accounting Standard (See Note 2U(2))
(**)	Reclassified due to initial implementation of a new Israeli Accounting Standard (See Note 2U(4))

The accompanying notes are an integral part of the financial statements.

F-7

Cellcom Israel Ltd. and Subsidiaries

Consolidated Statements of Cash Flows

All amounts are in millions


										Convenience translation into U.S. dollar (Note 2C)
	Year ended December 31									Year ended December 31
	2005			2006			2007			2007
	NIS (Note 2B)									US$
(a) Adjustments required to present cash flows from
operating activities
Income and expenses not involving cash flows
Depreciation and amortization		* 889			* 830			774			201
Deferred taxes		*(4	)		*(20	)		(4	)		(1	)
Exchange and linkage differences on long-term liabilities		-			(109	)		(7	)		(2	)
Capital losses from sale of property, plant and equipment		* 4			* 6			4			1
Change in provision for decline in value of land - held for sale		4			-			(10	)		(2	)
Stock based compensation		-			-			29			7
Change in other long term liabilities		-			-			2			-
		893			707			788			204
Changes in assets and liabilities
Increase in trade receivables (including long-term amounts)		(37	)		(75	)		(139	)		(36	)
Decrease (increase) in other receivables
(including long- term amounts)		(60	)		22			(18	)		(5	)
Decrease (increase) in inventories		(19	)		(13	)		(114	)		(29	)
Increase (decrease) in trade payables and accrued expenses (including long-term amounts)		(15	)		4			178			46
Increase (decrease) in other payables and credits
(including long-term amounts)		(21	)		273			76			20
		(152	)		211			(17	)		(4	)
		741			918			771			200

(b) Non-cash investing and financing activities
Acquisition of property, plant and equipment and intangible assets on credit		314			197			216			56
Receivables in respect of issuance of debentures		46			-			-			-
Tax withheld regarding cash dividend		-			-			16			4
Supplemental information:
Income taxes paid		275			267			313			81
Interest paid		51			124			175			46

(*)	Restated due to initial implementation of a new Israeli Accounting Standard (See Note 2U(2))

The accompanying notes are an integral part of the financial statements.

F-8

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 1 - General

Cellcom Israel Ltd. (“the Company”) was incorporated in Israel on January 31, 1994. The Company commenced its operations on June 27, 1994, after receiving a license from the Ministry of Communications (“the MOC”) to establish, operate and maintain a cellular mobile telephone system and provide cellular mobile telephone services in Israel. The Company began providing cellular mobile telephone services to the Israeli public on December 27, 1994. The initial license granted to the Company was for a period of 10 years and was thereafter extended until the year 2022.

On February 2007, the Company completed its initial public offering on the New York Stock Exchange ("NYSE"), of ordinary shares par value NIS 0.01 per share, in which Discount Investment Corporation Ltd. ("DIC") and Goldman Sachs International sold 20,000,000 of the Company's ordinary shares. Following completion of the initial public offering and registration of its ordinary shares for trading in the NYSE, the Company became a public company.

On July 1, 2007, the Company listed its ordinary shares, which are traded on the NYSE, on the Tel Aviv Stock Exchange (“TASE”).

On April 23, 2006, Cellcom Fixed Line Communication L.P. a limited partnership 100%-owned, directly and indirectly, by Cellcom Israel Ltd. (hereinafter - "Cellcom Partnership") received a special general license from the Ministry of Communications for provision of land-line communications services. The license does not require Cellcom Partnership to provide a universal service. Cellcom Partnership focuses on offering services to the business sector.

Note 2 - Significant Accounting Policies

Basis of presentation

These financial statements are prepared in accordance with generally accepted accounting principles in Israel (“Israeli GAAP”), which differ in certain material respects from generally accepted accounting principles in the United States of America (“US GAAP”) – see Note 28. The Company shall adopt International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standard Board ("IASB") for the period beginning of January 1, 2008 (see note 2U(5)).

B. Reporting principles

	1.	The functional currency of the Company is the local currency, New Israeli Shekels (“NIS”). The Company prepares and presents its financial statements in NIS. Transactions denominated in foreign currencies are recorded at the prevailing exchange rate at the time of the transactions.

	2.	Transition to nominal financial reporting in 2004.

		Through December 31, 2003, the Company prepared its financial statements on the basis of historical cost adjusted for the changes in the general purchasing power of Israeli currency -NIS, based upon changes in the Israeli Consumer Price Index (“CPI”), in accordance with pronouncements of the Institute of Certified Public Accountants in Israel.

F-9

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont'd)

B. Reporting principles (cont'd)

2. (cont'd)

With effect from January 1, 2004, the Company has adopted the provisions of Israel Accounting Standard No. 12 –“Discontinuance of Adjusting Financial Statements for Inflation” – of the Israel Accounting Standards Board and, pursuant thereto, the Company has discontinued, from that date, the adjustment of its financial statements for the effects of inflation in Israel.

The amounts adjusted for the effects of inflation in Israel, presented in the financial statements as of January 1, 2004, were used as the opening balances for the nominal financial reporting in the following periods. Accordingly, the amounts reported in these financial statements that relate to non-monetary assets (including the depreciation and amortization thereon) and equity items, which originate from the period that preceded January 1, 2004, are based on the adjusted-for-inflation data (based on the CPI for December 2003), as previously reported.

Amounts originating during periods subsequent to January 1, 2004 are included in the financial statements based on their nominal values.

The amounts of non-monetary assets do not necessarily represent realization value or current economic value, but only the reported amounts of such assets. In these financial statements, the term “cost” refers to cost in reported amounts.

3. Effect of changes in the CPI and in foreign currency exchange rates

Data regarding the CPI and currency exchange rates are as follows:

	December 31,			December 31,			December 31,
	2005			2006			2007


CPI (in points)		185.1			184.9			191.2
Exchange rate of U.S.$ in NIS		4.603			4.225			3.846

	2005			2006			2007
CPI		2.4	%		(0.1	%)		3.4	%
Exchange rate of U.S.$ in NIS		6.9	%		(8.2	%)		(9.0	%)

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

For the convenience of the reader, the reported NIS figures as of December 31, 2007 and for the year then ended, have been presented in dollars, translated at the representative rate of exchange as of December 31, 2007 (NIS 3.846 = US$ 1.00). The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable in dollars or convertible into dollars, unless otherwise indicated.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

These estimates are based on experience and historical data; however, actual results could differ from these estimates.

F-10

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont'd)

E. Principles of consolidation

These consolidated financial statements include consolidation of the financial statements of the Company and its fully owned subsidiaries: Cellcom Real Estate (2001) Ltd., Cellcom Holdings (2001) Ltd. and Cellcom Partnership. All inter-company transactions and balances were eliminated upon consolidation.

F. Cash and cash equivalents

Cash and cash equivalents include bank deposits, the initial deposit term of which did not exceed three months, and that are not restricted as to withdrawal or use.

Allowance for doubtful accounts

The financial statements include an allowance for doubtful accounts which properly reflects, in management’s estimation, the potential loss from non-collection of accounts. The Company provides for doubtful accounts on the basis of its experience in collecting past debts, as well as on the basis of information on specific debtors in the hands of management of the Company.

Inventory

Inventory of cellular phone equipment and accessories and spare-parts are stated at the lower of cost or market value. Cost is determined by the moving average method; market value is determined using current replacement cost, less provisions for decline in value for slow moving inventory.

Property, plant and equipment

(1)

Property, plant and equipment are stated at cost, including direct costs necessary to prepare the asset for its intended use, and are measured at cost net of accumulated depreciation minus impairment losses.

(2)

Upon the initial recognition of property, plant and equipment, the Company includes in the cost of the asset all the costs it will be required to incur in respect of a liability to dismantle and remove the asset and to restore the site on which it was located.

(3)

See Note 2O for details regarding interest costs capitalized to property, plant and equipment.

(4)

Maintenance and repair costs are charged to expense as incurred. The cost of significant renewals and improvements is capitalized to the carrying amount of the respective fixed asset.

(5)

Depreciation is calculated using the straight-line method. If the property, plant and equipment consists of several components with different estimated useful lives, the individual significant components are depreciated over their individual useful lives. The annual depreciation rates are as follows:

	%
Network and transmission equipment		5-20
Control and testing equipment		15-25
Vehicles		15
Computers and hardware		15-33
Furniture and office equipment		6-15

F-11

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont'd)

Property, plant and equipment (cont'd)

Leasehold improvements are depreciated over the shorter of their estimated useful lives or the expected lease terms.

See Note 2U(2) for the impact of the adoption of the Israeli Accounting Standard No. 27, "Property, plant and equipment", commencing January 1, 2007.

Impairment of assets

The Company reviews at each balance sheet date whether any events have occurred or changes in circumstances have taken place, that might indicate that there has been an impairment to the carrying value of all assets except inventory, tax assets and monetary assets.

When such indicators of impairment are present, the Company evaluates whether the carrying value of the asset in the Company’s accounts can be recovered from the cash flows anticipated from that asset, and, if necessary, records an impairment provision up to the amount needed to adjust the carrying amount to the recoverable amount.

The recoverable value of an asset is determined according to the higher of the net selling price of the asset or its value in use to the Company. The value in use is determined according to the present value of anticipated cash flows from the continued use of the asset, including those expected at the time of its future retirement and disposal. In determining the value in use of an asset, the Company uses the best available estimates as to the conditions that will prevail during the remaining useful life of the asset. In determining the net selling price of an asset, management relies on estimates of the Company’s experts.

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

K.	Intangible assets

Intangible assets consist of licenses, computer software costs and deferred expenses. As of January 1, 2007, the Company has implemented Israeli Accounting Standard No. 30 "Intangible Assets" ("Standard No. 30"). For the influence of the first time implementation of Standard No. 30, see note 2U(4).

(1)	Intangible assets are stated at cost, including direct costs necessary to prepare the asset for its intended use. A group of similar intangible assets are measured at cost net of accumulated amortization minus impairment losses.

(2)

The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software in accordance with generally accepted accounting standards. Capitalized costs include direct development costs associated with internal use software, including internal direct labor costs and external costs of materials and services. These capitalized software costs are included in "intangible assets, net" in the consolidated balance sheets and are amortized on a straight-line basis over the period of their expected use. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.

(3)

Deferred expenses in respect of commissions regarding the acquisition of new subscribers are recognized as intangible assets, if the costs can be measured reliably, incremental to the contract and directly attributable to obtaining a specific subscriber. If the costs do not meet the aforementioned criteria, they are recognized immediately as expenses.

F-12

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

K.	Intangible assets (cont'd)

(4)	Amortization is calculated using the straight-line method. If the intangible assets consist of several components with different estimated useful lives, the individual significant components are amortized over their individual useful lives. The annual amortization rates are as follows:

	%
Licenses		5-6	(mainly 6%)
Information systems		25
Software		25

Deferred costs are amortized over the expected life of the subscriber contractual relationship (mainly 18 months).

Revenue recognition

Revenues from sales of handsets and accessories that are not contingent upon the delivery of additional products or services are recognized when products are delivered to and accepted by customers. Revenues from long-term credit arrangements (longer than one year) are recognized on the basis of the present value of future cash flows, discounted according to market interest rates at the time of the transaction. The difference between the original credit and its present value is recorded as interest income over the credit period.

Revenues derived from usage of the Company’s networks, including airtime, interconnect and roaming revenues are recognized when the services are provided.

Prepaid wireless airtime sold to customers is recorded as deferred revenue prior to the commencement of services and is recognized when the airtime is used or expires.

Revenue is recorded net of value added taxes.

The Company offers enhanced services including voice mail, text and picture messaging, as well as downloadable wireless data applications, including ring tones, music, games, and other informational content. Generally, these enhanced features and data applications generate additional service revenues through monthly subscription fees or increased usage through utilization of the features and applications. Other optional services, such as equipment warranty plans are also provided for a monthly fee and are either sold separately or bundled and included in packaged rate plans. Revenues from enhanced features and optional services are recognized when earned.

Costs of revenues mainly include ongoing license fees, interconnection and roaming expenses, cell site leases, depreciation and amortization charges and technical repair and maintenance expenses directly related to services rendered.

On January 1, 2006, the Company adopted Israel Accounting Standard No. 25, “Revenue” (“Standard No. 25”). This standard prescribes recognition, measurement, presentation and disclosure criteria for revenues originating from the sale of goods purchased or manufactured by the seller, the provision of services, as well as revenues derived from the use of the seller’s assets by others (interest income, royalties or dividends) and revenue arrangements with multiple deliverables. Standard No. 25 is applicable to all transactions entered into on or after January 1, 2006.

F-13

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

L. Revenue recognition (cont’d)

In accordance with Standard No. 25, the main issue in regards to accounting for revenue is determining the timing of revenue recognition. Revenue from the sale of goods is recognized when all the following conditions have been satisfied: (a) the significant risks and rewards of ownership of the goods have been transferred to the buyer; (b) the seller retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; (c) the amount of revenue can be measured reliably; (d) it is probable that the economic benefits associated with the transaction will flow to the seller; and (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably.

A clarification of Standard No. 25 was issued in February 2006: Clarification No. 8, “Reporting of Revenue on a Gross or Net Basis”. According to the clarification, a company acting as an agent or an intermediary without bearing the risks and rewards resulting from the transaction, will present its revenue on a net basis (as a profit or a commission). However, a company that acts as a principal supplier and bears the risks and rewards resulting from the transaction will present its revenue on a gross basis, distinguishing the revenue from the related expenses. This classification and presentation of revenue on a gross or net basis was applied with retroactive effect for all of the reported periods.

The initial implementation of Standard No. 25 and the Clarification No. 8 did not have a material effect on the Company’s results of operations and financial position.

M. Share-based payments

On January 1, 2006 the Company adopted Accounting Standard No. 24, “Share-Based Payments” (“Standard No. 24”) of the Israel Accounting Standards Board. In accordance with the provisions of Standard No. 24, the Company recognizes share-based payment transactions in the financial statements, including transactions with employees or other parties that are settled by equity instruments, cash or intangible assets at their fair value.

The Company records as a salary expense, with a parallel increase in its shareholders’ equity, the benefit that is created when it grants equity-settled options to employees, in accordance with the fair value of the options on the grant date, while using the Black & Scholes model. According to this policy, the benefit created is spread over the vesting period of the options on the basis of the Company’s estimate regarding the number of options that will ultimately vest, adjusted for estimated forfeitures if any.

N. Advertising expenses

Advertising costs are expensed as incurred. Advertising expenses for the years ended December 31, 2005, 2006 and 2007 totaled NIS 118 million, NIS 96 million and NIS 121 million, respectively.

F-14

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

O. Capitalization of financing costs

Financing costs associated with the cost of constructing the wireless networks during the initial construction phase and the cost of acquiring the spectrum licenses until the beginning of their intended use are capitalized to the cost of such assets. The amount of financing costs eligible for capitalization is determined by applying a capitalization rate to the expenditures on the asset eligible for capitalization. The capitalization rate is the weighted average of the financing costs applicable to the borrowing and loans of the Company that are outstanding during the period, or the rate applicable to a borrowing specifically for the purpose of obtaining a specific asset. The amount of financing costs capitalized during the reported periods did not exceed the amount of financing costs incurred during these periods.

For the years ended December 31, 2007 and 2005 the Company did not capitalize financing costs. In 2006, the amount of financing costs capitalized to property, plant and equipment was NIS 4 million. The average annual capitalization rate during 2006 was 7.9%.

P. Deferred taxes

Deferred taxes are calculated on the basis of the liability method. Under this method, deferred taxes are computed in respect of temporary differences between the carrying value of assets and liabilities in the financial statements and their values for tax purposes.

Deferred taxes (asset or liability) are calculated at tax rates that are expected to be in effect when the temporary differences reverse, based on the tax rates and tax laws that were enacted or the enactment of which has been effectively completed, up to the balance sheet date.

In July 2004, the Israel Accounting Standards Board published Israeli Accounting Standard No. 19, “Taxes on Income” (“Standard No. 19”), which provides that a liability for deferred taxes is to be recorded for all temporary differences subject to tax, except for the temporary difference resulting from the initial recognition of goodwill and the temporary difference resulting from the initial recognition of an asset or a liability that has no effect on profit or loss. In addition, a deferred tax asset is to be recorded for all temporary differences that may be deducted, losses for tax purposes and tax benefits not yet utilized, if it is anticipated that there will be taxable income against which they can be offset. Standard No. 19 applies to financial statements for periods beginning on January 1, 2005. The transition to Standard No. 19 had no material effect on the Company’s results of operations and financial position.

Q. Freestanding derivative financial instruments

The Company recognizes freestanding derivative financial instruments as either assets or liabilities in its balance sheets and measures those instruments at fair value. Accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For a foreign exchange derivative instrument designated as a cash flow hedge, the effective portion of the derivative is initially reported as a component of shareholders' equity as capital reserve and subsequently recognized into earnings as the hedged item affects earnings. The ineffective portion of the derivative is recognized in earnings immediately. For derivative instruments that are not designated as cash flow hedges, changes in fair value are recognized in earnings according to changes in their fair value.

F-15

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

Q. Freestanding derivative financial instruments (cont'd)

The Company formally documents all relationships between hedging instruments and hedged items and the risk management objective and strategy for each hedge transaction. At inception of the hedge and quarterly thereafter, the Company performs a correlation assessment to determine whether changes in the fair values or cash flows of the derivatives are deemed highly effective in offsetting changes in the fair values or cash flows of the hedged items. If at any time subsequent to the inception of the hedge, the correlation assessment indicates that the derivative is no longer highly effective as a hedge, the Company discontinues hedge accounting and recognizes all subsequent derivative gains and losses in the results of operations.

R. Financial instruments and concentration of credit risk

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities are reasonable estimates of their fair value due to the short-term nature of these instruments. See Note 25C for the fair value of debentures (including current maturities).

Financial instruments that could potentially subject the Company to credit risks consist primarily of trade accounts receivables. Concentrations of credit risk with respect to these receivables are limited due to the composition of the subscriber base, which includes a large number of individuals and businesses.

As from January 1, 2006, the Company adopted Israeli Accounting Standard No. 22, “Financial Instruments: Disclosure and Presentation ("Standard No. 22”), which provides rules for presenting financial instruments in financial statements and specifies the proper disclosures required in respect thereto. Standard No. 22 provides the method for classifying financial instruments as financial liabilities and as shareholders’ equity, for classifying the interest, dividends, losses and gains related thereto, and the criteria for offsetting financial assets and financial liabilities. Standard No. 22 was adopted on a prospective basis. The transition to Standard No. 22 resulted in the reclassification of deferred charges in respect of the issuance of debentures from intangible assets to a contra asset to the respective debentures.

S. Dividend declared subsequent to the balance sheet date

Dividends are recorded in the period they are declared. However, to the extent a dividend is declared in a subsequent period, but before the financial statements are issued, the amount subsequently declared is appropriated within shareholders' equity in the current reporting period, as a designated part of the retained earnings.

F-16

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

T. Earnings per share

The Company calculates earnings per share in accordance with the provisions of Israeli Accounting Standard No. 21, “Earnings per Share”. Basic earnings per share is calculated by dividing the earnings or loss attributable to the ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. In order to calculate the diluted earnings per share, the Company adjusts the earnings or losses attributable to the ordinary shareholders, and the weighted average number of outstanding ordinary shares, in respect of the effects of all the dilutive potential ordinary shares. For all reported periods, there were no outstanding stock options except those that were dependent on a successful public offering of the Company’s ordinary shares or warrants, or other potentially dilutive instruments. The options that were granted to the employees and Chairman of the board of directors of the Company during the year ended December 31, 2006 (see Note 17C) which were contingent upon completion of the Company's public offering are included in the calculation of diluted earnings per share from the date such shares were listed for trade (February 7, 2007). Regarding a stock split and an allotment of dividend shares - see Note 17B.

U. Effects of new Israeli Accounting Standards

Israeli Accounting Standard No 26, “Inventory” (“Standard No. 26”)

In August 2006, the Israeli Accounting Standards Board published Standard No. 26. The Standard provides guidelines for determining the cost of inventory and its subsequent recognition as an expense as well as for determining impairments in the value of inventory written down to net realizable value. The Standard also provides guidelines regarding formulas used to allocate costs to various types of inventory. As of January 1, 2007, the Company has implemented Standard No. 26. Implementation of Standard No. 26 did not have a material effect on the Company’s results of operations and financial position.

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

As of January 1, 2007, the Company has implemented Standard No. 27. The Standard prescribes rules for the presentation, measurement and recognition of property, plant and equipment and for the disclosure required in respect thereto. The Standard also provides for, among other things, the following:

Measurement after initial recognition of property, plant and equipment

Standard No. 27 provides that a group of similar property, plant and equipment shall be measured at cost net of accumulated depreciation minus impairment losses, or alternatively, at its revalued amount less accumulated depreciation, whereas an increase in the value of the asset above its initial cost as a result of the revaluation will be directly included in the shareholders’ equity under a revaluation reserve.

Asset retirement obligations

Standard No. 27 provides, that upon the initial recognition of property, plant and equipment, the entity shall include in the cost of the asset all the costs it will be required to incur in respect of a liability to dismantle and remove the asset and to restore the site on which it was located.

F-17

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

Effect of new Israeli Accounting Standards (cont’d)

Israeli Accounting Standard No. 27, “Property, plant and equipment” (cont'd)

Component depreciation

Standard No. 27 provides that if property, plant and equipment consist of several components with different estimated useful lives, the individual significant components should be depreciated over their individual useful lives.

Standard No. 27 was applied to financial statements on January 1, 2007, and was implemented on a retroactive basis, except for asset retirement obligations for which the transition and provisions and the cumulative effect of Standard No.27 are described in the paragraph below.

The initial implementation of the Standard had the following effects:

Asset retirement obligations

Prior to the implementation of Standard No.27, upon the initial recognition of property, plant and equipment, the Company was not required and therefore did not include in its cost the initial estimate of costs for dismantling and removing the item and for restoring the site on which it was located, and therefore:

(a)

It measured the said liability as at January 1, 2007 in accordance with generally accepted accounting principles, at the amount of NIS 12 million.

(b)

It calculated the amount that would have been included in the cost of the asset on the date on which the liability was initially incurred by capitalizing the amount of the liability mentioned in item (a) above to the date on which the liability was initially incurred (hereinafter - the capitalized amount) at the amount of NIS 9 million. The liability was capitalized using the best estimate of the historical capitalization rates suitable to the risk that was relevant to that liability during the expired period; and,

(c)

It calculated the accumulated depreciation on the capitalized amount as at January 1, 2007 on the basis of the useful life of the asset as at that date at the amount of NIS 4 million;

(d)

It recorded a tax asset in the amount of NIS 2 million.

(e)

The difference between the amount that was charged to the asset in accordance with items (b) and (c) above, and the amount of the liability in accordance with item (a) above, and the tax asset in accordance with item (d) above, in the amount of NIS 5 million, was included in retained earnings as at January 1, 2007.

Implementation of the component method:

In accordance with the transitional provisions of the Standard, the financial statements were restated as a result of implementing the provisions of the Standard with respect to the separate calculation of depreciation for the various cost components of the network, mainly, transmission equipment and infrastructure. Accordingly, the depreciation rate of the network, which is used by the Company, has been changed from 15% to depreciation rates ranging between 5%-20%, according to the useful life of each item.

F-18

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

Effect of new Israeli Accounting Standards (cont’d)

Israeli Accounting Standard No. 27, “Property, plant and equipment” (cont’d)

The effect of the aforementioned restatement is as follows:

		As originally reported		Effect of restatement		As reported in these financial statements
		NIS millions		NIS millions		NIS millions
(1)	The effect on the consolidated balance sheet as at December 31, 2006

	Property, plant and equipment, net		** 2,153		397		2,550
	Long-term liabilities -
	Deferred taxes		105		107		212
	Shareholders’ equity		307		290		597

	The effect on the shareholders equity as at January 1, 2005		3,161		200		3,361

**	Reclassified due to initial implementation of a new Israeli Accounting Standard (See Note 2U(4))

(2)	The effect on net income

	For the year ended December 31, 2005			For the year ended December 31, 2006
	NIS millions			NIS millions
Net income as previously reported		483			517
Effect of restatement:
Decrease in depreciation expenses		52			53
Increase in capital losses		(2	)		(1	)
Increase in deferred tax expenses		(2	)		(10	)
Net income as reported in these financial statements		531			559

(3 )

The effect on basic and diluted earnings per ordinary share

Basic and diluted earnings per ordinary share as reported in the past	4.95	5.30
Effect of restatement	0.49	0.43
Basic and diluted earnings per ordinary share as reported in these financial statements	5.44	5.73

F-19

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

Effect of new Israeli Accounting Standards (cont’d)

Israeli Accounting Standard No. 23, “The Accounting Treatment of Transactions between an Entity and the Controlling Interest Therein” (“Standard No. 23”)

In December 2006 the Israel Accounting Standards Board published Accounting Standard No. 23 (hereinafter – Standard No. 23). Standard No. 23 replaces the main provisions of the Israeli Securities Regulations (with regard to Financial Statement Presentation of Transactions between a Company and its Controlling Shareholder). Standard No. 23 provides that assets (other than an intangible asset with no active market) and liabilities included in a transaction between the entity and its controlling shareholder shall be measured on the date of the transaction at fair value and that the difference between the fair value and the consideration from the transaction shall be included in shareholders’ equity. A negative difference is considered to be a dividend, and therefore decreases the retained earnings. A positive difference is considered an additional investment by the controlling shareholder, and is presented as a separate item in the shareholders’ equity “capital reserve resulting from transactions between an entity and the controlling interest”.

Standard No. 23 discusses three issues relating to transactions between an entity and its controlling shareholder, as follows: the transfer of an asset to the entity by the controlling shareholder, or conversely, transfer of an asset from the entity to the controlling shareholder; the controlling shareholder assuming upon itself a liability of the entity to a third party, all or part, indemnification of the entity by the controlling shareholder in respect of an expense, and the controlling shareholder waiving the entity’s debt to it, all or part; and loans that were granted to the controlling shareholder or loans that were received from the controlling shareholder. Standard No. 23 also provides the disclosure that is to be made in the financial statements regarding transactions between the entity and its controlling shareholder during the period.

Standard No. 23 applies to transactions between an entity and its controlling shareholder that are executed after January 1, 2007, and to a loan that was granted to a controlling shareholder or that was received from it before the date this Standard came into effect, as from the date the loan was granted or received.

Standard No. 23 was implemented by the Company as of January 1, 2007.

Implementation of Standard No. 23 did not have a material effect on the Company’s results of operations and financial position.

Israeli Accounting Standard No. 30, "Intangible Assets" ("Standard No. 30")

As of January 1, 2007, the Company has implemented Standard No. 30. The Standard discusses the accounting treatment of intangible assets and defines how to measure the book value of these assets, as well as the disclosures that are required. The Standard has been initially implemented retroactively for all reported periods.

In accordance with the standard, the Company reclassified the costs of computer software and capitalized costs with regard to internally developed software, which are separable from their underlying asset, in the net amount of NIS 237 million as of December 31, 2006, from property, plant and equipment to intangible assets.

F-20

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

Effect of new Israeli Accounting Standards (cont’d)

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

In July 2006, the Israel Accounting Standards Board published Accounting Standard No. 29 ("Standard No. 29"). The Standard provides that entities subject to the Israeli Securities Law - 1968 that are required to report according to the regulations of this law are to prepare their financial statements for periods beginning as from January 1, 2008 according to International Financial Reporting Standards as issued by the International Accounting Standards Board (collectively “IFRS”).

In accordance with Standard No. 29 the Company will adopt IFRS in 2008 as its primary basis of accounting and external financial reporting, based upon the requirements of IFRS 1, “First Time Adoption of International Financial Reporting Standards" (“IFRS 1”). Upon the adoption of IFRS in 2008 in accordance with IFRS 1, the Company will apply IFRS in effect as of December 31, 2008. In addition, the Company will consider otherwise available IFRS for early adoption as of December 31, 2008. The IFRS will be applied with retroactive application of such policies to its IFRS transition date of January 1, 2007 (i.e. the “comparative information”).

In accordance with Standard No. 29, the Company is required to include in a note to these Israeli GAAP 2007 financial statements, a condensed balance sheet and income statement as of and for the year ended December 31, 2007, prepared according to the recognition, measurement and presentation principles of IFRS that are in effect or otherwise available for early adoption as of December 31, 2007. Standard No. 29 does not require that the presentation and disclosure of the 2007 IFRS information presented herein comply with the requirements of IFRS 1. Accordingly, the Company has not prepared the accompanying 2007 IFRS information in accordance with IFRS 1.

The tables and notes hereunder quantify and explain the significant differences between Israeli GAAP and IFRS as of and for the year ended December 31, 2007, based upon IFRS as of December 31, 2007, as applied by the Company. The IFRS that will be in effect and available for adoption in the Company’s 2008 annual financial statement when the Company adopts IFRS in accordance with IFRS 1, may differ from the IFRS policies applied by the Company for purposes of the following 2007 disclosure. Accordingly, the accounting principles that will be applied in respect of the year ended December 31, 2007, may change upon the Company’s adoption of IFRS in accordance with IFRS 1 in 2008.

F-21

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

Effects of new Israeli Accounting Standards (cont'd)

Israeli Accounting Standard No. 29, "Adoption of International Financial Reporting Standards" (cont'd)

			January 1, 2007											December 31, 2007
					Effect of applying IFRS
			Israeli GAAP as reported prior to the adoption of new Israeli accounting standards in 2007		Effects reflected upon the adoption of new Israeli accounting standards in 2007		Israeli GAAP as reported after the adoption of new Israeli accounting standards in 2007		Other effect of applying IFRS			IFRS		Israeli GAAP		Effect of applying IFRS			IFRS
	Note		NIS millions		NIS millions		NIS millions		NIS millions			NIS millions		NIS millions		NIS millions			NIS millions
Current assets
Cash and cash equivalents				56		-		56		-			56		911		-			911
Trade receivables, net				1,242		-		1,242		-			1,242		1,397		-			1,397
Other receivables		A, B		123		-		123		(50	)		73		133		(37	)		96
Inventory				131		-		131		-			131		245		-			245
Total current assets				1,552		-		1,552		(50	)		1,502		2,686		(37	)		2,649

Long-term receivables		C		526		-		526		21			547		533		30			563

Property, plant and
equipment, net		C, D		2,390		165		* 2,555		(23	)		2,532		2,368		(33	)		2,335

Intangible assets		D		458		237		695		-			695		685		-			685
Total non-current assets				3,374		402		3,776		(2	)		3,774		3,586		(3	)		3,583

Total assets				4,926		402		* 5,328		(52	)		5,276		6,272		(40	)		6,232

* Includes accumulative effect as of the adoption of Standard No. 27 regarding asset retirement obligations, net effect of NIS 5 million, see Note 2U(2)

F-22

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

Effects of new Israeli Accounting Standards (cont'd)

Israeli Accounting Standard No. 29, "Adoption of International Financial Reporting Standards" (cont'd)

			January 1, 2007														December 31, 2007
						Effect of applying IFRS
			Israeli GAAP as reported prior the adoption of new Israeli accounting standards in 2007			Effects reflected upon the adoption of new Israeli accounting standards in 2007		Israeli GAAP as reported after the adoption of new Israeli accounting standards in 2007			Other effect of applying IFRS			IFRS			Israeli GAAP			Effect of applying IFRS			IFRS
	Note		NIS millions			NIS millions		NIS millions			NIS millions			NIS millions			NIS millions			NIS millions			NIS millions
Current liabilities
Short-term credit				-			-		-			-			-			353			-			353
Trade payables and accrued expenses				819			-		819			-			819			1,007			-			1,007
Current taxation liabilities		E		-			-		-			117			117			-			122			122
Other current liabilities		E		496			-		496			(117	)		379			543			(122	)		421
Total current liabilities				1,315			-		1,315			-			1,315			1,903			-			1,903

Long-term loans from banks				1,208			-		1,208			-			1,208			343			-			343
Debentures				1,989			-		1,989			-			1,989			2,983			-			2,983
Other long-term liabilities		D		2			12		* 14			-			14			17			-			17
Deferred tax liabilities		A, B, D, F		105			105		* 210			(57	)		153			196			(47	)		149
Total non-current liabilities				3,304			117		3,421			(57	)		3,364			3,539			(47	)		3,492
Total liabilities				4,619			117		4,736			(57	)		4,679			5,442			(47	)		5,395
Shareholders equity
Share capital				1			-		1			-			1			1			-			1
Capital reserves		G		(24	)		-		(24	)		-			(24	)		(4	)		(29	)		(33	)
Cash dividend declared subsequent to
the balance sheet date		I		-			-		-			-			-			700			(700	)		-
Retained earnings	A, C, D, G, H			330			285		* 615			5			620			133			736			869

Total shareholders’ equity		D		307			285		592			5			597			830			7			837

Total liabilities and shareholders’ equity				4,926			402		5,328			(52	)		5,276			6,272			(40	)		6,232

* Includes accumulative effect as of the adoption of Standard No. 27 regarding asset retirement obligations, net effect of NIS 5 million, see Note 2U(2)

F-23

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

Effects of new Israeli Accounting Standards (cont'd)

Israeli Accounting Standard No. 29, "Adoption of International Financial Reporting Standards" (cont'd)

Adjustment of the earnings for 2007

						Effect of
			Israeli			applying to
			GAAP			IFRS			IFRS
	Note		NIS millions			NIS millions			NIS millions
Revenues				6,050			-			6,050
Cost of revenues		A		3,372			5			3,377
Gross profit				2,678			(5	)		2,673

Selling and marketing expenses				685			-			685
General and administrative expenses		C		652			1			653
Other expenses		J		-			3			3
Operating income				1341			(9	)		1,332

Financing expenses				(287	)		-			(287	)
Financing income		A		131			9			140
Financing costs, net				(156	)		9			(147	)
Other income expenses		J		3			(3	)		-

Income before income tax				1,182			3			1,185

Income tax		A,C,F		309			1			310
Net income				873			2			875

Earnings per share
Basic earnings per share (in NIS)				8.95			0.02			8.97
Diluted earnings per share (in NIS)				8.88			0.02			8.89

F-24

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

Effects of new Israeli Accounting Standards (cont'd)

Israeli Accounting Standard No. 29, "Adoption of International Financial Reporting Standards" (cont'd)

In accordance with Israeli GAAP, no separation of embedded derivatives is required, as is required in accordance with IFRS, when the Company enters into commercial contracts (mainly for cell site leases) in which a foreign currency derivative instrument is “embedded” within the contract. This embedded derivative is separated from the host contract and carried at fair value in accordance with IFRS, when (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The embedded foreign currency derivatives are marked to market each reporting period against net income. The effect of applying IFRS as at January 1, 2007 includes an increase in other receivables in the amount of NIS 10 million, an increase in deferred tax liabilities in the amount of NIS 3 million and an increase in retained earnings in the amount of NIS 7 million (net of tax). The effect of applying IFRS as at December 31, 2007 includes an increase in other receivables in the amount of NIS 14 million, an increase in deferred tax liabilities in the amount of NIS 4 million and an increase in retained earnings in the amount of NIS 10 million (net of tax). In addition, the cost of revenues increased in the amount of NIS 5 million, financing income increased in the amount of NIS 9 million, and tax expenses increased in the amount of NIS 1 million for the year ended December 31, 2007.

In accordance with Israeli GAAP, deferred tax assets or liabilities were classified as current assets or current liabilities and non-current assets or non-current liabilities according to the classification of the assets or liabilities for which they were created. In accordance with IFRS, deferred tax assets are classified as non-current assets or non-current liabilities even if it is anticipated that they will be realized in the short term. Therefore, upon applying IFRS, short-term deferred tax assets as at January 1, 2007 and December 31, 2007 in the amount of NIS 60 million and NIS 51 million, respectively, were reclassified from the item of other receivables under current assets to the item of deferred tax liabilities under non-current liabilities.

In accordance with Israeli GAAP, lands leased from the Israel Lands Administration ("ILA") are classified as property, plant and equipment and are not depreciated. In accordance with IFRS, when these lands are not considered owned by the Company, the lease payments are classified as long-term receivables and are amortized over the lease period, including the optional extension period if on the date of signing the lease agreement it was reasonably certain that the option will be exercised. Accordingly, as at January 1, 2007 the Company recorded an increase in long-term receivables in the amount of NIS 21 million, a decrease in property, plant and equipment in the amount of NIS 23 million, and a decrease in retained earnings in the amount of NIS 2 million. As at December 31, 2007 the Company recorded an increase in long-term receivables in the amount of NIS 30 million, a decrease in property, plant and equipment in the amount of NIS 33 million, and a decrease in retained earnings in the amount of NIS 3 million. The amortization of lease payments was reflected in an increase in amortization expense in the amount of NIS 1 million for the year ended December 31, 2007.

F-25

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

Effects of new Israeli Accounting Standards (cont'd)

Israeli Accounting Standard No. 29, "Adoption of International Financial Reporting Standards" (cont'd)

See notes 2(U)2 and 2(U)4 regarding the adoption of Standard No. 27 and Standard No. 30 respectively.

In accordance with Israeli GAAP, current taxation liabilities were classified as other current liabilities. In accordance with IFRS, current taxation liabilities are presented as a separate item in current liabilities. Therefore, upon applying IFRS, current taxation liabilities as at January 1, 2007 and December 31, 2007 in the amount of NIS 117 million and NIS 122 million, respectively, were reclassified from the item of other current liabilities under current liabilities to the item of current taxation liabilities under current liabilities.

The deferred tax liability as presented hereunder has changed based on the aforementioned changes. The changes in the deferred taxes were calculated on the basis of tax rates that are expected to be in effect when the temporary differences reverse:

			January 1			December 31
			2007			2007
	Note		NIS millions			NIS millions
Property, plant and equipment, net		D		105			-
Other receivables		A		3			4
Deferred tax liabilities		B		(60	)		(51	)
				48			(47	)

In accordance with Israeli GAAP, expenses recognized regarding share-based payment transactions were recorded against a capital reserve in the shareholders' equity. In accordance with IFRS, and on the basis of the accounting policy applied by the Company, the Company has reclassified this capital reserve to the retained earnings. Accordingly, the balance of the capital reserve decreased as of December 31, 2007 in the amount of NIS 29 million, and the retained earnings increased in the amount of NIS 29 million.

The effect of the aforementioned adjustments (net of tax) on the retained earnings:

			January 1			December 31
			2007			2007
	Note		NIS millions			NIS millions
Property, plant and equipment, net		D		285			-
Other receivables		A		7			10
Lands leased from the ILA		C		(2	)		(3	)
Classification of surplus resulting
from share base payment		G		-			29
Dividend declared subsequent to
balance sheet date		I		-			700
				290			736

F-26

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 2 - Significant Accounting Policies (cont’d)

Effects of new Israeli Accounting Standards (cont'd)

Israeli Accounting Standard No. 29, "Adoption of International Financial Reporting Standards (cont'd)

In accordance with Israeli GAAP, a dividend declared subsequent to the balance sheet date and before the approval date of the financial statements was appropriated within shareholders’ equity as a separate item “Dividend declared subsequent to balance sheet date” against a decrease in retained earnings. In accordance with IFRS, such a dividend only requires disclosure and does not require any equity reclassification. Accordingly, as at December 31, 2007 the balance of retained earnings increased and the dividend declared subsequent to the balance sheet date that is presented in shareholders’ equity decreased by the amount of NIS 700 million.

In accordance with Israeli GAAP, gains and losses from the sale of property, plant and equipment net and other income / expenses were not included in operating income. In accordance with IFRS, these items are included in operating income. The effect of applying IFRS for the year ended December 31, 2007 is reflected in a reclassification of these items so as to be included in the operating income, in the amount of an expense of NIS 3 million.

Financial Instruments linked to the Israeli CPI:

A portion of the financial instruments held by the Company are linked to the Israeli CPI. The Company's management is of the opinion that based upon the position paper draft published by the Israeli Accounting Standards Board, there are several alternative options for the accounting treatment of financial instruments that are linked to the Israeli CPI. For the purpose of the preparation of this note, the Company has adopted the accounting treatment according to which the book value of the financial instrument and the payments derived from it are revaluated in each period according to the actual rate of change in the CPI, therefore negating the need for a reconciliation between the value of the financial instruments according to Israeli GAAP and their value according to IFRS guidelines. The issue of measurement of financial instruments that are linked to the Israeli CPI according to IFRS guidelines is under the consideration of the Israeli Accounting Standards Board, under which its' professional committee will approach the IFRIC, in order to receive their position on the issue.

Considering the aforementioned arguments, it is possible the final position regarding the measurement of the aforementioned financial instrument will be that the treatment implemented by the Company is not possible under IFRS guidelines and a different treatment, according to which the inflation expectations are taken into account in the measurement of the financial instrument, would be more appropriate (in that matter refer to clause AG7 and AG8 of IAS39). Should this be decided, the Company would be required to examine the said decision, in addition to its transitional instructions, on its financial statements and their accompanying notes, as presently reported and in the future, until the decision is made according to IFRS.

F-27

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 3 - Cash and Cash Equivalents

Composition

	December 31
	2006		2007
	NIS millions		NIS millions
Israeli currency - NIS		45		901
Foreign currency (mainly USD)		11		10

		56		911

Note 4 - Trade Receivables, net

Composition

	December 31
	2006		2007
	NIS millions		NIS millions
Open accounts and unbilled revenue		691		768
Checks and credit cards receivables		165		158
		856		926
Current maturity of long-term receivables		565		626
		1,421		1,552
Less – allowance for doubtful accounts		179		167
		1,242		1,385

Note 5 - Other Receivables

Composition

	December 31
	2006		2007
	NIS millions		NIS millions
Prepaid expenses		54		49
Deferred taxes		60		51
Derivative financial instruments		-		30
Other		9		3
		123		133

Note 6 - Inventory

A. Composition

	December 31
	2006		2007
	NIS millions		NIS millions
Handsets		98		195
Accessories		7		18
Spare parts		26		32
		131		245

Inventories of handsets, accessories and spare-parts as at December 31, 2007, are presented net of a provision for decline in value in the amount of NIS 2 million (December 31, 2006 – NIS 10 million).

F-28

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 7 - Long-term Receivables

Composition


	December 31
	2006		2007
	NIS millions		NIS millions
Open accounts (a)		913		974
Credit cards receivables (a)		171		180
Other		57		67
Total		1,141		1,221
Less deferred interest income (b)		46		47
		1,095		1,174
Less - Allowance for doubtful accounts		4		3
		1,091		1,171
Less current maturities		565		626

		526		545

Maturity dates are as follows:

	December 31
	2007
	NIS millions
Second year		362
Third year		134
Fourth year and thereafter		49

		545

(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 and 2007 was 5%.

F-29

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 8 - Property, Plant and Equipment, Net

A. Composition:

	Land*			Network and transmission equipment			Control and testing equipment			Vehicles			Computers, furniture and office equipment			Leasehold improvements		Total
	NIS millions			NIS millions			NIS millions			NIS millions			NIS millions			NIS millions		NIS millions
For the year ended December 31, 2007

Cost
Balance at January 1, 2007		33			7,445			261			16			1,853			176		9,784
Reclassification to Intangible Assets
(See note 2U(4))		-			-			-			-			(680	)		-		(680	)
Balance at January 1, 2007		33			7,445			261			16			1,173			176		9,104

Assets Retirement Obligations- impact of first time adoption (See note 2U(2))		-			9			-			-			-			-		9
Additions		-			324			23			2			63			15		427
Dispositions		-			(33	)		(1	)		(2	)		(285	)		-		(321	)
Balance at December 31, 2007		33			7,745			283			16			951			191		9,219

Accumulated Depreciation
Balance at January 1, 2007		-			5,343			210			6			1,324			104		6,987
Reclassification to Intangible Assets
(See note 2U(4))		-			-			-			-			(443	)		-		(443	)
Balance at January 1, 2007		-			5,343			210			6			881			104		6,544
Assets Retirement Obligations- impact of first time addition (See note 2U(2))		-			4			-			-			-			-		4
Depreciation for the period		-			473			18			2			108			15		616
Dispositions		-			(28	)		-			(1	)		(284	)		-		(313	)
Balance at December 31, 2007		-			5,792			228			7			705			119		6,851

Provision for decline in value of land held for sale **
Balance at January 1,2007		(10	)		-			-			-			-			-		(10	)
Reversal of impairment losses		10			-			-			-			-			-		10
Balance at December 31, 2007		-			-			-			-			-			-		-

Net Depreciated cost as at December 31, 2007		33			1,953			55			9			246			72		2,368
Net Depreciated cost as at December 31, 2006		23			2,102			51			10			292			72		2,550

	*	Represents land that was leased from the Israel Lands Administration, a capital lease for the period of 49 years, commencing from November 2001.
	**	On December 31, 2006, the Company had a provision for the decline in value of land in the amount of NIS 10 millions. On December 10, 2007, the Company signed an agreement (containing generally accepted terms) for the sale of rights in the land to Bayside Land Corporation Ltd., which is controlled by the controlling shareholder of the Company, (the "Buyer") for the sum of NIS 39 million plus value added tax. The agreement was subject to all corporate approvals of both parties, as required under Israeli Companies Law and came into force only after these approvals were obtained subsequent to the balance sheet date, in February 2008.

The transfer of rights in the land to the Buyer is subject to the consent of the Israeli Land Authority ("ILA"). In case the ILA does not give its consent to the transfer of rights, each party will be entitled to terminate the agreement, in which case any sums previously paid or placed in escrow by the Buyer will be returned to the Buyer. In case the ILA demands consent fees and/or any other payment following a claim (if made) as to the Company's alleged failure to comply with the terms of the development and/or lease agreements signed with the ILA, the parties will contest such demands. If such demands are not revoked, the Company will bear their cost . The Company has the right to terminate the agreement, should such payment to ILA exceed 3% of the consideration plus value added tax, unless the parties or either of them, decides to pay the difference between the said 3% and the ILA’s demands.

On December 31, 2007, as result of the agreement signed with the Buyer, the Company fully reversed the impairment provision in respect of the land that was previously made.

F-30

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 8 - Property, Plant and Equipment, Net (cont'd)

Additional information

The accumulated cost of the network as at December 31, 2007 includes direct costs incurred to construct the cellular mobile telephone system, in the amount of NIS 258 million (December 31, 2006 – NIS 245 million) including capitalized engineering, professional consulting fees, direct salaries and financing expenses.

Depreciation in respect of property, plant and equipment totaled NIS 775 million, NIS 702 million and NIS 616 million for the years ended December 31, 2005, 2006 and 2007, respectively.

Regarding liens – see Note 16D.

Note 9 - Intangible Assets, Net

A. Composition:

	Licenses		Information Systems			Software		Deferred expenses			Total
	NIS millions		NIS millions			NIS millions		NIS millions			NIS millions
Cost
Balance at January 1, 2006		549		-			-		13			562
Reclassification from Property, Plant and Equipment, Net (See note 2U(4))		-		396			187		-			583
Balance at January 1, 2006		549		396			187		13			1,145
Additions		1		63			34		-			98
Dispositions		-		-			-		(4	)		(4	)
Balance at December 31, 2006		550		459			221		9			1,239

Balance at January 1, 2007		550		459			221		9			1,239
Additions		-		87			38		21			146
Dispositions		-		(7	)		-		(9	)		(16	)
Balance at December 31, 2007		550		539			259		21			1,369

Accumulated Amortization
Balance at January 1, 2006		56		-			-		13			69
Reclassification from Property, Plant and Equipment, Net (See note 2U(4))		-		232			95		-			327
Balance at January 1, 2006		56		232			95		13			396
Amortization for the period		36		76			40		-			152
Dispositions		-		-			-		(4	)		(4	)
Balance at December 31, 2006		92		308			135		9			544

Balance at January 1, 2007		92		308			135		9			544
Amortization for the period		39		73			42		2			156
Dispositions		-		(7	)		-		(9	)		(16	)
Balance at December 31, 2007		131		374			177		2			684

Net amortized cost as at January 1, 2006		493		164			92		-			749
Net amortized cost as at December 31, 2006		458		151			86		-			695
Net amortized cost as at December 31, 2007		419		165			82		19			685

F-31

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 9 - Intangible Assets, Net (cont'd)

Additional information

The accumulated cost of the information systems as at December 31, 2007 includes cumulative capitalized development costs of software for internal use in the amount of NIS 491 million (December 31, 2006 – NIS 459 million).

Amortization in respect of the intangible assets other than licenses totaled NIS 109 million, NIS 116 million, and NIS 117 million for the years ended December 31, 2005, 2006 and 2007, respectively.

License amortization expenses for the years ended December 31, 2005, 2006 and 2007 totaled NIS 29 million, NIS 36 million and NIS 39 million, respectively.

The expected license amortization expense for the next six years is as follows:

	December 31
	2007
	NIS millions
2008		35
2009		32
2010		29
2011		29
2012		29
2013		29

Note 10 - Short-Term Credit

Composition

	December 31
	2006		2007
	NIS millions		NIS millions
Current maturities of long-term loans		-		232
Current maturities of debentures		-		121

		-		353

Note 11 - Trade Payables and accrued expenses

Composition

	December 31
	2006		2007
	NIS millions		NIS millions
Open accounts:
In Israeli currency		204		249
In foreign currency (mainly in U.S. dollars)		118		194
Accrued expenses (mainly in NIS)		497		564

		819		1,007

F-32

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 12 - Other Current Liabilities

Composition

	December 31
	2006		2006
	NIS millions		NIS millions
Employees and related liabilities		113		126
Government institutions		117		156
Accrued expenses		119		128
Deferred revenue		30		38
Derivative financial instruments		112		94
Advances from customers		5		1

		496		543

Note 13 - Long-term Loans from Banks

A. Composition

	December 31
	2006			2006
	NIS millions			NIS millions
In or linked to USD		718			327
In NIS - unlinked		507			253
		1,225			580

Less debt issuance cost		(17	)		(5	)

Total		1,208			575

Less current maturities		-			(232	)

		1,208			343

Interest rate for December 31, 2007 – in USD – 5.7%, in NIS – 5.3%-5.4% (2006 – 6.5% - 6.6%).

B. Maturity dates:

	December 31
	2007
	NIS millions
2008		232
2009		232
2010		116

		580

F-33

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 13 - Long-term Loans from Banks (cont'd)

Credit facility agreement

In March 2006, the Company entered into an unsecured syndicated facility agreement with a number of Israeli and international banks arranged by Citibank N.A. and Citibank International plc, which provided for a term loan of $280 million and a revolving credit facility of up to $70 million. On April 10, 2006, the Company converted part of the outstanding dollar loan into a NIS loan. The Company repaid an amount of $ 137.5 million (comprised of $ 110 million on account of the term loan and $ 27.5 million on account of the revolving credit facility) and the Company received in exchange an amount of NIS 633 million (comprised of a term loan in the amount of NIS 506 million and a revolving credit facility in the amount of NIS 127 million). In November 2007, the Company performed a voluntary partial prepayment of 50% of the outstanding term loan, in a principal amount of US$ 140 million (comprising of approximately US$ 85 million principal amount denominated in US$ and approximately NIS 253 million principal amount denominated in NIS). As of December 31, 2007 the outstanding principal amount of the term loan is US$ 140 million (comprising of approximately US$ 85 million denominated in US$ and approximately NIS 253 million denominated in NIS).

As of December 31, 2007, the average interest rate on the outstanding dollar loans was three-month LIBOR + 0.80% per year and the average interest rate on the outstanding NIS loans was three month TELBOR + 0.80% + 0.20% per year.

The loan agreement includes standard provisions with respect to voluntary prepayment, events of default, financial covenants and restrictive covenants. As of the balance sheet date the Company is in compliance with all of its debt covenants. Regarding the voluntary prepayment of the balance of the term loan and the termination thereof refer to note 27A.

Note 14 - Debentures

A. Composition

				December 31			December 31
				2006			2007
	Interest rate %			NIS millions			NIS millions
Debentures (Series A) – linked to the Israeli CPI		5.00	%		1,065			1,092
Debentures (Series B) – linked to the Israeli CPI		5.30	%		925			948
Debentures (Series C) – linked to the Israeli CPI		4.60	%		-			245
Debentures (Series D) – linked to the Israeli CPI		5.19	%		-			827
Unamortized premium on debentures					3			1
Unamortized discount on debentures					-			(3	)
					1,993			3,110
Less current maturities					-			(121	)
Less - Deferred issuance expenses					(4	)		(6	)

					1,989			2,983

F-34

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 14 – Debentures (cont'd)

B. Maturity dates

	December 31
	2007
	NIS millions
2008		121
2009		297
2010		297
2011		297
2012		297
More than 5 years		1,801

		3,110

C. Issuance of debentures

In December 2005, the Company issued NIS 1,037 millions principle amount debentures (Series A) to institutional investors at par value. The debentures are payable in nine equal semi-annual installments, on July 5 of each of the years 2008 through 2012 and on January 5 of each of the years 2009 through 2012. The debentures bear an annual interest of 5.00%. The interest is to be paid on January 5 of each of the years 2007 through 2012 and on July 5 of each of the years 2006 through 2012 for the six-month period ended on the day prior to each date as stated. Both the principal amount and interest are linked to the Israeli Consumer Price Index for November 2005.

In December 2005, the Company issued NIS 715 million principle amount debentures (Series B) to institutional investors at par value. The debentures are payable in five equal annual installments, on January 5 of each of the years 2013 through 2017. The debentures bear an annual interest of 5.30%. The interest is to be paid on January 5 of each of the years 2007 through 2017 for the twelve-month period ended on the day prior to each date as stated. Both the principal amount and interest are linked to the Israeli Consumer Price Index for November 2005.

On May 29, 2006, the Company issued to institutional investors additional Series A debentures in the aggregate principle amount of NIS 28 million, in exchange for consideration of NIS 29 million, and additional Series B debentures in the aggregate principle amount of NIS 210 million in exchange for consideration of NIS 221 million.

In October 2007, the Company issued debentures Series C to the public in the aggregate principle amount of NIS 245 million in exchange for a net consideration of NIS 244 million. The debentures are payable in nine semi-annual installments, on March 1 and September 1 of each of the years 2009 through 2012, and on March 1, 2013. The debentures bear an annual interest of 4.60%. The interest is to be paid in semi- annual installments on March 1 and September 1 of each of the years 2008 through 2012 and on March 1, 2013. Both the principal amount and interest are linked to the Israeli Consumer Price Index for August 2007.

In October 2007, the Company issued new debentures Series D to the public investors in the aggregate principle amount of NIS 827 million in exchange for a net consideration of NIS 823 million. The debentures are payable in five equal annual installments, on July 1 of each of the years 2013 through 2017. The debentures bear an annual interest of 5.19%. The interest is to be paid in annual installments on July 1 of each of the years 2008 through 2017. Both the principal amount and interest are linked to the Israeli Consumer Price Index for August 2007.

For information regarding a private placement to institutional investors, of additional debentures of Series C and D refer to Note 27B.

The debentures (series A, B, C & D) are listed on the Tel Aviv Stock Exchange and are not convertible.

F-35

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 15 - Liability for Employee Severance Benefits, net

The Company’s liability for severance pay for its Israeli employees is calculated pursuant to Israeli severance pay law based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. After completing one full year of employment, the Company’s Israeli employees are entitled to one month’s salary for each year of employment or a portion thereof. The Company’s liability is fully provided by monthly deposits with severance pay funds, insurance policies and by an accrual. For the majority of the Company employees the payments to the pension funds and insurance companies discharge the Company’s obligation to the employees as required by the Severance Pay Law in connection with Section 14. Accumulated amounts in the pension funds and with the insurance companies are not under the control or administration of the Company, and accordingly, neither those amounts nor the corresponding accrual for severance pay are reflected in the balance sheet. The obligation of the Company, under law and labor agreements, for termination benefits to employees not covered by the aforementioned pension or insurance plans is NIS 2 millions and NIS 3 million as of December 31, 2006 and 2007 respectively as included in the balance sheet, under other long term liabilities.

The severance pay expenses for the years ended December 31, 2005, 2006 and 2007 were approximately NIS 27 million, NIS 27 million and NIS 28 million, respectively.

In January 2008, subsequent to the balance sheet date, under an order issued by the Ministry of Industry, Commerce and Labor, all Israeli employers are obligated to contribute to a pension plan amounts equal to a certain percentage of the employee's wages, for all employees, after a certain minimum period of employment. The Company is complying with this obligation. Under the new order, additional employees are entitled to contribution to a pension plan, which shall increase gradually until 2013 and up to 5% of the employee’s wages, with additional identical contribution for severance pay. A provision in the Company's financial reports covers severance pay to those employees who were not entitled to managers’ insurance or other pension arrangements or for the balance between future severance pay according to the law and the contribution for severance payment, made according to said order.

Note 16 - Commitments and Contingent Liabilities

Contingent liabilities

All sums indicated for the lawsuits below are as at the filing date thereof, unless specifically mentioned otherwise.

In December 2002, a purported class action lawsuit was filed against the Company and another cellular operator in the District Court of Tel-Aviv–Jaffa in connection with the Company’s incoming call tariff to subscribers of other operators when calling the Company’s subscribers during the period prior to the regulation of interconnect fees. If the lawsuit is certified as a class action, the amount claimed is NIS 1.6 billion. Based on advice of counsel, management believes that the Company has a good defense against the certification of the lawsuit as a class action. Accordingly, no provision has been included in the financial statements in respect of this claim.

F-36

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont'd)

Contingent liabilities (cont'd)

In August 2001, a purported class action lawsuit was filed against the Company in the District Court of Tel-Aviv-Jaffa by one of the Company’s subscribers in connection with air time tariffs and subscriber fees that were allegedly collected not in accordance with the agreement of undertaking signed by the Company’s subscribers at the time of joining the Company’s network. If the lawsuit is certified as a class action, the amount claimed is NIS 1.26 billion plus punitive damages at a rate of not less than 100% of the amount of the judgment. In February 2004, the motion for certification as a class action was denied. In March 2004, this decision was appealed to the Israeli Supreme Court. In January 2006, the Supreme Court approved the plaintiff’s motion to amend his complaint to reflect the amendment to the Consumer Protection Law and return to the District Court in order to examine the amendment’s effect, if any, on the District Court ruling, which remains in effect. In October 2006, a separate motion was granted allowing the plaintiff to further revise his complaint, as a result of enactment of the Class Action Claims Law. Based on advice of counsel, management believes that the Company has good defenses against the certification of the lawsuit as a class action. Accordingly, no provision has been included in the Company's financial statements in this respect.

In September 2000, a purported class action lawsuit was filed against the Company in the District Court of Tel-Aviv–Jaffa by one of the Company’s subscribers in connection with VAT charges in respect of warranty premiums and the provision of warranty services that were allegedly provided not in accordance with the law. If the lawsuit is certified as a class action, the amount of the claim is NIS 402 million. In February 2006, the motion for certification as a class action was denied. In March 2006, an appeal was filed with the Supreme Court challenging the dismissal. Based on advice of counsel, management believes that the Company has a good defense against the appeal. Accordingly, no provision has been included in the Company’s financial statements in respect of this claim.

In August 2001, a purported class action lawsuit was filed against the Company in the District Court of Tel-Aviv–Jaffa by one of the Company’s subscribers in connection with the Company outgoing call tariffs for the ‘Talkman’ (pre-paid) plan and the collection of a distribution fee for ‘Talkman’ calling cards. If the claim is certified as a class action, the amount claimed is NIS 135 million. In June 2004, the motion for certification as a class action was denied. In September 2004, this decision was appealed to the Israeli Supreme Court. In July 2007, pursuant to the appeal, the Israeli Supreme Court granted a petition filed by both parties with mutual consent, in light of the Israeli Class Action Law, 2006, to resubmit the purported class action lawsuit for consideration in the District Court of Tel Aviv-Jaffa. Based on advice of counsel, management believes that the Company has a good defense against the certification of the lawsuit as a class action. Accordingly, no provision has been included in the Company’s financial statements in respect of this claim.

F-37

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont'd)

Contingent liabilities (cont'd)

A dispute exists between the Company and the Ministry of Communications with respect to the payment of fees for its use of the GSM and UMTS frequencies. The amount in dispute as at December 31, 2007, is approximately NIS 69 million (including interest and CPI linkage differences). Until a final decision on this matter, the Company has deposited approximately half of this amount with the Ministry of Communications. Based on advice of counsel, management believes that the method the Company applies in the calculation of the fees is the lawful method. Accordingly, no provision has been included in the Company's financial statements in respect of the amount in dispute. The amount the Company has deposited is refundable upon the favorable resolution of the dispute. The Company has applied to the courts regarding this issue.

In April 2003, a purported class action lawsuit was filed against two other cellular operators and the Company with the District Court of Tel-Aviv–Jaffa in connection with the Company’s incoming SMS tariff to subscribers of other operators when sending SMS messages to the Company’s subscribers during the period before the regulation of SMS interconnect fees. If the lawsuit is certified as a class action, the amount claimed is NIS 90 million, without the specification of the amount claimed from the Company. Based on advice of counsel, management believes that the Company has a good defense against the certification of the lawsuit as a class action. Accordingly, no provision has been included in the Company's financial statements in respect of this claim.

In August 2003, a purported class action lawsuit was filed against the Company in the District Court of Tel-Aviv–Jaffa and later transferred to the District Court of Central Region by one of the Company’s subscribers in connection with the Company method of rounding the rates of calls, the Company method of linking rates of calls to the consumer price index and that a certain rate that was approved by the Ministry of Communications in 1996 was unlawfully approved. If the lawsuit is certified as a class action, the amount claimed is NIS 150 million. In March 2006, the plaintiff filed an amended statement of its claim, following the amendment to the Consumer Protection Law in December 2005, to which the Company has replied. Based on advice of counsel, management believes that the Company has a good defense against the certification of the lawsuit as a class action. Accordingly, no provision has been included in the Company financial statements in respect of this claim.

In January 2004, a purported class action lawsuit was filed against the Company in the District Court of Tel-Aviv–Jaffa by one of its subscribers, with respect to the rates of calls made from the cellular voice mail using the “Boomering” service through use of one of the marketing programs the Company offered to its subscribers. If the claim is certified as a class action, the amount claimed is NIS 10 million. Based on advice of counsel, management believes that the Company has a good defense against the certification of the claim as a class action. Accordingly, no provision has been included in the Company's financial statements in respect of this claim.

In March 2005, a purported class action lawsuit was filed against the Company in the District Court of Tel-Aviv–Jaffa by one of its subscribers alleging that the Company’s marketing campaigns are misleading. In December 2007, the motion for certification as a class action and the lawsuit were denied. Had the lawsuit been certified as a class action, the total amount claimed was NIS 10 million.

F-38

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont’d)

Contingent liabilities (cont’d)

10.

In April 2005, a lawsuit was filed against the Company in the District Court of Tel-Aviv–Jaffa by one of the Company's former dealers and importers for the amount of NIS 28 million (reduced for court fee purposes from approximately NIS 38 million), alleging that the Company breached an agreement between the parties. Based on advice of counsel, management believes that the Company has a good defense against the lawsuit. Accordingly, no provision has been made in the Company financial statements in respect of this claim.

11.

In October 2005, a purported class action lawsuit was filed against the Company in the District Court of Tel-Aviv–Jaffa by one of its subscribers, alleging the Company has mislead in regard to refunds, with respect to the use of air-time in various marketing plans. If the lawsuit is certified as a class action, the amount claimed is NIS 10 million. In November 2007, the motion for certification as a class action and the lawsuit were denied. In January 2008, subsequent to the balance sheet date, this decision was appealed to the Israeli Supreme Court. Based on advice of counsel, management believes that the Company has a good defense against the appeal. Accordingly, no provision has been made in the Company financial statements in respect of this claim.

12.

The Company has undertaken to indemnify the Company’s directors and officers, as well as certain other employees for certain events listed in the indemnifications letters given to them. The aggregate amount payable to all directors and officers and other employees who may have been or will be given identical indemnification letters is limited to the amounts the Company receives from the Company’s insurance policy plus 30% of the Company’s shareholders’ equity as of December 31, 2001 or NIS 486 million, and to be adjusted by the Israeli CPI.

13.

In August 2006, a purported class action lawsuit was filed against the Company and two other cellular operators in the District Court of Tel-Aviv–Jaffa by one of the Company’s subscribers in connection with sums allegedly unlawfully charged for a segment of a call that was not actually carried out. If the lawsuit is certified as a class action, the total amount claimed is estimated by the plaintiffs as exceeding NIS 100 million, without specifying the amount claimed from the Company individually. Based on advice of counsel, management believes, that the Company has a good defense against the certification of the claim as a class action. Accordingly, no provision has been included in the Company’s financial statements in respect of this claim. In November 2006 a similar purported class action was filed against the Company, two other cellular operators and two landline operators in the District Court of Tel-Aviv–Jaffa by four plaintiffs claiming to be subscribers of the three cellular operators. The latter was withdrawn in October 2007, by the plaintiffs, with regards to the Company and the other two cellular operators, following a procedural agreement reached between the plaintiffs in the latter lawsuit and the plaintiffs in former purported class action lawsuit (the two lawsuits will be heard together). Had the withdrawn lawsuit been certified as a class action, the amount claimed from the Company and each of the other cellular operators by the plaintiffs would have been approximately NIS 53 million (the amount claimed from all five defendants was estimated by the plaintiffs to be approximately NIS 159 million).

F-39

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont’d)

Contingent liabilities (cont’d)

14.

In November 2006, a purported class action lawsuit was filed against the Company, a third party that had provided services to customers of the Company (“the Supplier”) and other parties allegedly related to the supplier, in the District Court of Tel-Aviv–Jaffa by a subscriber of the Company. The lawsuit is in connection with sums allegedly charged by the Company in respect of content services of the Supplier without the subscriber’s consent. If the lawsuit is certified as a class action, the total amount claimed from the Company, the Supplier and other parties is estimated by the plaintiffs as approximately NIS 18 million, in addition to another NIS 10 million for mental anguish. Based on advice of counsel, management believes, that the Company has a good defense against the certification of the claim as a class action. Accordingly, no provision has been included in the Company’s financial statements in respect of this claim.

15.

In January 2007 a lawsuit was filed against the Company in an arbitration proceeding for the amount of approximately NIS 35 million by a company (the “Plaintiff”) that purchased cellular services from the Company in order to sell the services to its customers, alleging, among other things, that the Company has breached agreements between the parties and making claims concerning the Company's conduct. The Company rejects all claims made by the Plaintiff against the Company. Based on advice of counsel, management believes, that the Company has a good defense against the claim. Accordingly, no provision has been made in the financial statements in respect of this claim.

16.

In January 2007 a purported class action lawsuit was filed against the Company, two other cellular operators and two landline operators in the District Court of Jerusalem by three plaintiffs, claiming to be subscribers of some of the defendants, in connection with an alleged violation of the defendants' statutory duty to allow their subscribers to transfer with their number to another operator, thus, allegedly causing monetary damage to the subscribers. In March 2008, subsequent to balance sheet date, the motion for certification as a class action was dismissed without prejudice and the lawsuit was dismissed with prejudice, following request of the plaintiffs to withdraw their claim. Had the lawsuit been certified as a class action, the total amount claimed was estimated by the plaintiffs to be at least NIS 10.6 billion.

17.

In February 2007, a purported class action was filed against the Company in the District Court of Tel-Aviv, by a plaintiff claiming to be a customer of the Company. The plaintiff claimed that the Company unlawfully collected VAT amounts from subscribers who are residents of Eilat. In May 2007, the motion for certification as a class action and the lawsuit were denied. Had the lawsuit been certified as a class action, the amount claimed from the Company was estimated by the plaintiff at approximately NIS 33 million

F-40

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont’d)

Contingent liabilities (cont’d)

18.

In February 2007, a purported class action lawsuit was filed against the Company and two other cellular operators in the District Court of Tel-Aviv by plaintiffs claiming to be subscribers of the three cellular operators, in connection with amounts that were allegedly overcharged not in accordance with the cellular operators’ licenses, based on charge units larger than the charge units the Company was allegedly authorized to charge under the Company's licenses for calls initiated or received by subscribers outside of Israel. If the lawsuit is certified as a class action, the total amount claimed from the cellular operators is estimated by the plaintiffs to be approximately NIS 449 million, of which approximately NIS 193 million is attributed to the Company. Based on advice of counsel, management believes that the Company has a good defense against the certification of the claim as a class action. Accordingly, no provision has been made in the financial statements in respect of this claim.

19.

In April 2007, a purported class action lawsuit was filed against the Company in the District Court of Tel-Aviv-Jaffa, by two plaintiffs who claim to be subscribers of the Company. The claim alleges that the Company, unlawfully and in violation of its license, raised its rates in pricing plans that include a commitment to purchase certain services for a fixed period. In February 2008, subsequent to the balance sheet date, the motion for certification as a class action and the lawsuit were denied. Had the lawsuit been certified as a class action, the amount claimed was estimated by the plaintiffs at approximately NIS 230 million.

20.

In May 2007, a purported class action lawsuit was filed against the Company in the District Court of Tel-Aviv-Jaffa, by two plaintiffs who claim to be subscribers of the Company. The claim alleges that the Company, unlawfully and in violation of its license, raised its rates in pricing plans that include a commitment to purchase certain services for a fixed period. If the claim is recognized as a class action, the amount claimed is approximately NIS 875 million. Based on the advice of the Company's legal counsel, management believes that the Company has a good defense against the certification of the lawsuit as a class action. Accordingly, no provision has been included in the Company's financial statements in respect of this claim.

21.

In May 2007, a purported class action lawsuit was filed against the Company and another cellular operator in Israel, in the District Court of Jerusalem, by plaintiffs who claim to be subscribers of the defendants. The claim alleges that the defendants charged the subscribers for calls initiated or received while in Israel, through a foreign cellular network, with roaming rates which are higher than those agreed in the defendants' pricing plans for local calls. If the claim is recognized as a class action, the amount claimed from the defendants is estimated by the plaintiffs as approximately NIS 34 million, of which the amount attributed to the Company is estimated to be approximately NIS 12 million. Based on the advice of the Company's legal counsel, management believes that the Company has a good defense against the certification of the lawsuit as a class action. Accordingly, no provision has been included in the Company's financial statements in respect of this claim.

F-41

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont’d)

A. Contingent liabilities (cont’d)

22.

In September 2007, a purported class action lawsuit was filed against the Company and two other cellular operators in the District Court of Jerusalem, by three plaintiffs who claim to be subscribers of the defendants. The plaintiffs claim that the defendants charged their subscribers for SMS messages sent by them to subscribers who disabled their ability to receive SMS messages and/or misled the senders by an indication on their cell phones that such messages were sent. If the claim is certified as a class action, the amount claimed from all three defendants is estimated by the plaintiffs to be approximately NIS 182 million, without specifying the amount claimed from the Company specifically. At this preliminary stage, before the Company has submitted its response, management believes, based on the advice of the Company's legal counsel, that the Company has a good defense against the certification of the lawsuit as a class action. Accordingly, no provision has been made in the financial statements in respect of this claim.

23.

In November 2007, a purported class action lawsuit was filed against the Company in the District Court of Central Region, by a plaintiff who claims to be a subscriber of the Company. The plaintiff claims that the Company charged its subscribers for content services without obtaining their specific consent, in a manner which complies with the provisions of its general license. If the lawsuit is certified as a class action, the amount claimed is estimated by the plaintiff to be NIS 432 million. At this preliminary stage, before the Company has submitted its response, management believes, based on the advice of the Company's legal counsel, that the Company has a good defense against the certification of the lawsuit as a class action. Accordingly, no provision has been made in the financial statements in respect of this claim.

24.

In December 2007, the Company was served with a petition filed with the Israeli High Court of Justice against the Israeli Minister of Communications and another cellular operator. seeking to retroactively apply the amendment to cellular operators' general license, effected September 2007, which prevents the Company from offering subscribers calling plans using airtime charging units other than the basic airtime charging unit, or alternatively, to retroactively cancel any charges which may be imposed on subscribers when transferring, before the lapse of a predetermined period, to calling plans based on the basic airtime charging unit. The Company and one other cellular operator were joined as formal respondents. The court has instructed only the Ministry of Communications to submit its response. In its recently submitted response, the Ministry of Communications opposes the petition. At this preliminary stage, before the court has decided to conduct a hearing and before the Company has submitted any response, management believes, based of advice of counsel, the court will not grant the remedies sought. Accordingly, no provision has been made in the financial statements in respect of this claim. For additional details regarding the amendment to the general license refer to note 16.B.2.

F-42

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont’d)

A. Contingent liabilities (cont’d)

25.

In December 2007, a purported class action lawsuit was filed against the Company and two other cellular operators in the District Court of Tel Aviv, by plaintiffs who claim to be residing next to cell sites of the defendants which the plaintiffs claim were built in violation of the law. The plaintiffs allege that the defendants have created environmental hazards by unlawfully building cell sites and, therefore, demand that the defendants compensate the public for damages (other than personal damages, such as depreciation of property and/or health related damages which are excluded from the purported class action), demolish existing unlawfully built cell sites and refrain from unlawfully building new cell sites. If the lawsuit is certified as a class action, the compensation claimed from the defendants (without any allocation of this amount among the defendants) is estimated by the plaintiffs to be NIS 1 billion. At this preliminary stage, before the Company has submitted its response, management believes, based on the advice of the Company's legal counsel, that the Company has a good defense against the certification of the lawsuit as a class action . Accordingly, no provision has been made in the financial statements in respect of this claim.

26.

In December 2007, a purported class action lawsuit was filed against the Company in the District Court of Central Region, by plaintiffs claiming to be the subscribers of the Company, in connection with sums the Company allegedly overcharged, when the Company raised its tariffs in certain calling plans. If the lawsuit is recognized as a class action, the amount claimed is estimated by the plaintiffs to be approximately NIS 44 million. At this preliminary stage, the Company is unable to assess the lawsuit's chances of success. Accordingly, no provision has been made in the financial statements in respect of this claim.

27.

In February 2008, subsequent to balance sheet date, a purported class action lawsuit was filed against the Company in the District Court of Central Region, by plaintiffs claiming to be subscribers of the Company, in connection with sums the Company allegedly overcharged, when the Company raised its tariffs for SMS packages. If the lawsuit is recognized as a class action, the amount claimed is estimated by the plaintiffs to be approximately NIS 43 million. At this preliminary stage, the Company is unable to assess the lawsuit's chances of success. Accordingly, no provision has been made in the financial statements in respect of this claim.

28.

In March 2008, subsequent to balance sheet date, a purported class action lawsuit was filed against the Company in the District Court of Central Region, by plaintiffs claiming to be the Company's subscribers. The plaintiffs claim that the Company has unlawfully charged its' subscribers for providing them with call details records. If the lawsuit is certified as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 440 million. At this preliminary stage the Company is unable to assess the lawsuit's chances of success. Accordingly, no provision has been made in the financial statements in respect of this claim.

F-43

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont’d)

Effects of new legislation and standards

National Zoning Plan 36 is in the process of being revised. Current proposed changes would impose additional restrictions and/or requirements on the construction and operation of cell sites and could, if adopted, harm the Company's ability to construct new cell sites, make the process of obtaining building permits for the construction and operation of cell sites more cumbersome and costly and may delay the future deployment of the Company's network.

The draft Israeli Non-Ionizing Radiation Regulations approved by the Interior and Environmental Protection Committee of the Knesset in October 2007 includes additional restrictions in relation to the operation of cell sites and other facilities. If these restrictions are adopted in their current draft format, they will, among other things, limit the Company's ability to construct new sites and renew operating permits for a number of the Copmany's existing sites, specifically in residential areas.

In January 2006, the Planning and Building Law was amended by the Non-ionizing Radiation Law, to provide that as a condition for issuing a building permit for a cell site, the local Planning and Building committees must require letters of indemnification from the cellular companies, for possible depreciation claims under Section 197 of the Planning and Building Law, in accordance with the directives of the National Planning Council. National Planning Council guidelines issued in January 2006 have provided for a 100% indemnification undertaking by the cellular companies to the Planning and Building committees, in the form published by the council and allowing the indemnifying party to control the defense of the claim. These guidelines shall remain in effect until they are replaced with an amendment to the NZP 36. Some local planning and building committees have sought to join cellular operators, including the Company, as defendants in depreciation claims made against them even though indemnification letters were not provided. The Company was joined as defendants in a small number of cases.

To date, the Company has given over 150 indemnification letters not limited in sum in order to receive building permits and three undertakings to provide indemnification letters. In some of these instances, the Company has not yet constructed the cell sites. The Company expects that it will be required to continue to provide indemnification letters as the process of deploying the Company cell sites progresses.

The Company estimates that the changes referred to above may have the following impacts:

(a)

The Company estimates, based on the opinion of the Company legal advisors, that there are currently no legal grounds for indemnification with respect to sites established based on a permit issued under the NZP, prior to the entry of the aforementioned amendment. Attempts, which have yet to be decided, are being made to assert such grounds for legal claims.

(b)

As part of the Company's 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.

F-44

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont’d)

Effects of new legislation and standards

1. (cont'd)

(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.

On December 5, 2004, certain changes to the Communications Regulations (Telecommunications and Broadcasting) (Payments for Interconnecting), 2000, provided for the following:

(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 are annually updated, based on the annual change in the CPI, as of March 1, 2005, in accordance with the provisions of the aforementioned regulations.

In addition, on December 16, 2004, the Company’s license was amended and therefore, commencing January 1, 2009, the basic airtime charging unit, including for interconnect purposes, will decrease from the current intervals of 12-second units to intervals of 1-second units. In September 2007, the Company's general license was amended preventing the Company from offering subscribers calling plans using airtime charging units other than the basic airtime charging unit set in the general license. These changes may result in a decrease in the Company’s revenues. The Company has been taking steps to address the effects of the amended license and at this time is unable to assess the potential effect of the amendments to the Company's results of operations.

F-45

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont’d)

Effects of new legislation and standards

In May 2007, the Ministry of Communications notified its intention to impose monetary sanctions on telephony companies, including the Company, following non-implementation and operation of Number portability, as of September 1, 2006. The intended monetary sanction applicable to the Company for the period commencing September 1, 2006 and ending November 30, 2007, is approximately NIS 6 million. The Company has submitted its objection to the aforementioned intended sanctions, to the Ministry of Communications.

Commitments

The Company has commitments regarding the license it was granted in 1994, most of which are:

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

To pay the State of Israel royalties equal to 2.5% 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, to 3.5% in 2004 and 2005, to 3% in 2006 and to 2.5% in 2007. The royalty rate will continue to be reduced by 0.5% per year, until reaching a rate of 1%.

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.

The Company is in compliance with the above conditions.

In September 2005, the Company signed an agreement with Ericsson Israel Ltd. according to which the Company will acquire a UMTS radio access network and ancillary products and services. The Company is obligated to purchase maintenance services for 5 years from the launch of the system (until 2011) and the Company has an option to purchase additional maintenance services for 20 years from the launch of the Systems (until 2026), including all the required services for establishment and maintenance of the system (including receipt of updates and upgrades for the system). The Company agreed to purchase 60% of cell sites the Company purchases by September 2010 from Ericsson. The aggregate scope of the agreement is $27.5 million payable over five years. Under the agreement the parties generally have limited liability for direct damages of up to 40% of the value of the agreement.

F-46

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont’d)

C. Commitments (cont'd)

Be’eri Printers provides the Company’s printing supplies and invoices as well as the distribution, packaging and delivery of invoices and other mail to the postal service distribution centers. The Company entered into an agreement with Be’eri Printers - Limited Partnership and with Be’eri Technologies (1977) Ltd., or together Be’eri, for printing services in August 2003. Under the terms of the agreement, the Company committed to purchase from Be’eri a minimum monthly quantity of production and distribution services which may be reduced if the Company modifies its printed invoice delivery policy. The agreement is valid until July 2008.

As at December 31, 2007, the Company has commitments to purchase equipment for the communications’ network and cellular telephone equipment, at an amount estimated at NIS 221 million.

5. Major operating lease and service agreements:

Office buildings and warehouses – there are lease agreements for periods of up to 21 years and ten months.

Switching stations – there are lease agreements for switching station locations for periods of up to 12 years.

Cell sites – there are lease agreements for cell sites for periods of up to 28 years and eleven month.

Service centers, retail stores and stands – there are lease agreements for service and installation centers and stands for periods of up to 14 years and three months.

Transmission services for cell sites and switches.

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

The anticipated annual lease payments under operating leases are as follows:

	December 31
	2007
	NIS millions
2008		243
2009		228
2010		208
2011		160
2012		127
2013 and thereafter		660

		1,626

D. Liens and guarantees

As part of issuance of the Series A and B debentures (see Note 14), the Company committed not to create liens on its assets so long as the debentures have not been fully repaid, except for a fixed lien on assets for purposes of securing credit that will permit acquisition of those assets.

F-47

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 16 - Commitments and Contingent Liabilities (cont’d)

D. Liens and guarantees (cont'd)

The Company has given bank guarantees as follows:

	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 13 million.

Note 17 - Shareholders' Equity

	December 31, 2007
			Issued and
	Authorized		Paid-up
	NIS		NIS
Ordinary shares of NIS 0.01 par value each		3,000,000		975,047

	December 31, 2006
			Issued and
	Authorized		Paid-up
	NIS		NIS
Ordinary shares of NIS 0.01 par value each		3,000,000		975,000

On June 7, 2007, September 6, 2007 and December 3, 2007, the Company distributed to its shareholders a cash dividend in the amount of NIS 198 million, NIS 201 million and NIS 256 million, respectively.

The earnings per share and the number of shares used in the calculation of earnings per share have been retroactively adjusted to reflect the increase in the authorized share capital, stock split and allotments of bonus shares discussed below in accordance with Israeli Standard No. 22.

On October 12, 2006, the shareholders’ meeting of the Company resolved the following decisions regarding capital transactions:

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.

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.

To allot 96,360,000 fully paid share dividend of NIS 0.01 par value to all shareholders, pro rata.

Following consummation of the above transactions, the Company had 97,500,000 issued and fully paid ordinary shares issued and outstanding.

F-48

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 17 - Shareholders' Equity (cont'd)

Share Based Incentive Plan

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, 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. Options not exercised within 6 years of the grant date, will expire.

In March 2007, the Company granted options to purchase an aggregate of 30,786 ordinary shares at an exercise price of $12.60 per share to senior employees of the Company, under the terms of the plan.

As a result of a dividend adjustment mechanism, the exercise price for all options was adjusted to $10.93 as of December 31, 2007.

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 - November 2006 and March 2007 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 and March 2007 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 (February 9, 2007). During the year ended December 31, 2007, approximately NIS 29 million was recognized as an expense.

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 protection feature, 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.

F-49

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 17 - Shareholders' Equity (cont’d)

Share Based Incentive Plan (cont'd)

The changes in the balance of the options in 2007 were as follows:

	Number of options			Weighted average of exercise price (US Dollars)

Balance as at January 1, 2007		2,414,143			10.93
Granted during the year		30,786			10.93
Forfeited during the year		(40,078	)		-
Exercised during the year		*(7,955	)		30.18

Total options outstanding as at December 31, 2007		2,396,896			10.93

Total of exercisable options as at December 31, 2007		588,270			10.93

In accordance with the net exercisable method, 4,721 ordinary shares were issued from the exercising of 7,955 options.

The weighted average of the remaining contractual life of options outstanding as at December 31, 2007, is 4 years and 10 months.

D. Dividend policy

The Company’s board of directors adopted a dividend policy to distribute each year at least 75% of its annual net income, on a quarterly basis, determined under Israeli GAAP, subject to applicable law, the Company’s license and the Company’s contractual obligations and provided that such distribution would not be detrimental to the Company’s cash needs or to any plans approved by the Company’s Board of Directors. The Company’s Board will consider, among other factors, the Company’s expected results of operations, including changes in pricing and competition, planned capital expenditure for technological upgrades and changes in debt service needs including due to changes in interest rates or currency exchange rates in order to conclude reasonably that a distribution of dividends will not prevent the Company from satisfying the Company’s existing and foreseeable obligations as they become due. In addition, there is an agreement among the controlling shareholders of IDB, the Company’s ultimate parent company, to target a dividend distribution of at least 50% of its distributable gains each year. Dividend payments are not guaranteed and the Company’s Board of Directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends.

As a result of the voluntary full prepayment of the outstanding term loan under the Company's credit facility in March 2008, following which the credit facility was terminated, all limitations regarding the Company’s ability to pay dividends, imposed by its credit facility, were revoked. In addition, Israeli law provides that dividends may only be paid out of cumulative retained earnings or out of retained earnings over the prior two years, provided that there is no reasonable concern that the payment of the dividend will prevent the Company from satisfying its existing and foreseeable obligations as they become due, and the Company’s license requires that the Company and its 10% or more shareholders maintain at least $ 200 million of combined shareholders’ equity. DIC’s shareholders’ equity was NIS 5.197 billion ($ 1.35 billion) at September 30, 2007 (unaudited).

F-50

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 18 - Revenues

Composition

	Year ended December 31
	2005		2006		2007
	NIS millions		NIS millions		NIS millions
Revenues from handsets, net		565		636		663
Revenues from services		4,549		4,986		5,387

		5,114		5,622		6,050
Additional information
Revenues from handsets on an installments basis		527		569		596

Note 19 - Cost of Revenues

Composition

	Year ended December 31
	2005			2006			2007
	NIS millions			NIS millions			NIS millions
According to source of income:
Cost of revenues from handsets		683			780			800
Cost of revenues from services		* 2,398			* 2,493			2,572

		3,081			3,273			3,372
According to its components:
Purchase of handsets		649			782			906
Changes in inventory		(18	)		(13	)		(113	)
Write-down of inventory		52			11			7
		683			780			800

Rent and related expenses		286			305			300
Salaries and related expenses		142			156			158
Fees to other operators and others		825			918			980
Cost of value added services		160			211			324
Depreciation and amortization		* 629			* 582			532
Royalties and fees (see Note 16C1)		112			179			172
Other		244			142			106

		2,398			2,493			2,572

		3,081			3,273			3,372

(*) Restated due to initial implementation of a new Israeli Accounting Standard (See Note 2U(2) )

Note 20 - Selling and Marketing Expenses

Composition

	Year ended December 31
	2005		2006		2007
	NIS millions		NIS millions		NIS millions
Salaries and related expenses		236		258		286
Commissions		122		151		124
Advertising and public relations		118		96		121
Depreciation and amortization		9		6		7
Other		138		145		147

		623		656		685

F-51

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 21 - General and Administrative Expenses

Composition

	Year ended December 31
	2005		2006		2007
	NIS millions		NIS millions		NIS millions
Salaries and related expenses		148		145		160
Depreciation and amortization		251		242		235
Rent and maintenance		75		74		77
Data processing and professional services		81		70		67
Allowance for doubtful accounts		19		45		16
Other		82		83		97
		656		659		652

Changes in the allowance for doubtful accounts (including non-current portion):

	Year ended December 31
	2005			2006			2007
	NIS millions			NIS millions			NIS millions
Balance at beginning of the period		173			158			183
Write-offs		(34	)		(20	)		(29	)
Additional allowance		19			45			16
Balance at end of the period		158			183			170

Note 22 - Financial Income (Expenses), net

Composition

	Year ended December 31
	2005			2006			2007
	NIS millions			NIS millions			NIS millions
Expenses for long-term liabilities:
Debentures		(2	)		(94	)		(166	)
Long-term loans		(43	)		(77	)		(72	)
Total expenses for long-term liabilities		(45	)		(171	)		(238	)
Short-term loans		(2	)		(22	)		-
Transactions in derivative financial instruments		11			(32	)		(37	)
Transactions involving installment sales imputed
interest on market installment sales		62			48			41
Income (expenses) for foreign exchange differences		(3	)		(4	)		67
Other items		1			26			11
		24			(155	)		(156	)

Note 23 - Other Expenses, net

Composition

	Year ended December 31
	2005			2006			2007
	NIS millions			NIS millions			NIS millions
Capital gain (loss) from sale of property,
plant and equipment		*(4	)		*(6	)		(4	)
Other income (expenses), net **		(9	)		-			1
		(13	)		(6	)		(3	)
** Includes change in provision for decline in value of land -held for sale		(4	)		-			10

(*) Restated due to initial implementation of a new Israeli Accounting Standard (See Note 2U(2) )

F-52

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 24 - Income Tax

The Company is assessed for tax purposes on the basis of unconsolidated tax returns. The tax is computed on the basis of the Company’s results in Israeli currency as determined for statutory purposes.

The Company is assessed for tax purposes according to the Income Tax Law (Adjustments for Inflation), 1985 (hereinafter "the Law"), the purpose of which is to measure the results for tax purposes on a real basis and to prevent taxation of inflationary profits. The adjustment of nominal profit for tax purposes is not necessarily the same as the adjustment according to opinions of the Israeli Accounting Standards Board and, as a result, differences occur between the income reported in the financial statements and the adjusted income for tax purposes.

On July 25, 2005, the Knesset passed the Law for Amendment of the Income Tax Ordinance (No. 147 and Temporary Order) (“Amendment 147”), which provides for an additional gradual reduction of the Corporate tax rates in the following manner: in 2006 the tax rate will be 31%, in 2007 the tax rate will be 29%, in 2008 the tax rate will be 27% and from 2009 the tax rate will be 26% and from 2010 onward the tax rate will be 25%. In addition, commencing from 2010, upon reduction of the Companies Tax rate to 25%, every real capital gain will be subject to tax at the rate of 25%.

D. Reconciliation of income tax expense:

A reconciliation of the theoretical tax expense computed on earnings before taxes at the statutory tax rate and the actual income tax provision is presented as follows:

	Year ended December 31
	2005			2006			2007
	NIS millions			NIS millions			NIS millions
Income before income taxes as per the
income statement		* 765			* 873			1,182

Tax rate		34	%		31	%		29	%

Tax calculated according to the main tax rate		260			271			343

Increase (decrease) in tax resulting from:
Non-deductible interest expenses (see Note 24I)		-			56			(56	)
Other non-deductible expenses and non taxable
income, net		4			4			13
Taxes in respect of prior years		-			3			-
Change in deferred tax balances due to
reduction in tax rate		*(31	)		*(6	)		-
Other, net		1			(14	)		9
		234			314			309

(*) Restated due to initial implementation of a new Israeli Accounting Standard (See Note 2U(2))

F-53

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 24 - Income Tax (cont’d)

E. Deferred taxes

	December 31
	2006			2007
	NIS millions			NIS millions
Provisions for employee benefits, net		-			(1	)
Allowance for doubtful debts		53			46
Hedging transactions		10			11
Property, plant and equipment and intangible assets		*(215	)		(201	)

		(152	)		(145	)

The deferred taxes are included in the balance sheet as follows:

	December 31
	2006			2007
	NIS millions			NIS millions
Other receivables (short-term)		60			51
Deferred taxes (long-term)		*(212	)		(196	)

		(152	)		(145	)

(*) Restated due to initial implementation of a new Israeli Accounting Standard (See Note 2U(2))

The deferred taxes are calculated based on the tax rates expected to apply on the reversal date as indicated above.

F. Income tax in the income statement

	Year ended December 31
	2005			2006			2007
	NIS millions			NIS millions			NIS millions
Current taxes		238			331			313
Prior year taxes		-			3			-
Deferred taxes		*(4	)		*(20	)		(4	)

		234			314			309

(*) Restated due to initial implementation of a new Israeli Accounting Standard (See Note 2U(2))

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

Taxes recorded to shareholders’ equity

	Year ended December 31
	2005		2006			2007
	NIS millions		NIS millions			NIS millions
Deferred taxes in respect of
hedging transactions		2		(12	)		(1	)

F-54

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 24 - Income Tax (cont’d)

H. Losses for tax purposes

One of the Company's subsidiaries has a tax loss carry forward in the amount of NIS 11 million. The balances of the losses carried forward to the succeeding year are linked to the CPI. No deferred tax asset has been recorded in respect of these losses and deductions since utilization thereof is not anticipated.

The Company has final tax assessments up to and including the 2005 tax year. The Company's subsidiaries have not been assessed for tax purposes since their incorporation.

I. Court ruling regarding deductibility for tax purposes of financing expenses

On November 20, 2006, the Israeli Supreme Court overturned a previous ruling made by the Israeli District Court regarding the deductibility for tax purposes of financing expenses that might be attributed by the Israeli tax authorities to the financing of dividends. Following this ruling, the Company recorded in 2006 an additional tax provision of NIS 56 million, based on the possibility that part of the Company's financing expenses accrued in 2006 will not be recognized as a deductible expense for tax purposes. For tax purposes, as of the date of approval of the financial statements for the year ended December 31, 2006, the level of certainty required in order to recognize these expenses did not exist.

In October 2007, the Israeli Supreme Court issued two new rulings readdressing its previous ruling of November 2006 regarding the deductibility of financing expenses for tax purposes, that might be attributed by the Israeli Tax Authority to a financing of dividends. As a result of these rulings and based on the Company's legal counsels' opinion, the Company has released the aforesaid tax provision and reduced the income tax expenses for 2007 by NIS 56 million.

J. Taxation under Inflationary Conditions

On February 26, 2008, subsequent to the balance sheet date, the Income Tax Law (Inflationary Adjustments) (Amendment No. 20) (Restriction of Period of Application) – 2008 (“the Amendment”) was passed by the Knesset. According to the Amendment, the Adjustments Law will no longer be applicable subsequent to the 2007 Tax Year, except for the transitional provisions whose objectives are to prevent distortion of the taxation calculations.

In addition, according to the amendment, commencing 2008 tax year, the adjustment of income for the effects of inflation for tax purposes will no longer be calculated. Additionally, depreciation on protected assets and carryforward tax losses will no longer be linked to the Index, with these balances being adjusted to the Index through the end of the 2007 Tax Year, and linkage thereon ceasing from the 2008 Tax Year onwards.

F-55

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 25 - Financial Instruments and Risk Management

A. Linkage terms of financial instrument s

December 31, 2006

December 31, 2007

In or linked

to foreign

currencies

Linked to

currencies

Linked to

(mainly

the Israeli

(mainly

the Israeli

dollars)

CPI

Unlinked

dollars)

CPI

Unlinked

NIS millions

Assets

1,849

2,885

Liabilities

839

2,071

1,626

522

3,199

1,537

B. Derivative Financial Instruments

As part of its current activities, the Company is exposed to a variety of market risks, the main risks being exposure to changes in the exchange rate of the NIS to the US Dollar, changes in interest rates and inflationary risks. These risks and exposures are managed by the Company on a current basis with the aim of minimizing the impact of the fluctuations of the market factors on the results of its operations.

The Company executes transactions in derivative financial instruments for purposes of hedging its business results and cash flows. The Company enters into hedging transactions with banking institutions, including forward transactions and options in order to reduce the exposure stemming from supplier balances, long-term loans and commitments to purchase inventory and equipment.

The Company does not hold derivative financial instruments for trading or speculative purposes. The Company hedges future inventory purchases by specific hedging transactions and, accordingly, it defers the results of these transactions by recording them in a capital reserve that is reversed to the statement of income when the specific hedged inventory is issued to its customers. In the same manner, the Company hedges future property, plant and equipment purchases by specific hedging transactions, and accordingly defers the results of these transactions by recording them in a capital reserve that is reversed to the statement of income in correspondence with the depreciation of the specified property, plant and equipment. In addition, the Company has transactions that do not meet the criteria determined for classification thereof as hedging transactions in accordance with generally accepted accounting principles and, therefore, the results of these transactions are recorded in the Financial income/expenses on the statement of income on a current basis.

Set forth below is the composition of the derivative financial instruments at the following dates:

	December 31, 2006					December 31, 2007
	Par value		Fair value			Par value		Fair value
	NIS millions		NIS millions			NIS millions		NIS millions
Forward contracts on exchange rate (mainly dollar– NIS)		507		(26	)		537		(28	)
Forward contracts on Israeli CPI		500		(15	)		1,800		24
Options on the exchange rate (mainly dollar– NIS)		659		(1	)		530		1
Compounded foreign currency and interest swap		718		(70	)		792		(61	)

		2,384		(112	)		3,659		(64	)

F-56

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 25 - Financial Instruments and Risk Management (cont'd)

B. Derivative Financial Instruments (cont’d)

Cash flow hedging instrument activity recorded within the shareholders’ equity in the capital reserve, net of tax, was as follows:

	December 31
	2006			2007
	NIS millions			NIS millions
Beginning accumulated derivative in capital reserve		5			(24	)
Net (gain) loss reclassified to earnings		(1	)		19
Net change in the revaluation of hedging transactions		(28	)		(28	)

Ending accumulated derivative in capital reserve		(24	)		(33	)

The total unrealized fair value loss on cash flow hedges recorded within the shareholders’ equity in the capital reserve and totaling NIS 23 million (net of tax NIS 17 million) is expected to be reclassified to earnings during the next 12 months (until December 31, 2008) due to settlement of the related contracts.

C. Fair value of financial instruments

The estimated fair values of financial instruments with a carrying value materially different from their fair value, based on quoted market prices or rates for the same or similar instruments, and the related carrying amounts are as follows:

December 31, 2006

December 31, 2007

Book value

Fair value

Book value

Fair value

NIS millions

Debentures (1)

1,989

2,056

2,983

3,237

(1)

The fair value of the debentures is based upon their quoted market price as of the date of the balance sheet.

Note 26 - Related and Interested Parties

A. Balance sheet

	December 31
	2006		2007
	NIS millions		NIS millions
Current assets*		47		-
Current liabilities		1		-
Long-term liability – debentures		60		142
Stock based compensation		-		11

* The largest balance during the year ended December 31, 2007 – NIS 94 million.

F-57

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 26 - Related and Interested Parties (cont'd)

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

	Year ended December 31
	2005		2006		2007
	NIS millions		NIS millions		NIS millions
Expenses:
Salaries and related expenses to related parties		* 17		3		** 16
Professional services and other		2		2		4

	*	For the year ended December 31, 2005, includes benefits and grants in respect of retirement in the total amount of NIS 11 million and a signing bonus in the total amount of NIS 3 million.
	**	Includes compensation expenses related to options granted that were recognized during the year ended December 31,2007 in the total amount of NIS 11 million.

In connection with the registration of the Company's shares on the NYSE on February 9, 2007, selling shareholders (DIC and Goldman Sachs International) reimbursed the Company for all expenses incurred in connection with the said registration.

On December 2007, the Company signed an agreement for the sale of an asset to Bayside Land Corporation Ltd., which is controlled by the controlling shareholder of the Company. Refer to Note 8 for more details.

In the ordinary course of business, from time to time, the Company purchases, leases, sells and cooperates in the sale of goods and services or otherwise engages in transactions with entities that are members of the IDB group or other interested or related parties.

The Company has examined said transactions and believes them to be on commercial terms comparable to those that the Company could obtain from unaffiliated parties.

An agreement with DIC

In October 2006, the Company entered into an agreement with DIC pursuant to which DIC provides the Company with advisory services in the areas of management, finance, business and accountancy in consideration of NIS 2 million per year. This agreement is for a term of one year and is automatically renewed for one-year terms unless either party provides 60 days' prior notice to the contrary.

An agreement with Netvision 013 Barak

In July 2007, the Company entered into an agreement with Netvision 013 Barak ("Netvision") pursuant to which Netvision will provide the Company with interconnect and roaming services in the sum of approximately NIS 35 million per year. The agreement is for a term of two years.

Note 27 - Subsequent Events

On March 10, 2008, subsequent to the balance sheet date, the Company voluntarily prepaid the balance of the outstanding amounts under its credit facility, in a principal amount of $140 million (comprising of $85 million denominated in US$ and approximately NIS 253 million denominated in NIS), following which, the credit facility was terminated. For more information refer to Note 13C.

F-58

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 27 - Subsequent Events (cont'd)

In February 2008, subsequent to the balance sheet date, the Company issued, in a private placement to institutional investors, additional debentures of Series C, in a principal amount of NIS 81 million and additional debentures of Series D debentures in a principal amount of approximately NIS 493.8 million, in exchange for a total consideration of NIS 600 million. For additional details in regards to the existing debentures refer to Note 14C.

On March 17, 2008, the Company’s Board of Directors declared a cash dividend in the amount of NIS 7.18 per share, totaling approximately NIS 700 million, to be paid on April 14, 2008, to the shareholders of the Company of record at the end of the trading day in the NYSE on March 31, 2008. The dividend is presented under a separate item of shareholders’ equity.

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

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

As discussed in Note 2, the accompanying consolidated financial statements were prepared in accordance with Israeli generally accepted accounting principles ("Israeli GAAP"), which differ in certain significant respects from those generally accepted in the United States of America ("US GAAP"). Information related to the nature and effect of such differences is presented below.

Reconciliation of:

1. Israeli GAAP net income to net income according to US GAAP

	Year ended December 31
	2005			2006			2007
	NIS millions			NIS millions			NIS millions
Net income as reported, according
to Israeli GAAP		* 531			* 559			873

Temporary differences resulting from recognition
of revenue arising from application of
EITF 00-21 – Note 28C(4)		14			5			1
Depreciation of property, plant and equipment (*)		* -			* -			-
Embedded Derivatives – Note 28C(3)		9			(17	)		52
AROs – Note 28C(5)		(2	)		2			-
Amortization of rights in land- Note 28C(7)		-			(1	)		(2	)
Reversal of impairment previously made- Note 28C(7)		-			-			(10	)
Push down accounting adjustments - Note 28C(2):
Elimination of deferred revenue		(10	)		-			-
Depreciation expenses of property, plant
and equipment		25			103			96
Amortization expenses of intangible assets		(50	)		(167	)		(140	)
Interest expenses on push down debt		(43	)		(17	)		-
Income tax effect of US GAAP adjustments		* 17			* 27			(1	)
Net income according to US GAAP		491			494			869

(*)

As a result of the retroactive initial implementation of the new Israeli Standard No. 27, no differences remain between Israeli GAAP and US GAAP, relating to the depreciation methodology of property, plant and equipment for all periods presented (See Note 2U(2)).

F-59

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont'd)

The effect of the differences between Israeli and US GAAP on the financial statements (cont'd)

2. Israeli GAAP shareholders' equity to shareholders' equity according to US GAAP:

	December 31			December 31
	2006			2007
	NIS millions			NIS millions
Shareholders' equity as reported, according to Israeli GAAP		* 597			830

Temporary differences resulting from recognition of revenue arising from
application of EITF 00-21 – Note 28C(4)		(1	)		-
Depreciation of property, plant and equipment (*)		*-			-
Embedded Derivatives – Note 28C(3)		(38	)		14
AROs – Note 28C(5)		(8	)		-
Amortization of rights in land- Note 28C(7)		(1	)		(3	)
Reversal of impairment previously made- Note 28C(7)		-			(10	)
Push down accounting adjustments – Note 28C(2):
Push down of the acquisition		3,652			3,652
Push down of DIC’s debt		-			-
Elimination of deferred revenue		(22	)		(22	)
Cumulative depreciation of property, plant and equipment		131			227
Cumulative amortization expenses of intangible assets		(217	)		(357	)
Income tax effect of US GAAP adjustments		* 41			37
Shareholders’ equity according to US GAAP		4,134			4,368

(*)	As a result of the retroactive initial implementation of the new Israeli Standard No. 27, no differences remain between Israeli GAAP and US GAAP, relating to the depreciation methodology of property, plant and equipment for all periods presented (See Note 2U(2)).

F-60

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont'd)

B. Condensed financial statements according to US GAAP

1. Condensed consolidated balance sheets:

All amounts are in NIS millions

	December 31		December 31
	200 6		200 7
Current assets
Cash and cash equivalents		56		911
Trade receivables, net		1,242		1,385
Other receivables		123		147
Inventory		131		245
		1,552		2,688
Long-term receivables		548		565

Property, plant and equipment, net		* 1,955		1,856

Other assets, net		* 1,660		1,510
Goodwill		3,283		3,283

Total assets		8,998		9,902

Current liabilities
Short-term bank credit		-		353
Trade payables and accrued expenses		819		1,007
Other current liabilities		534		543

		1,353		1,903

Long-term liabilities
Long-term loans from banks		1,208		343
Debentures		1,989		2,983
Deferred taxes		300		288
Other long-term liabilities		14		17

		3,511		3,631

Shareholders’ equity		4,134		4,368

Total liabilities and shareholders’ equity		8,998		9,902

(*)	Reclassified NIS 237 millions from property, plant and equipment to intangible assets in connection with adoption standard No.30, see note 2U(4)

F-61

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont'd)

B. Condensed financial statements according to US GAAP (cont'd)

2. Condensed consolidated income statements:

All amounts are in NIS millions except for share and per share data

	January 1		September 22
	through		through			Year ended			Year ended
	September 21		December 31			December 31			December 31
	2005		2005			2006			2007
Revenues		3,713		1,405			5,627			6,051
Cost of revenues		2,141		972			3,341			3,421

Gross profit		1,572		433			2,286			2,630
Selling and marketing expenses		434		189			656			685
General and administrative expenses		502		167			666			667

Operating income		636		77			964			1,278
Financial income (expenses), net		21		(27	)		(184	)		(99	)

Income before income tax		657		50			780			1,179
Income tax		205		11			286			310
Net income		452		39			494			869
Earnings per share
Basic earnings per share in NIS		4.64		0.40			5.07			8.91
Diluted earnings per share in NIS		4.64		0.40			5.07			8.83
Weighted-average number of shares used in
calculation of basic earnings per share
(in thousands)		97,500		97,500			97,500			97,500
Weighted-average number of shares used in
calculation of diluted earnings per share
(in thousands)		97,500		97,500			97,500			98,441

F-62

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont'd)

B. Condensed financial statements according to US GAAP (cont'd)

3. Changes in shareholders’ equity

All amounts are in NIS millions except for share and per share data

All ordinary share and per share data have been retroactively adjusted to reflect the increase in the authorized share capital, stock split and allotments of bonus shares effected by the Company, on October 12, 2006 (see Note 17B).

			Additional
	Share		paid-in			Retained
	Amount		capital			earnings			Total

Balance as of January 1, 2005		-		-			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		-		4,451			39			4,490


Changes in the year ended December 31, 2006
Movement in capital reserve in respect of hedging
transactions, net		-		(29	)		-			(29	)
Cash dividend paid		-		(3,570	)		(260	)		(3,830	)
Allotment to dividend share		1		-			(1	)		-
Repayment of DIC’s push-down debt and interest,
net of deemed dividend		-		3,009			-			3,009
Net income		-		-			494			494

Balance as of December 31, 2006		1		3,861			272			4,134

Changes in the year ended December 31, 2006
Movement in capital reserve in respect of hedging		-		(9	)		-			(9	)
transactions, net
Cash dividend paid		-		-			(655	)		(655	)
Amortization of compensation related to employee stock option grants		-		29			-			29
Net income		-		-			869			869

Balance as of December 31, 2007		1		3,881			486			4,368

F-63

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont'd)

B. Condensed financial statements according to US GAAP (cont'd)

4. Comprehensive income (loss)

Comprehensive income (loss) consists of the change, during the current period, in the Company’s shareholders’ equity that does not derive from shareholders’ investments or from the distribution of earnings to shareholders.

Comprehensive income (loss) includes two components - net income and other comprehensive income. Net income is the income stated in the income statement while other comprehensive income includes the amounts that are recorded directly in shareholders’ equity and that are not derived from transactions with shareholders recorded directly in shareholders’ equity.

	January 1			September22
	through			through			Year ended			Year ended
	September 21			December 31			December 31			December 31
	2005			2005			2006			2007
	NIS millions			NIS millions			NIS millions			NIS millions
Net income according to US GAAP		452			39			494			869

Derivative net gain (loss) reclassified to earnings		(1	)		(2	)		(1	)		19
Adjustments in respect of derivatives, net		6			2			(28	)		(28	)

Total comprehensive income		457			39			465			860

F-64

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont'd)

B. Condensed financial statements according to US GAAP (cont'd)

5. Condensed Consolidated Statement of Cash Flows:

All amounts are in NIS millions

Cash flows from operating activities:

	January 1			September 22
	through			through			Year ended			Year ended
	September 21			December 31			December 31			December 31
	2005			2005			2006			2007
	NIS millions			NIS millions			NIS millions			NIS millions
Net income		452			39			494			869

Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		645			269			892			816
Deferred income taxes		(3	)		(17	)		(48	)		(1	)
Exchange and linkage differences (erosion of)
long-term liabilities		-			2			(107	)		(7	)
Interest on push-down debt (see Note 28C(2c3))		-			43			17			-
Capital losses (gains)		3			(1	)		6			4
Change in liability for employee severance pay		-			-			-			1
Stock based compensation		-			-			-			29
Change in other long term liabilities		-			-			-			1
Provision for decline in value of land - held for sale		4			-			-			-
		649			296			760			843
Changes in operating assets and liabilities, net
of effects of acquisitions:
Decrease (increase) in trade receivables
(including long-term amounts)		65			(102	)		(75	)		(140	)
Decrease (increase) in other receivables
(including long-term amounts)		(41	)		(19	)		24			(30	)
Decrease (increase) in inventories		(43	)		24			(13	)		(114	)
Increase (decrease) in trade payables and accrued expenses		(69	)		54			4			178
Increase (decrease) in other payables and
credits (including long-term amounts)		6			(39	)		283			38
		(82	)		(82	)		223			(68	)
Net cash provided by operating activities		1,019			253			1,477			1,644

F-65

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont'd)

B. Condensed financial statements according to US GAAP (cont'd)

5. Condensed Consolidated Statement of Cash Flows: (cont’d)

All amounts are in NIS millions

	January 1			September 22
	through			through			Year ended			Year ended
	September 21			December 31			December 31			December 31
	2005			2005			2006			2007
Net cash used in investing activities		(444	)		(175	)		(633	)		(571	)

Net cash provided by (used in) financing activities		(536	)		1,650			(2,560	)		(218	)

Increase (decrease) in cash and cash equivalents		39			1,728			(1,716	)		855

Balance of cash and cash equivalents at beginning
of the period		5			44			1,772			56

Balance of cash and cash equivalents at end
of the period		44			1,772			56			911

There is no difference between Israeli and US GAAP non cash investing and financing activities other than the effect of push-down accounting.

C. Differences between Israeli GAAP and US GAAP

1. Effect of inflation

In accordance with Israeli GAAP:

The Company, in accordance with Israeli GAAP, comprehensively included the effect of price level changes in the accompanying financial statements, through December 31, 2003. According to such Israeli accounting principles, the Company discontinued the adjustment for such changes as of January 1, 2004. The adjusted amounts included in the financial statements as at December 31, 2003 served as the starting point for the financial reporting at January 1, 2004.

In accordance with US GAAP:

US GAAP does not provide for recognition of the effects of price level changes and accordingly, the effects of such changes are generally excluded from amounts determined in conformity with US GAAP. However, in accordance with the guidance of the US Securities and Exchange Commission for the reporting requirements by foreign issuers, this difference between Israeli GAAP and US GAAP is not included in this reconciliation to US GAAP.

F-66

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont'd)

C. Differences between Israeli GAAP and US GAAP (cont'd)

2. Push-down accounting

In accordance with Israeli GAAP:

Following the September 21, 2005 shareholders' transaction, DIC gained a 94.5% controlling interest in the Company’s ordinary shares, and 100% control of the Company’s voting rights. Under Israeli GAAP, the new basis of accounting in the Company that resulted from DIC’s purchase and controlling interest is not pushed down to the financial statements of the Company.

In accordance with US GAAP:

In accordance with SEC Staff Accounting Bulletin Topic 5J, DIC’s purchase accounting adjustments, determined in accordance with FAS 141, are “pushed-down” to the Company, meaning the US GAAP financial information presented in Note 27 reflects the new basis of accounting for the Company as of September 21, 2005.

In addition, short-term loans incurred by DIC as a result of its acquisition of the Company were pushed down to the Company’s financial statements from the date of acquisition. The push-down debt has been classified as short-term on the DIC financial statements, and was repaid in full in January and March 2006 through dividend proceeds received from the Company. Interest expenses, including tax effects, on the push-down debt have been included in the Company’s income statement based on the actual interest incurred by DIC and presented as a non-cash item in the accompanying statements of cash flows and as a capital contribution in the statement of shareholders’ equity.

a. New basis of accounting:

The purchase price paid as a result of the transaction described above has been allocated to a proportionate amount of the Company’s underlying assets and liabilities based upon DIC’s acquired interests (69.5%) in the respective fair market values of assets and liabilities at the date of the transaction. The following summarizes the fair values attributable to the assets acquired and liabilities assumed as a result of DIC’s acquisition of the Company. These values exclude the proportionate share of the historical cost basis attributable to the minority interest holders representing 5.5% of the Company and to the 25% that DIC acquired for no consideration as a founding shareholder, upon the Company formation in 1994.

F-67

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont'd)

C. Differences between Israeli GAAP and US GAAP (cont'd)

2. Push-down accounting (cont'd)

Allocation of 69.5% proportionate share acquired to major components of assets and liabilities acquired (NIS amounts in millions):

	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
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

The primary changes to the balance sheet as of the date of acquisition reflect the following push-down adjustments:

(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

The primary changes to the income statement as a result of the acquisition include:

(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.

F-68

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont'd)

C. Differences between Israeli GAAP and US GAAP (cont'd)

2. Push-down accounting (cont'd)

Due to the impact of the changes resulting from the push-down accounting adjustments described above, the annual income statement and cash flows presentations separate the Company’s results into two periods: (1) the period ending with the September 21, 2005 consummation of the acquisition transaction and (2) the period beginning after that date utilizing the new basis of accounting. The results are further separated by a heavy black line to indicate the effective date of the new basis of accounting. Similarly, the current and prior period amounts reported on the balance sheet are separated by a heavy black line to indicate the application of a new basis of accounting between the periods presented.

d. Brand names and goodwill

The new basis of accounting resulted in new recorded values for brand names and for goodwill as of September 21, 2005 to reflect their estimated fair values. Neither of these intangible assets is amortizable and they are therefore subject to annual impairment testing.

Pursuant to SFAS No. 142, goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of this Statement. The Company had established September 30 as its annual impairment testing date. An impairment test is also completed if events or changes in circumstances indicate that the assets might be impaired. In accordance with the annual impairment test performed during the fiscal year of 2007, no impairment of the recorded values was required.

e. Customer base

Upon adoption of push-down accounting, the new basis of accounting resulted in new recorded values for customer base as of September 21, 2005 to reflect their estimated fair values. The Company amortizes the customer base over 7 years according to the economic benefit expected from those customers each period.

The Company is required to perform impairment tests for long-lived assets in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long- Lived Assets" (“SFAS No. 144”), when the Company determines that indicators of impairment are present. Declines in market value of its business or the value of its customer base that may be incurred prospectively may also require additional impairment charges. No impairment of the recorded values was required.

Amortization expenses relating to customer base for the year ended December 31, 2006 and the year ended December 31, 2007 were NIS 167 million and NIS 140 million, respectively, the cumulative amortization expenses of customer base as of December 31, 2007 is NIS 357 million.

F-69

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont'd)

C. Differences between Israeli GAAP and US GAAP (cont'd)

3. Embedded Derivatives

In accordance with Israeli GAAP:

No separation of embedded derivatives is required under Israeli GAAP.

In accordance with US GAAP:

The Company enters into commercial contracts (mainly for cell site leases) in which a foreign currency derivative instrument is “embedded” within the contract. This embedded derivative is separated from the host contract and carried at fair value when (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The embedded foreign currency derivatives are marked to market each reporting period against net income.

4. Revenue recognition – free air time sold together with a handset

In accordance with Israeli GAAP:

The Company does not separately account for free monthly airtime given in connection with sales of handsets, and recognized the total consideration received in such transactions upon delivery of the handset to the subscriber.

In accordance with US GAAP:

Pursuant to Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables,” the Company determined that the sale of a handset with accompanying services constitutes a revenue arrangement with multiple deliverables. Accordingly, consideration received for handsets, up to their fair value, that is not contingent upon the delivery of additional items (such as the services), is recognized as equipment revenues upon the delivery of the equipment to the subscriber, when all revenue recognition criteria are met. Consideration for services is recognized as services revenues, when earned.

Based on EITF 00-21, the Company separately accounts for free minutes given in connection with the sales of handsets for transactions entered into from January 1, 2004. Consequently, the Company allocates a portion of the revenue generated from the sale of handsets to the free minutes given, based on the relative fair values of the minutes and handsets. The revenues associated with the free minutes are then recognized over the service period.

5. Asset Retirement Obligations

The Company is subject to asset retirement obligations associated with its cell site operating leases. These lease agreements contain clauses requiring the removal of equipment and the restoration of the leased site at the end of the lease term, creating asset retirement obligations.

F-70

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

All amounts are in millions except for share and per share data

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont’d)

C. Differences between Israeli GAAP and US GAAP (cont'd)

5. Asset Retirement Obligations (cont'd)

In accordance with Israeli GAAP:

Prior to 2007 the Company did not recognize a liability for asset retirement obligations associated with the retirement of tangible long lived assets as it is not required under Israeli GAAP.

Effective January 1, 2007, upon adoption of Standard No. 27, the Company recognized such liabilities.

In accordance with US GAAP:

The Company applied SFAS 143 “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 requires that an asset retirement obligation (ARO) associated with the retirement of a tangible long lived asset be recognized as a liability in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depreciated such that the cost of the ARO is recognized over the useful life of the asset.

The ARO is recorded at fair value, and the accretion expense will be recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash out flows discounted at the Company’s credit-adjusted risk-free interest rate.

6. Rights in land and impairment previously made

In accordance with Israeli GAAP:

Lands leased from the ILA are classified as Property, plant and equipment and are not depreciated.

In accordance with US GAAP:

Lease payments with regard to the aforementioned lands are classified as long-term receivables and are amortized over the lease period.

In accordance with Israeli GAAP:

Provisions previously made for the decline in value of land may be reversed if indicators are present that beneficial events have occurred or beneficial changes in circumstances have taken place, see Note 8A regarding reversal of previously made impairments during 2007.

In accordance with US GAAP:

Provisions for the decline in value cannot be reversed.

F-71

Cellcom Israel Ltd. and Subsidiaries

Notes to the Financial Statements

Note 28 - Material Differences between Israeli and US GAAP and their Effect on the Financial Statements (cont’d)

C. Differences between Israeli GAAP and US GAAP (cont'd)

7. Recently adopted accounting standards

Effective January 1, 2007, the Company adopted provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48 (“FIN 48”) “Accounting for Uncertain Tax Positions – An Interpretation of FASB Statement No. 109". FIN 48 addresses the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a threshold of more-likely-than-not for recognition and derecognizing of tax positions taken or expected to be taken in a tax return. FIN 48 also provides related guidance on measurement, classification, interest and penalties, and disclosure. There was no material effect on the financial statements resulting from adoption of FIN 48. As a result, the Company did not record any cumulative effect related to adopting FIN 48.

F-72

Exhibit 4.3

TRANSLATION FROM HEBREW

THE BINDING VERSION IS THE HEBREW VERSION

Deed of Trust

Made and signed in Netanya on September 20, 2007

Between:
	Cellcom Israel Ltd. of 10 Hagavish Street, Netanya (hereinafter: “ the Company ”)
		of the one part;
And:
	Aurora Fidelity Trust Company Ltd. Private company no. 51-3605576 of 6 Hayarkon St., Ramat Gan 52521 Telephone: 03-7551596 Fax: 03-7510902 Contact: Adv. Iris Shalvin, CEO (hereinafter: “ the Trustee ”)	of the other part:

Whereas:

The board of the Company decided, on September 19, 2007, to approve the issue of Debentures (Series C), according to the conditions of the Prospectus; and

Whereas:

The Trustee is a limited shares company that has been incorporated in Israel according to the Companies Law, whose principle goal is to engage in trusteeship; and

Whereas:

The Trustee has declared that there is no impediment in accordance with the Securities Law 5728 – 1968 or any other law to its entering into an engagement with the Company pursuant to this Deed of Trust, and that it fulfills all of the requirements and conditions for competency stated in the Securities Law to serve as a trustee for the issue of the Debentures (Series C) covered by the Prospectus; and

Whereas:

Within the Prospectus, the Company shall issue Debentures (Series C) of a par value that will be as determined in accordance with Section 2.2 of the Prospectus; and

Whereas:

The Company has requested that the Trustee serve as the trustee for the Debenture Holders (Series C), and the Trustee has agreed thereto, subject to the terms of this Deed of Trust;

Now therefore it has been agreed, declared and stipulated between the parties as follows:

1. Preamble, interpretation and definitions

1.1

The preamble to this Deed of Trust and the appendices attached hereto constitute a

material and integral part hereof.

1.2

The division of this Deed and Trust into sections and the titling of the sections are for the sake of convenience and as references only and may not be used for construction purposes.

1.3

The provisions hereof in plural apply to singular and vice versa; the provisions hereof in masculine gender apply to feminine and vice versa, and all statements regarding natural persons also refer to corporations, wherever this Deed does not implicitly and/or explicitly state otherwise and/or if the content of context of the statements does not necessitate otherwise.

1.4

In this Deed of Trust and in the Debentures (Series C), the following expressions will have the meaning beside them, unless another meaning is implied by the content or context of the statements:

“This deed” or the “ Deed of Trust”	–	This Deed of Trust, including the appendices attached hereto, which constitute an integral part hereof;

the “Prospectus”	–	The prospectus of the Company that is due to be published, inter alia , for the issue of the Debentures (Series C)

the “Debentures (Series C)” or the “Debentures”	–	The Debentures (Series C) of the Company, registered to name, that will be issued in accordance with the Prospectus;

the “Trustee”	–	Aurora Fidelity Trust Company Ltd. and/or any party serving from time to time as a trustee of the Debenture Holders (Series C) pursuant to this deed;

“Register”	–	Register of the Debenture Holders (Series C) as stated in Section 25 hereof;

the “Debenture Holders (Series C)” and/or the “Debenture Holders” and/or the “ Debenture Owners (Series C) ” and/or the “Debenture Owners”	–	The persons whose names are listed at the time in question in the register of the Debenture Holders (series C), and in the case of a number of joint Holders, the joint Holder first listed in the register;

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the “Debenture Certificate (Series C)”	–	A Debenture certificate (Series C) whose form appears as the first addendum to this deed;

the “Law” or the “Securities Law”	–	The Securities Law, 5728 – 1968 and the regulations thereby, as effective from time to time;

“Business day”	–	A day on which most of the banks in Israel are open for conducting transactions;

“Principal”	–	The par value of the Debentures (Series C)

the “Consumer Price Index” (“Index”)	–	The price index known by the name of "the Consumer Price Index", which includes fruit and vegetables, as published by the Central Bureau of Statistics, including that index even if published by another official body or institute, and including any official index that replaces it, whether composed of the same data as the existing index or not. If it is replaced by another index that is published by such a body or institute, and that body or institute did not determine the ratio between it and the index thus replaced, the ratio will be determined by the Central Bureau of Statistics, and in the case of such a ratio not being determined, it will be determined by the Trustee, who will determine, following consultation with economic experts of his choice, the ration between the other index and the replaced index;

the “Known Index”	–	The last known consumer price index;

the “Basic Index”	–	The consumer price index for August 2007 that was published on September 12, 2007.

the “Payment Index”	–	The consumer price index known on the date of making any payment on the account of the principal and/or the interest;

“Trade Day”	–	A day on which transactions are executed on the

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		Tel Aviv Stock Exchange Ltd;

the “Stock Exchange”	–	The Tel Aviv Stock Exchange Ltd;

“Meeting”	–	A meeting of the Debenture Holders, including a class meeting.

“Class meeting”	–	A meeting of the Debenture Holders, who have an interest that is materially different from the interest of other Debenture Holders on the matter that is being discussed in the meeting.

the “Nominee Company”	–	The Israel Discount Bank Nominees Ltd.

2.	Issuance of the Debentures and the Applicability of the Deed of Trust

The Company shall issue an unlimited in amount series of registered to name Debentures (Series C), bearing annual interest at a rate that is to be determined in accordance with Section 2.2 of the Prospectus, linked (principal and interest) to the Basic Index, for repayment in 9 equal semiannual installments on March 1 and on September 1 of each of the years 2009 to 2012 (inclusive) and on March 1, 2013. The interest on the Debentures will be paid in semiannual installments on March 1 and September 1 on each of the years 2008 to 2012 (inclusive) and a semiannual installment on March 1, 2013.

3.	Terms of the Issuance; Self-Purchase

3.1

The Company shall issue the Debentures according to the conditions specified in the Prospectus and in the Debentures and will not secure them with any collateral.

3.2

The Company reserves the right to purchase at any time, within or without the Stock Exchange, Debentures (Series C) at any price of its choosing, without prejudice to the obligation of repayment of the Debentures remaining in circulation as specified above. The Debentures that will be purchased by the Company will be cancelled and delisted from trade on the Stock Exchange, and the Company will not be allowed to re-issue them.

3.3

A subsidiary of the Company and/or the controlling shareholder and/or companies under the control of the controlling shareholder of the Company (“ Affiliated Company ”) are allowed to purchase and/or sell from time to time within or without the Stock Exchange, including by way of issuance by the Company, Debentures at any price of their choosing and sell them accordingly. The Debentures thus held by the Affiliated Company will be considered as an asset of the Affiliated Company, and if they are listed for trading, they will not be delisted from trade on the Stock Exchange

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other than subject to the rules of the Stock Exchange.

On the matter of holding Meetings of Holders of Debentures, the provisions of Section 2.19 of the second addendum to this Deed will apply.

3.4

The Company is allowed, at any time and from time to time, without needing the consent of the Debenture Holders or the Trustee, to issue, including to an Affiliated Company, Debentures of a different type and/or of different series and/or other securities, whether secured or unsecured, whether granting a right of conversion into shares of the Company or not granting such right, whether by public offering pursuant to a prospectus or otherwise, under terms of redemption, interest, linkage, discounting, repayment rate in the case of liquidation and other conditions, as the Company sees fit, whether they are preferable to the terms of the Debentures (Series C) issued pursuant to the Prospectus, equal to them or inferior to them.

3.5

Without derogating from the foregoing, the Company is allowed, at any time and from time to time, without needing the consent of the Debenture Holders or the Trustee, to issue, including to an Affiliated Company, additional Series C Debentures. The additional Debentures that will be issued, to the extent issued, including their conditions and resulting rights, will be identical and as the existing Debentures, and will together constitute one series for all purposes (it is clarified that in the case of such issuance, the offerees to which additional Debentures will be issued will not be entitled to payment of principal and/or interest whose determinant payment date preceded the issuance date). The provisions of the Deed of Trust will apply to these additional Debentures. The Company will publish an immediate report on such an issuance of additional Debentures and will apply to the Stock Exchange in an application to list these additional Debentures for trading Debenture therein. In the case of expansion of the series of the Debentures (Series C) as above, the fee of the Trustee shall be increased in proportion to the increase of the size of the series.

The Company shall inform the Trustee and the Debenture Holders of the issue of these additional Debentures.

This right of the Company does not exempt the Trustee from examining such an issuance, to the extent that such a duty is imposed on the Trustee by law, and it does not derogate from the rights of the Trustee and of the Meeting of the Debenture Holders according to the Deed of Trust, including their right to make the Debentures immediately repayable as stated in Section 6 hereof.

3.6

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Debentures then in circulation (including due to issuance at a price that reflects a different discount rate). The discounted allocation of the Debentures originating from expansion of the series of the Debentures at a rate exceeding the discount rate established for the Debentures before the expansion, may adversely affect the state of the Debenture Holders

3.7

The provisions of this Section 3 above itself do not bind the Company or the Debenture Holders to purchase Debentures or sell the Debentures in their possession.

3.8

Wherever the rules of the Stock Exchange apply or will apply to any action according to this Deed of Trust, they will have preference over the provisions hereof, and the dates of such an action will be determined in accordance with the rules of the Stock Exchange.

4.	Undertakings of the Company

4.1

The Company undertakes hereby towards the Debenture Holders, through the Trustee, to pay, on the dates set thereto, all of the sums of the principal, the interest and the linkage differences that will be payable pursuant to the terms of the Debentures, and fulfill all of the other conditions and undertakings imposed thereupon pursuant to the terms of the Debentures and this Deed.

4.2

The Company hereby warrants that the capital raised that it will hold until the date of their use according to the designation of the issuance remuneration as stated in chapter 3 of the Prospectus, will be deposited and invested by the company as it deems fit, as long as each investment is made in solid channels, including, but not limited to, an interest-bearing monetary deposit, a foreign currency deposit, Debentures with a rating of not less than BBB-, and so on. For this purpose, an investment in shares or basket certificates whose base asset is shares or share indices or options in the Maof or the purchase or writing of positions in derivatives, will not be considered as an investment in solid channels.

4.3

Securing of the Debentures

4.4

The undertaking of the Company to repay the Debentures (principal, interest and linkage differences) is not secured by any collaterals.

4.5

The Company will be allowed to pledge its assets, in part or in full, by any pledge and in any way, including to any third party, without the need for any consent from the Trustee and/or the Debenture Holders.

4.6

The Company will be allowed to sell, lease, assign, deliver or transfer in any other way its assets, in part or in full, in any way, for the benefit of any third party, without the need for any consent of the Trustee and/or the Debenture Holders.

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4.7

For the removal of doubt, it is clarified that the Trustee has no duty to examine, and in fact the Trustee has not examined, the need for providing collateral for securing the payments to the Debenture Holders. In its entering the engagement in this Deed of Trust, and with the consent of the Trustee to serve as the trustee for the Debenture Holders, the Trustee does not express its opinion, implicitly or explicitly, as to the ability of the Company to fulfill its undertakings towards the Debenture Holders. The foregoing does not derogate from the duty of the Trustee by law and/or Deed of Trust, nor does it derogate from the duty of the Trustee (to the extent that this duty applies to the Trustee according to any law) to examine the effect of changes in the Company from the date of the Prospectus onwards, to the extent that these may adversely affect the ability of the Company to fulfill its undertakings to the Debenture Holders.

4.8

The Debentures will be in an equal pari passu degree of security among themselves concerning the undertakings of the Company pursuant to the Debentures, without precedence or preference over each other.

5.	Delisting of the Debentures from trade initiated by the Stock Exchange

If the Stock Exchange decides to delist the Debentures (Series C) because the value of the series falls below the minimum sum stated in the guidelines of the Stock Exchange, the Company will not perform immediate redemption of the Debentures (Series C), but the Debentures will be delisted from trade.

6.	Immediate repayment

6.1

Subject to the provisions of Section 6.2 below, the Trustee shall be entitled to call for immediate repayment of the unsettled balance of the Debentures, in part or in full, and will be compelled to do so if so demanded by a special resolution (as defined in the second addendum to this Deed) that is adopted in the general Meeting of the Debenture Holders, or by a written demand signed by the Holders of more than 50% of the unsettled balance of the principal of Debentures in circulation, in case one or more of the events enumerated below occur:

6.1.1

If the Company does not repay any sum (including principal or interest or linkage differences) that is due pursuant to the terms of the Debentures, within 7 days of the maturity of that sum, according to the terms of the Debentures.

6.1.2

A permanent liquidator has been appointed by a court, or if the court has issued the Company a final liquidation order, or if a valid resolution for voluntary liquidation of the Company is adopted.

6.1.3

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to this section, and if the motion has been filed other than by the Company – the motion or order is not removed or cancelled within 45 days of filing or granting, as relevant.

6.1.4

If the Company is dissolved or struck for any reason, including striking or dissolution for merger purposes or within a share exchange transaction, unless the Trustee is convinced that the rights of the Debenture Holders (Series C) will not be infringed following such a merger or share exchange transaction.

6.1.5

If one of the cases listed below occurs and, according to the determination of the Trustee or a special resolution adopted in a general Meeting of the Debenture Holders, this may infringe upon or endanger the rights of the Debenture Holders:

6.1.5.1

A temporary liquidator or temporary receiver has been appointed for the Company by a court or if the court has issued the Company a temporary liquidation order, and such an appointment or order is not revoked within 30 days of being issued.

6.1.5.2

Material assets of the Company are subjected to attachment and the attachment is not removed within 45 days of its imposition.

6.1.5.3

An execution action is carried out against material assets of the Company and the action is not cancelled within 45 days of being carried out.

6.1.5.4

If a permanent receiver is appointed for the Company and/or for all of its assets or for a material part thereof, and the appointment is not cancelled within 45 days.

6.1.5.5

The Company ceases its payments and/or announces its intent to cease its payments and/or if there is genuine concern, in the opinion of the Trustee, that it will cease its payments and/or cease to continue its business affairs or it is likely that it will cease managing its business affairs.

6.1.5.6

If the Company violates or fails to fulfill any material condition or undertaking that binds it pursuant to the conditions of the Debentures and this Deed, and it does not rectify the violation within 14 business days of its having received a written warning from the Trustee to rectify the violation.

6.1.5.7

If pledgees of the assets of the Company realize the pledges that they have for material assets of the Company.

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6.1.5.8

If another series of Debentures that the Company has issued is called for immediate repayment other than according to a resolution of the Company.

6.2

Advance notice before calling Debenture for immediate repayment

6.2.1

Notwithstanding the provisions of Section 6.1 above, the Trustee shall not call the Debentures for immediate repayment, unless the Trustee has given the Company prior written notice of its intent to do so, and the Company does not fulfill the provisions of the advance notice within 15 days of its receipt (“ the Remedy Period ”).

6.2.2

In the said prior notice, the Company will be required to pay the arrears sum and/or fulfill other provisions of this Deed or of the terms of the Debentures whose violation or non-fulfillment constitute grounds for calling Debentures for immediate repayment, or restore the state of affairs that preceded the grounds for calling for immediate repayment, in accordance with the case stated in Section 6.1 above, for which this warning has been given.

6.2.3

Despite the provisions in Section 6.2.1 above, if the Trustee holds the opinion that a deferral in calling the debt of the Company for immediate repayment as stated in Section 6.2.1 above will genuinely endanger the rights of the Debenture Holders, the Trustee shall be allowed to shorten the Remedy Period up to 3 business days, in order to prevent the said endangerment of the rights of the Debenture Holders, on the condition that it so confirms to the Company by a notice that is delivered to it at the time of calling of the Debentures for immediate repayment.

7.	Claims and Proceedings by the Trustee

7.1

Without derogating from any other provision of the Deed of Trust, the Trustee shall be allowed, at its discretion, and will be required to do so by a special resolution that is adopted by a meeting of the Debenture Holders and after issue of written notice to the Company immediately after the adoption of the resolution, to take all of the proceedings, including legal proceedings and motions for receiving orders as, it deems fit and subject to the provisions of the law, for enforcing the undertakings of the Company according to the Deed of Trust, exercising rights of the Debenture Holders and protection of their rights according to the Deed of Trust. The Trustee shall be allowed to instigate legal and/or other proceedings even if the Debentures are not called for immediate repayment, for protecting the rights of the Debenture Holders and subject to the law. Notwithstanding the provisions of this section, the right of calling for immediate repayment will apply only in accordance with the provisions of Section

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6 of thus Deed and not pursuant to this section.

7.2

The Trustee is allowed, at its exclusive discretion and without a need for notice to the Company, to apply to the appropriate court for a motion for receiving orders on any matter that is related to and/or arises from this Deed of Trust, whether before or after the Debentures are called for immediate repayment.

7.3

Subject to the provisions of the Deed of Trust, the Trustee is allowed, but not compelled, to call at any time a general Meeting of the Debenture Holders in order to discuss and/or receive its instructions on any matter related to thte Deed of Trust, and is allowed to call it repeatedly.

7.4

The Trustee is allowed, at its exclusive discretion, to delay the execution of any action thereby pursuant to this Deed of Trust, for applying to the Meeting of the Debenture Holders or the court until it receives instructions from the Meeting of the Debenture Holders and/or orders from the court on how to act. Notwithstanding the foregoing, the Trustee is not allowed to delay proceedings for calling for immediate repayment that have been decided upon by a Meeting of the Debenture Holders pursuant to the provisions of Section 6.2 hereto.

8.	Distribution of the Receipts

8.1

All of the receipts that are received by the Trustee as a result of calling the Debentures for immediate repayment and/or as a result of proceedings that it takes, if it takes any, against the Company, will be kept by it in the trust and will serve it for the following purposes and in the following order of priority:

Firstly, for settling all expenses, payments, duties and undertakings expended by the Trustee, imposed thereupon or caused due to or as a result of the actions of the trusteeship or in another manner otherwise connected to the terms of this Deed, including the fee thereof (on the condition that the Trustee does not receive a double fee from both the Company and the Debenture Holders); secondly – in order to pay the Debenture Holders the arrears interest due to them in accordance with the terms of the Debentures and subject to the terms of the linkage in the Debentures, pari passu , in proportion to the sum of the arrears interest due to each of them, without preference or priority for any of them; thirdly, in order to pay the Debenture Holders the sums of the principal that are due to them pursuant to the Debentures held thereby, pari passu , and subject to the terms of linkage in the Debentures, whether the principal sums have matured or not, in proportion with the sums due thereto, without any preference concerning priority in time of issue of the Debentures by the Company or otherwise, and the surplus, if any, will be paid by the Trustee to the Company or the successors thereof. Withholding tax will be deducted at source from the payments to the

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Debenture Holders, to the extent that there is a duty to deduct it by law.

8.2

Payment of the sums by the Trustee to the Debenture Holders out of the receipts that are received thereby, will be subject to rights of other creditors of the Company, which precede or are equal to those of the Debenture Holders by law, relative to the said receipts, if there are any, in accordance with the provisions of the law.

9.	Authority to Delay Distribution of Money

9.1

Notwithstanding the provisions of Section 8 of this Deed, if the sum of money that is received as a result of taking the proceedings stated above that is available for distribution at any time, as stated in that section, will be less than ten percent (10%) of the balance of the unsettled principal of the Debentures and the interest, subject to the terms of the linkage in the Debentures, the Trustee shall not be required to distribute it and it will be allowed to invest the said sum, in part or in full, in investments that are permitted according to the Deed of Trust and replace these investments from time to time with other permitted investments, as it sees fit.

9.2

On the first payment date of the principal and/or the interest to the Debenture Holders that is paid after receipt of the sum stated in Section 9.1 above by the Trustee, or earlier, once the aforementioned investments with their profits and other sums that are received by the Trustee for the said purpose, reach a sum that will suffice to pay at least ten percent (10%) of the unsettled balance of the principal of the Debentures and the interest (subject to the terms of linkage in the Debentures), the Trustee shall pay them to the Debenture Holders as stated in section 8 hereof.

10.	Notice of Distribution and Depositing with the Trustee

10.1

The Trustee shall inform the Debenture Holders of the day and place on which any payment is made out of the payments stated in Sections 8 and 9 of this Deed, by 14 days prior notice that is delivered in the manner stated in section 23 to this Deed.

10.2

After the day stated in the notice, the Debenture Holders will be entitled to interest for the Debentures in accordance with the rate stated in the Debentures only for the balance of the principal sum (if any) after deducting the sum that has been paid or offered to them for such payment.

11.	Abstention from Payment for a Reason that does not Depend on the Company

11.1

Any sum that is due to the Debenture Holder that is not actually paid for a reason that does not depend on the Company, while the Company was prepared to pay it, will cease to bear interest and linkage differences from the date stated for its payment, whereas the Debenture Holder will be entitled only to the sums that it would have been entitled to on the date stated for repayment of that sum on the account of the principal,

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the linkage differences or the interest.

11.2

The Company will deposit with the Trustee by no later than 14 business days from the date stated for that payment, the sum of the payment that has not been paid for a reason that does not depend on the Company, and such a deposit will be considered as settlement of that payment, and in the case of settlement of all dues pursuant to the Debenture, as redemption of the Debenture.

11.3

The Trustee shall deposit in a bank the sums that will be transferred thereto as stated in Section 11.2 of this Deed, to the credit of those Debenture Holders and will invest it in investments permitted hereby that are securities of the State of Israel or other securities that the laws of the State of Israel permit investment of the trust money in, as the Trustee deems fit and subject to the provisions of the law. Should the Trustee do so, it will not owe the beneficiaries sums other than the remuneration that is received from realizing the investments less the expenses, commissions and mandatory payments, if any, that are related to the said investment in managing the trust account less its fee.

11.4

The Trustee shall transfer to each Debenture Holder for which sums and/or funds due to the Debenture Holders have been deposited with the Trustee, out of sums thus deposited, less all expenses, commissions, the mandatory payments and its fee, against presentation of the proof that is required by the Trustee, to the full satisfaction thereof.

11.5

The Trustee shall keep these sums and invest them in the above mentioned manner until one year elapses from the final redemption date of the Debentures. After this date, the Trustee shall transfer to the Company these sums, including profits that result from their investment, less its expenses and other expenses expended in accordance with the provisions of this Deed of Trust (such as service provider fees, etc.) to the extent that these remain in its possession on that date. The Company will keep these sums in trust for an additional year from the day of their transfer thereto by the Trustee, for the Debenture Holders that are entitled to those sums, and with regard to the sums that are transferred thereto by the Trustee as stated above, the provisions of Section 11.3 of this Deed of Trust will apply, mutatis mutandis . Upon the transfer of the sums from the Trustee to the Company, to the satisfaction of the Trustee, the Trustee shall be exempt from payment of such sums to the entitled Debenture Holders. The Company will approve to the Trustee in writing the holding of the sums and the receipt thereof in trust for the said Debenture Holders, and will indemnify the Trustee for any claim and/or expense and/or damage of any type that it sustains due to and for the said money transfer, as long as the Trustee has acted reasonably. The Company will keep these sums in trust for the Debenture Holders that are entitled to these sums for an additional year from the day of their transfer to it from the Trustee. Sums that are not demanded from the Company by a Debenture Holder two years from the final repayment date of

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the Debentures will be transferred to the Company, which will be entitled to use the remaining sums for any purpose.

12.	Receipt from the Debenture Holders as Proof

12.1

A receipt from the Debenture Holder for the sums of the principal, the interest and the linkage differences that have been paid thereto by the Trustee for that Debenture will release the Trustee categorically in all matters related to payment of the sums stated on the receipt.

12.2

Until the end of the period specified in Section 11.5 above, a receipt from the Trustee concerning the deposit of the sums of the principal, the interest and the linkage differences in its possession to the benefit of the Debenture Holders as stated in this Deed will be considered as a receipt from the Debenture Holders for the sums specified therein.

12.3

The sums distributed as stated in Sections 11 and 12 hereof will be considered as payment on the account of the repayment of the Debentures.

13.	Presentation of a Debenture to the Trustee and Noting Concerning Partial Payment

13.1

The Trustee shall be entitled to demand that a Debenture Holder present to the Trustee, at the time of payment of any interest or partial payment of principal, interest and linkage differences in accordance with Sections 8-10 hereof, the Debenture for which the payments are being made.

13.2

The Trustee shall note on the Debenture a comment concerning the sums paid as above and the date of payment thereof.

13.3

The Trustee shall be entitled, in any special case, at its discretion, to waive the presentation of the Debentures after it is given a indemnification letter and/or a sufficient guarantee, to its satisfaction, for damages that may be sustained due to not noting the said comment, as it deems fit. In such a case, the Company will not assume any liability for the payments stated in Section 13.1 towards that Holder.

13.4

Notwithstanding the foregoing, the Trustee shall be entitled, at its discretion, to make notes in other ways concerning such partial payments.

14.	Reporting and Undertakings of the Company towards the Trustee

14.1

The Company hereby undertakes towards the Trustee, for as long as the Debentures (including linkage differences thereupon) have not been repaid, as follows:

14.1.1

To inform the Trustee upon its notice to the public in writing of reasonable concern on the part of the Company that any or all of the events specified in Section 6.1 above may occur and the occurrence of any or all of the events

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specified in Section 6.1 above.

14.1.2

To give to the Trustee immediately upon their publication a copy of the annual audited and consolidated financial statements (including the periodical statement) and the reviewed consolidated quarterly financial statements of the Company.

14.1.3

To deliver to the Trustee, immediately upon its delivery, any report that it must submit to the Securities Authority.

14.1.4

To deliver to the Trustee notices concerning the purchase of Debentures by the Company or the subsidiary, as stated in this Deed of Trust.

14.1.5

On December 31 of each year, as long as the Deed of Trust is in effect, the Company will provide the Trustee with a confirmation signed by the CEO of the Company whereby to the best of his knowledge, the Company has not violated the Deed of Trust (including violation of the terms of the Debenture), unless explicitly stated otherwise.

14.1.6

To give the Trustee copies of notices and invitations that the Company gives to the shareholders in the Company and the Debenture Holders, as stated in Section 23.1 hereof.

14.1.7

To cause a senior financial officer in the Company to give, within a reasonable time, to the Trustee and/or the persons as he instructs, any explanation, document, calculation or information related to the Company, its business affairs and/or assets that are reasonably required for the purpose of inquires conducted by the Trustee for protecting the Debenture Holders.

14.1.8

To keep regular account books in accordance with generally accepted accounting principles. To keep the books and the documents used for them as references (including deeds of pledge, mortgage, bills and receipts) and allow the Trustee and/or the party that the Trustee appoints in writing for this purpose, to inspect at any reasonable time any such book and/or document and/or confirmation, to the extent required for protecting the Debenture Holders. The Trustee undertakes to inform whichever party is appointed thereby as above that the Trustee has undertaken to keep information that is given to it in confidence.

14.1.9

To allow the Trustee or a party that is appointed by the Trustee in writing for this purpose to enter its offices and anywhere where its assets may be found, at any reasonable time, for inspecting its assets, at the discretion of the Trustee, for protecting the Debenture Holders.

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14.1.10

To summon the Trustee to all of its general meetings (whether annual general meetings or special general meetings of the shareholders of the Company), without granting the Trustee a voting right in these meetings.

14.1.11

To give the Trustee, upon his demand, an affidavit and/or declarations and/or documents and/or details and/or information, as required by the Trustee, in accordance with its reasonable discretion, for applying and exercising the authorities, powers and authorizations of the Trustee and/or its proxies according to this Deed of Trust.

14.1.12

The Trustee undertakes, by signing the Deed of Trust, to keep in confidence all information that is given to it by the Company and any information that the Trustee and/or its representative and/or agent and/or proxy has inspected and not make any use thereof other than for the fulfillment of its undertakings according to this Deed. Notice of the authorization of a representative and/or agent for the Trustee shall be given to the Company in advance and in writing. The Trustee declares that any representative and/or agent and/or proxy on its part will be committed towards the Trustee and towards the Company to keep in confidence the information that reaches it in its activities for the Trustee. It is clarified that subject to the law, the transfer of the relevant information only to the Debenture Holders for making a decision that is related to their rights in accordance with the Debentures or for giving a report on the state of the Company does not constitute a violation of its undertaking for confidentiality.

15.	Additional Undertakings

15.1

After and to the extent that the Debentures are called for immediate repayment, as defined in Section 6 hereof, the Company will perform, from time to time and at any time it is required to do so by the Trustee, all of the reasonable actions in order to provide for the exercising of all of the authorities granted to the Trustee, and in particular the Company will perform all of the following actions, to the extent that they are reasonable.

15.1.1

It will declare the declarations and/or sign all of the documents and/or execute and/or have executed all of the actions that are necessary and/or required by law for validating the exercise of the authorities, the powers and the authorizations of the Trustee and/or the agent thereof.

15.1.2

It will give all of the notices, the orders and the instructions that the Trustee considers beneficial and will demand them.

15.1.3

For the purposes of this section – a written notice signed by the Trustee that confirms that an action that is required thereby, within his authorities, is a

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reasonable action, will constitute prima facie evidence thereof.

16.

Agents

16.1

The Company hereby irrevocably appoints the Trustee as its agent, to effect and execute on its behalf and in its place all of the actions that it will be required to execute according to the conditions of this Deed, and in general to act on its behalf with regard to the actions that the Company is required to perform according to this Deed, which it has not performed, or exercise some of the authorities granted thereto, and appoint any other person as the Trustee deems fit for performing its duties according to this Deed, subject to the Company not having performed the actions that it must perform pursuant to the terms of this Deed within a reasonable time from the date of the demand of the Trustee, provided it has acted in good faith and reasonably.

16.2

The appointment pursuant to Section 16.1 above does not bind the Trustee to perform any action.

17.	Other agreements

Subject to the provisions of the law and the restrictions imposed on the Trustee by law, the performance of the duty of the Trustee according to this Deed or pursuant to its status as a Trustee will not prevent it from associating with the Company by various contracts or executing transactions with it within the normal course of its business affairs.

18.	Reporting by the Trustee

18.1

The Trustee shall prepare, at the end of each year following the date hereof, an annual report on the trust affairs (the "Annual Report ”)

18.2

The Annual Report will include a breakdown of the following subjects: current details of the course of affairs of the Trust in the elapsing year; a report on extraordinary events concerning the Trust that have occurred during the elapsing year.

18.3

The Debenture Holders will be allowed to review the Annual Report in the offices of the Trustee during acceptable business hours and will be allowed to receive a copy thereof upon demand. A copy of the report will be provided to the Company along with it being made available for review by the Debenture Holders.

18.4

The Trustee shall give the Debenture Holders notice of the date of submission of the report as stated in Section 23 hereof. Should the Trustee learn of a material violation hereof on the part of the Company, it will inform the Debenture Holders of the violation and of the steps that it has taken for preventing it or for fulfilling the undertakings of the Company, as relevant.

19.	Fee and Coverage of Expenses of the Trustee

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19.1

The Company shall pay the Trustee fees for its services hereby as elaborated below:

19.1.1

For the first year of Trust, i.e. until 12 months from the date of the issuance, a sum of NIS 35,000. This sum will be paid within 30 days of the end of the month on which the Company has received from the Trustee a proforma invoice for this payment. The Trustee will be allowed to provide the Company with a proforma invoice within one business day of publishing the results of the issue.

19.1.2

For each of the years from the second year (i.e. from the end of 12 months from the date of issuance) in which Debentures (Series C) will be in circulation and not yet paid up, a sum of NIS 18,000, linked to the Known Index on the date of publication of the Prospectus, but in any case the sum will not be less than the sum specified above (“ the Annual Fee ”). The Annual Fee will be paid to the Trustee within 30 days of the end of the month on which the Company received from the Trustee a proforma invoice for the Annual Fee. The Trustee will be allowed to provide the Company a proforma invoice at the beginning of each year of trusteeship. The Annual Fee shall be paid to the Trustee for the period until the end of the term of the Trust hereby even if a receiver and/or administrative receiver is appointed for the Company and/or if the Trust hereby is managed under the supervision of a court.

19.1.3

If the tenure of the Trustee expires, as stated in Section 27 below, the Trustee will not be entitled to payment of the fee from the day of the appointment of a replacement Trustee. If the replacement Trustee is appointed during the Trust year, the fee that was paid for the months for which the Trustee did not serve as the Trustee of the Company will be refunded. It is clarified that this refund will not apply to the first year of Trust.

19.2

If the Trustee is required to perform special work (such as work that is required owing to a change in the structure of the Company or for the need to perform actions due to the failure of the Company to fulfill its undertakings to the Debenture Holders or for the need to perform additional actions for fulfillment of its duty as a reasonable Trustee, owing to a future change in laws and/or regulations and/or other binding instructions that will apply to the action of the Trustee) a sum of 150 dollars per year.

19.3

It is clarified that if according to a future change in laws and/or regulations and/or other binding instructions that apply to the action of the Trustee, the Trustee is charged additional expenses, which are demanded of it for fulfillment of its duty as a reasonable Trustee, the Company will indemnify the Trustee for its expenses. The Trustee shall inform the Company in advance and in writing before incurring the expenses, on changes as described in this section.

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19.4

The Trustee is entitled to a refund of the expenses that it reasonably incurs within the fulfillment of its duty, on the condition that for expenses of an expert opinion, as specified in Section 20.2 below, the Trustee shall give advance notice of its intent to obtain an expert opinion.

19.5

For each annual meeting of shareholders or Meeting of Debenture Holders that the Trustee participates in, an additional fee of NIS 150 per hour will be paid, linked to the Index in accordance with the provisions of Section 19.1.2 above.

19.6

VAT, if applies, will be added to the payments that are due to the Trustee pursuant to the provisions of this section and will be paid by the Company. The Trustee will transfer to the Company a tax invoice for these payments, within 14 days of the date of payment thereof to the Trustee by the Company.

20.	Special Authorities

20.1

The Trustee shall be entitled to deposit all of the deeds and documents that attest, represent and/or determine its right concerning any asset then in its possession, in a safe and/or in any other place of its choice, in the possession of any banker and/or any banking company and/or an advocate.

20.2

The Trustee is entitled, within the performance of the Trust affairs hereby, to act in accordance with the opinion and/or advice of any advocate, certified public accountant, appraiser, assessor, surveyor, mediator or other expert, whether such an opinion and/or advice has been prepared at the request of the Trustee and/or by the Company. The Trustee shall allow the Company to review any such opinion that the Company as paid for, upon demand. The provisions of this section do not exempt the Trustee of its responsibility by law.

20.3

Any such advice and/or opinion may be given, sent or received by a letter, telegram, facsimile and/or any other electronic data transfer medium.

20.4

The Trustee shall not be required to inform any party of the signing of this Deed of Trust and is not allowed to intervene in any way in the management of the business or affairs of the Company other than pursuant to the authorities that have been granted to the Trustee herein.

20.5

The Trustee shall faithfully use the powers, authorizations and authorities granted thereto hereby in good faith and reasonably.

21.	Authority of the Trustee to Employ Proxies

The Trustee shall be entitled to appoint a proxy/ies for acting in its place, whether an advocate or another party, in order to perform or participate in the performing of special actions that must be performed concerning the Trust, including, but not limited to, taking legal

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proceedings. In addition, the Trustee shall be entitled to settle, at the expense of the Company, the reasonable fee of any such proxy, and the Company will return to the Trustee immediately upon the first demand thereof any such reasonable expense, on the condition that the Trustee gives the company advance notice of such appointment of proxies.

The Company will be allowed to object to such an appointment on reasonable grounds, including in the case of the proxy competing directly or indirectly with the business of the Company.

The Trustee is allowed at any time to delegate from the Trusteeships, powers, authorizations and authorities granted thereto hereby, in part or in full, to another person or persons, and any such delegation will be made under the conditions and instructions (including permission for a proxy to appoint a proxy) that the Trustee deems suitable, but such delegation of authority will not release the Trustee from any responsibility assumed thereby in case the authorities were not delegated.

Such proxies and/or delegates will be bound by the confidentially provisions stated in Section 14 above.

22.	Indemnification of the Trustee

22.1

The Trustee shall be entitled to receive indemnification from the Debenture Holders or from the Company, as relevant, for reasonable expenses that it has incurred and/or will incur in connection with the actions that it has performed or must perform pursuant to its duty hereby, and/or by law and/or by order of a competent authority and/or any statute and/or upon the demand of the Debenture Holders and/or according to the demand of the Company. Notwithstanding the above, it is clarified and agreed hereby that:

22.1.1

The Trustee shall not be entitled to demand such indemnification in advance on a matter that is urgent.

22.1.2

The Trustee shall be entitled to indemnification for liability for torts, in the case of being found thus liable by a final court ruling or a concluded settlement towards a third party that is not one of the Debenture Holders.

22.2

The Indemnification right detailed in section 22.1 above will be subject to the following terms:

22.2.1

The expenses for liability for damages is reasonable.

22.2.2 The Trustee acted in good faith and the appropriate care, and the action was preformed within the fulfillment of its duty, according to the provisions of law and this Deed. .

22.3

Subject to the provisions of Sections 22.1 and 22.2 above, without prejudice to the

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rights to compensation and indemnification that are granted to the Trustee by law and/or the commitments of the Company and the Debenture Holders hereby, the Trustee, its proxy, manager, agent or other person appointed by the Trustee hereby will be entitled to receive indemnification out of the sums that are received by the Trustee out of the proceedings taken and/or otherwise hereby, concerning undertakings that they have assumed, concerning expenses they incurred due to the performance of the Trust or related to such actions, which in their opinion were required for executing the aforesaid and/or concerning the exercising of authorities and authorizations granted hereby and concerning all kinds of legal proceedings, opinions of advocates and other experts, negotiations, discussions, expenses, claims and demands concerning any matter and/or thing that are made and/or not made in any way concerning the subject matter, and the Trustee may withhold the funds that are in its possession and pay out of them the sums that are necessary for payment of the said indemnification. The said sums will take precedence over the rights of the Debenture Holders, subject to the provisions of the law.

22.4

For as long as the Trustee is required pursuant to the terms hereof an/or any statute and/or an order of a competent authority and/or the law and/or upon the demand of the Debenture Holders and/or the demand of the Company to perform any action, including, but not limited to instigating proceedings or filing claims upon the demand of the Debenture Holders, as stated herein, the Trustee shall be allowed to abstain from taking any such action until it receives, to its satisfaction, a letter of indemnification from any or all of the Debenture Holders, and if the action is performed owing to a demand of the Company, from the Company, for any liability for damages and/or expenses that may be incurred by the Trustee and by the Company or either of them, due to performing such an action. It is clarified that the foregoing does not exempt the Trustee from taking an urgent action that is required for preventing material infringement to the rights of the Debenture Holders.

22.5

Notwithstanding the provisions of this Section 22, as long as the trustee deems it right for protecting and/or exercising the rights of the Debenture Holders, and/or it is required hereby and/or by law and/or by an order of a competent authority and/or any statute and/or upon the demand of the Company and/or the Debenture Holders, to take legal proceedings, in the case of taking such an action due to a demand of the Company, the Company will deposit in the hands of the Trustee a sum that will be determined by the Trustee as the expected sum of the expenses of the Trustee concerning the proceedings. In any other case, the Trustee shall immediately call a Meeting of Debenture Holders in order to confirm their responsibility for covering the expenses involved in proceedings that the Trustee takes. In the case of the Debenture Holders refusing to assume the expenses involved in taking proceedings by the Trustee,

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the Trustee shall assume no duty to take such proceedings. In addition, all of the sums that are received from the realization proceedings will also be used for refunding and covering expenses that the Debenture Holders thus undertake to bear. It is clarified that the foregoing does not exempt the Trustee from taking an urgent action that is required for preventing material infringement of the rights of the Debenture Holders.

23.

Notices

23.1

Any notice from the Company and/or the Trustee to the Debenture Holders, as relevant, shall be given as follows:

23.1.1

By reporting in the MAGNA system of the Securities Authority and by

23.1.2

A notice that will be published in two widely distributed daily newspapers that are published in Israel in Hebrew;

23.2

Any notice or demand from the Trustee to the Company may be given by a letter that is sent by registered mail to the address stated herein, or to any other address that the Company informs the Trustee of in writing, or by transmission by facsimile or by courier and any such notice or demand will be considered as having been received by the Company: (1) in the case of sending by registered mail – three business days from the day of mailing thereof; (2) in the case of transmission by facsimile (along with a telephone check of receipt thereof) – one business day from the day of its transmission; (3) and in the case of sending by courier – upon its delivery by the courier to the addressee or the offering thereof to the addressee for receipt, as relevant.

23.3

Any notice or demand from the Company to the Trustee may be given by a letter that is sent by registered mail to the address stated herein, or to another address that the Trustee informs the Company of in writing, or by transmission by facsimile or by electronic mail (“ email ”) or by courier and any such notice or demand will be considered as having been received by the Trustee: (1) in the case of sending by registered mail – three business days from the day of mailing thereof; (2) in the case of transmission by facsimile or email (along with a telephone check of receipt thereof) or of sending by courier – upon its delivery by the courier to the addressee or the offering thereof to the addressee for receipt, as relevant.

23.4

Copies of notices and invitations that the Company gives to the Debenture Holders will also be sent by the Company in an Immediate Report, a copy of which will be given to the Trustee.

24.	Waiver; Settlement; and Changes in the Terms of the Deed of Trust

24.1

Subject to the provisions of the Law and the regulations promulgated and/or that will be promulgated thereby, the Trustee shall be allowed, from time to time and at any

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time, if it is convinced that this does not in its opinion infringe upon the rights of the Debenture Holders, to waive any violation or non-fulfillment of any of the terms hereof by the Company, as long as these do not relate to the terms of repayment of the Debentures and the grounds for calling for immediate repayment as specified in Section 6 hereof.

24.2

Subject to the provisions of the Law and the regulations promulgated and/or that will be promulgated thereby, the Trustee is allowed, whether before or after the principal of the Debentures is called for immediate repayment, to settle with the Company concerning any right or claim of the Debenture Holders and agree with the Company to any arrangement concerning the rights of the Debenture Holders, including waiving any right or claim of the Debenture Holders towards the Company hereby. If the Trustee settles with the Company after having received prior approval of the Debenture Holders as stated above, the Trustee shall be exempt of liability for this action, as approved by the general Meeting. The foregoing does not exempt the Trustee from responsibility for its actions until the date of making a decision of the Meeting of the Holders and/or its actions concerning its application.

24.3

Subject to the provisions of the Law and the regulations promulgated and/or to be promulgated thereby, the Trustee and the Company may, whether before or after the principal of the Debentures is called for immediate repayment, change the Deed of Trust (including a change in the conditions of the Debentures), if one of the following is fulfilled:

24.3.1

The Trustee is satisfied that the change does not adversely affect the Debenture Holders.

24.3.2

The Debenture Holders have agreed to the proposed change, by a special decision as specified in Sections 2.4 and 2.10 of the second addendum hereinafter.

24.4

The Trustee shall be entitled, at the request of the Company from time to time, to make changes in the Deed of Trust and/or in the Debentures, as required by a Securities Authority and/or the Stock Exchange and/or any other governmental authority, for the purpose of listing the Debentures for trade on the Stock Exchange, as long as the Trustee is satisfied that the change does not cause a material adverse effect to the Debenture Holders.

24.5

The Company shall give the Debenture Holders a notice of any such change, in accordance with Section 23 hereof, as soon as possible after its execution.

24.6

The general meetings as stated in this section above will be convened, as stated in the second addendum hereto.

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24.7

In any case of use of the right of the Trustee in accordance with this section above, the Trustee shall be entitled to demand that the Debenture Holders give to it or to the Company their certificates, for noting a comment concerning any such settlement, waiver, change or amendment and according to the demand of the Trustee, the Company shall note such a comment in the certificates that are given to it. In any case of use of the right of the Trustee pursuant to this section, the Trustee shall announce this, within a reasonable time, in writing, to the Debenture Holders.

25.	Register of Debenture Holders and Transfer of Debentures

25.1.1

The Company shall keep and maintain in its registered office a Register of the Debenture Holders, listing the names of the Debentures Holders, their addresses and the number and par value of the Debentures registered to their name. The register will also list any transfer of title to the Debentures. The Trustee and any Debenture Holder will be entitled, at any reasonable time, to review this Register. The Company is entitled to close the Register from time to time or for a period or periods that do not exceed an aggregate of thirty (30) days a year.

25.1.2

The Company will not be required to note in the Registers of Debenture Holder any notice concerning explicit, implicit or putative Trust, or hypothecation or pledging of any kind or any equity, claim or offset right or any other right, concerning the Debentures. The Company will only recognize the ownership by the person whose name the Debentures are listed under, as long as the legal heirs, administrators of estate or executors of the will of the registered owner or any person who will be entitled to the Debentures due to the bankruptcy of any registered owner (and in the case of a corporation - due to the liquidation thereof) will be entitled to register as the Holders thereof, after giving evidence that in the opinion of the Company is satisfactory for proving the right of any of the above to be registered as the Holder thereof.

26.

Release

26.1

Once it is proved to the satisfaction of the Trustee that all of the Debentures have been paid up, redeemed or when the Company deposits in the Trust of the Trustee sums of money that are enough for redeeming all of the Debentures, and once it is proved to the satisfaction of the Trustee that all of the undertakings and expenses made or sustained by the Trustee concerning the Deed of Trust and the instructions thereof have been fully paid up, the Trustee shall be required, upon the first demand of the Company, to act with the sums that have been deposited for Debentures whose redemption is not required according to the conditions stated herein.

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27.	Appointment of a New Trustee and Expiry of the Tenure of the Trustee

27.1

The provisions of the Securities Law will apply to the tenure of the Trustee and the expiration thereof and the appointment of a new Trustee. Subject to the provisions of the Law, the Trustee and any Trustee replacing it will be entitled to resign from their functions as Trustees after giving written notice to the Company three (3) months in advance, elaborating the reasons for resignation.

27.2

The resignation will take effect only after it is confirmed by the court, from the day established in the confirmation. In the case of such resignation or in the case of expiry of the tenure of the Trustee, the court is entitled to appoint another Trustee instead of the Trustee, for a period and under conditions as it deems fit.

27.3

The court will be entitled to dismiss a Trustee if it does not fulfill its duty properly or if the court finds another reason for the dismissal thereof.

27.4

The Holders of ten percent (10%) of the unsettled balance of the Debentures are entitled to call a general meeting of the Debenture certificate Holder. Each Meeting thus convened is allowed to decide, according to a vote of Holders of at least fifty percent (50%) of the unsettled balance of the Debentures, for the transfer of Trustee from its duty.

27.5

The Securities Authority is allowed to apply to the court with a motion to conclude the tenure of the Trustee, in accordance with Section 35 N of the Law.

27.6

The Trustee and the Company will submit an immediate report to the Securities Authority of any such event in this section, concerning the tenure of the Trustee.

27.7

Each new trustee will have the same powers, authorities and other authorizations and may act in all senses as though appointed as the Trustee from the outset, subject to the provisions of Section 35 N of the Law.

27.8

The Trustee shall transfer to the new Trustee all of its records concerning the Debenture Holders, if there are any, information about the payments made by the Trustee through to that time, if such were effected, any report and any information given hereby and any information that is reasonably required for the new Trustee, and the Trustee shall transfer to the new Trustee any sum that will be held thereby at that time concerning the Debentures.

28.	Meeting of Debenture Holders

Meetings of the Debenture Holders will be managed, as stated in the second addendum hereto.

29.	Investments of Funds

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29.1

All sums that the Trustee is allowed to invest hereby will be invested thereby in bank/s, in its name or to its order, in investments that the laws of the State of Israel permit investing trust funds in, as it deems suitable, subject to the terms hereof and the provisions of the law, as long as any investment in securities will be in securities that have been given a rating of not less than AA. If the Trustee has done so, it will not owe the beneficiaries of these sums other than the remuneration received from realizing the investments less the expenses related to this investment and managing the trust accounts, the commissions, after deducting the mandatory payments imposed on the trust account. Out of these sums, the Trustee shall transfer sums to the Debenture Holders that are entitled thereto, as soon as possible after the Trustee is provided proof and confirmations of their right to these sums to the full satisfaction of the Trustee, after deducting its expenses and commission at the rate that is generally employed thereby at that time.

30.	Applicability of the Law

This Deed and the Debentures are subject to Israeli law. On any matter that has not been mentioned herein and in any case of a contradiction between the provisions of the law and this Deed, the parties will act in accordance with the provisions of Israeli law. In any case of a contradiction between the provisions described in the Prospectus concerning this Deed and/or the Debentures, the provisions hereof will take precedence.

31.	Exclusive Jurisdiction

The only court that will be authorized for hearing matters related hereto and to the Debentures attached as an appendix hereto will be competent court in Tel Aviv Yaffo.

32.

General

Without derogating from the other provisions hereof and of the Debentures, any waiver, extension, accommodation, silence, abstention from action (“ waiver ”) on the part of the Trustee concerning the non-fulfillment or partial or incorrect fulfillment of any of the undertakings towards the Trustee hereby and in accordance with the Debenture, will not be considered as a waiver by the Trustee of any right but as limited consent for the particular instance on which it has been given. Without derogating from the other provisions hereof and the Debenture, any change in the undertakings to the Trustee necessitates receipt of the prior written consent of the Trustee. Any other consent, whether oral or by waiver or abstention from action or in any way that is not in writing, will not be considered as any consent. The rights of the Trustee hereby are independent and unconditional of each other and are in addition to any right that the Trustee has and/or will have by law and/or agreement (including this Deed and the Debenture).

33.

Addresses

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The addresses of the parties will be as specified in the preamble hereto, or any other address for which an appropriate written notice is given to the counterparty.

34.	Certification for MAGNA

In accordance with the provisions of the Securities Regulations (Signing and Electronic Reporting) 5763 2003, the Trustee hereby approves that the competent party of the Company report electronically to the Securities Authority of this Deed of Trust.

In witness thereof the parties have set their hands hereunto


Cellcom Israel Ltd.		Aurora Fidelity Trust Company Ltd.

I, the undersigned, Tamar Enav, Adv., confirm that this Deed of Trusteeship has been signed by Cellcom Israel Ltd. by Messrs. Tal Raz and Liat Menahemi Stadler and that their signature binds the Company concerning this Deed of Trust.


Tamar Enav, Adv.

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Cellcom Israel Ltd.

First Addendum

Debentures (Series C)

Issue of a series of up to NIS _____________________________ par value of registered to name Debentures (Series C), bearing annual interest at a rate of __%, linked (principal and interest) to the consumer price index published in August 2007, for repayment in 9 equal semiannual installments on March 1 and on September 1 of each of the years 2009 to 2012 (inclusive) and on March 1, 2013. The interest on the Debentures will be paid in semiannual installments on March 1 and September 1 on each of the years 2008 to 2012 (inclusive) and a semiannual installment on March 1, 2013.

Registered to name Debentures (Series C)

Number 1

Part value NIS ______________

Interest of __% annually.

This certificate attests that Cellcom Israel Ltd. (hereinafter: “ the Company ”) shall pay the Israel Discount Bank Nominees Ltd. or any party that will be the registered owner of this Debenture (hereinafter: “ the Debenture Holder (Series C ”) at the end of February 17 or August 20, as the case may be, of each year before the date of payment of the appropriate installment for the Debentures (Series C) out of the principal of the par value of the Debentures (Series C) that are in circulation, subject to the terms of linkage and all other terms listed in the terms in the overleaf.

The payments of the principal of the Debentures and the payments of the interest will be made against delivery of the Debenture to the Company at its registered office, as stated in the conditions in the overleaf or at any other place announced by the Company by no later than five business days before the payment date.

3.	Debentures (Series C) are issued pursuant to the Deed of Trust (hereinafter: the “Deed of Trust”) of September 20 that has been signed between the Company and Aurora Fidelity Trust Company Ltd. (hereinafter: the “ Trustee ”).

4.	The Debentures are not secured by any collateral. All of the Debentures (Series C) will have an equal degree of security among each other ( pari passu ) concerning the undertakings of the Company pursuant to the Debentures (Series C), without a preferential right or priority over one another.

5.	This Debenture (Series C) is issued subject to the conditions listed in the overleaf, the conditions listed in the Deed of Trust and in the Prospectus.

Signed with the stamp of the Company, affixed on_____________________________

Chairman of the board:

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The Conditions Listed Overleaf

General

In this Debenture (Series C), the following expressions will have the following meanings, unless another meaning is implied by the context, as follows:

“The Company”	–	Cellcom Israel Ltd.

The “ Deed of Trust”	–	The Deed of Trust that was signed between the Company and the Trustee on September 20, 2007, including the appendices attached thereto, which constitute an integral part thereof;

The “Prospectus”	–	The prospectus of the Company that is due to be published, inter alia , for the issue of the Debentures (Series C);

The “Debentures (Series C)” or the “Debentures”	–	The Debentures (Series C) of the Company, registered to name, that will be issued in accordance with the Prospectus,;

The “ Trustee”	–	Aurora Fidelity Trust Company Ltd. and/or any party serving from time to time as a trustee of the Debenture Holders (Series C) pursuant to the Deed of Trusteeship;

“Register”	–	Register of the Debenture Holders (Series C) as stated in Section 25 of the Deed of Trusteeship;

The “Debenture Holders (Series C)” and/or the “Debenture Holders” and/or the “Debenture Owners (Series C)” and/or the “Debenture Owners”	–	The persons whose names are listed at the time in question in the register of the Debenture Holders (series C), and in the case of a number of joint Holders, the joint Holder first listed in the register;

The “Debenture Certificate (Series C)” and/or “the Debenture Certificate ”	–	A Debenture certificate (Series C) whose form appears as the first addendum to this deed;

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The “Law”	–	The Securities Law, 5728 – 1968 and the regulations thereby, as effective from time to time;

“Principal”	–	The par value of the Debentures (Series C) in circulation;

The “Consumer Price Index” (“the Index”)	–	The price index known by the name of "the Consumer Price Index", which includes fruit and vegetables, as published by the Central Bureau of Statistics, including that index even if published by another official body or institute, and including any official index that replaces it, whether composed of the same data as the existing index or not. If it is replaced by another index that is published by such a body or institute, and that body or institute did not determine the ratio between it and the index thus replaced, the ratio will be determined by the Central Bureau of Statistics, and in the case of such a ratio not being determined, it will be determined by the Trustee, who will determine, following consultation with economic experts of his choice, the ration between the other index and the replaced index;

The “Known Index”	–	The last known consumer price index;

The “Basic Index”	–	The consumer price index for August 2007 that was published on September 12, 2007.

The “Payment Index”	–	The consumer price index known on the date of making any payment on the account of the principal and/or the interest;

“Business day”	–	A day on which most of the banks in Israel are open for conducting transactions;

The “Stock Exchange”	–	The Tel Aviv Stock Exchange Ltd.

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“Trade Day”	–	A day on which transactions are made on the Tel Aviv Stock Exchange Ltd;

“Meeting”	–	A meeting of the Debenture Holders, including a class meeting.

“Class meeting”	–	A meeting of the Debenture Holders, who have an interest that is materially different from the interest of other Debenture Holders on the matter that is being discussed in the meeting.

The “Nominee Company”	–	The Israel Discount Bank Nominees Ltd.

1.1

This Debenture is one of a series of registered to name Debentures (Series C) to a total specified sum that will be determined in accordance with Section 2.2 of the Prospectus. The Debentures of this series will have an equal, pari passu degree of security among each other concerning the undertakings of the Company pursuant to the Debentures (Series C), without a right of preference or priority of one over another concerning the sums due.

2.	Securing the Debentures (series C)

2.1

The undertaking of the Company to repay the Debentures (principal, interest and linkage differences) is not secured by any collaterals.

2.2

The Company will be allowed to pledge its assets, in part or in full, by any pledge and in any way, to the benefit of any third party, without the need for any consent from the Trustee and/or the Debenture Holders.

2.3

The Company will be allowed to sell, lease, assign, deliver or transfer in any other way its assets, in part or in full, in any way, for benefit of any third party, without the need for any consent of the Trustee and/or the Debenture Holders.

2.4

For the removal of doubt, it is clarified that the Trustee has no duty to examine, and in fact the Trustee has not examined, the need for providing collateral for securing the payments to the Debenture Holders. In its entering the engagement in this Deed of Trust, and with the consent of the Trustee to serve as the trustee for the Debenture Holders, the Trustee does not express its opinion, implicitly or explicitly, as to the ability of the Company to fulfill its undertakings towards the Debenture Holders. The foregoing does not derogate from the duty of the Trustee by law and/or the Deed of Trust, nor does it derogate from the duty of the Trustee (to the extent that this duty applies to the Trustee according to any law) to examine the effect of changes in the Company from the date of the Prospectus onwards, to the extent that these may

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adversely affect the ability of the Company to fulfill its undertakings to the Debenture Holders.

2.5

3.	Date of Repayment of the Principal of the Debentures (Series C)

Subject to all of the other terms of the Debentures (Series C), the principal of the Debentures (Series C) will be repaid in nine (9) equal semiannual installments on March 1 and on September 1 of each of the years 2009 to 2012 (inclusive) and on March 1, 2013. The principal of the Debentures (Series C) is linked to the Consumer Price Index as specified in Section 5 below.

4.	The Interest

The unsettled balance of the principal of the Debentures (Series C) in circulation will bear annual interest at a rate that will be determined in accordance with Section 2.2 of the Prospectus. The interest for the Debentures (Series C) is linked to the Consumer Price Index as specified in Section 5 below.

The interest for the Debentures (Series C) will be paid in semiannual installments, on March 1 and on September 1 of each of the years 2008 to 2012 (inclusive) and a semi-annual payment on March 1, 2013, For the period of the six (6) months ending on the last day before each such date, except the first interest period, for which the proportionate part of the interest will be paid (calculated based on 365 days a year) for the period starting on the first day of trading after the tender (the settlement day) and ending on February 28, 2008. The first interest payment for the Debentures (Series C) will be on March 1, 2008.

The Company will announce by immediate report, within a business day of the date of establishing the interest in the tender, the interest rate during the first interest period.

The last payment of the interest for the Debentures (Series C) will be made on March 1, 2013, with the last payment of the principal of the Debentures (Series C), against the handover of the Debentures (Series C) to the Company.

Income tax (see Section 2.3 of the Prospectus) will be deducted from each payment of interest for the Debentures (Series C), according to law.

5.	Terms of Linkage of the Principal and the Interest

The principal of the Debentures and the interest for the principal will be linked to the Consumer Price Index based on the Basic Index, as follows:

If it is found, on the date of repayment of any installment on the account of the principal

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and/or the interest for the Debentures, that the payment index for that date has increased relative to the Basic Index, the Company will pay that installment of principal and/or interest increased relative to the rate of the change in the Payment Index compared to the Basic Index. However, if it is found that the Payment Index is identical to the Basic Index or is lower, the Payment Index will be the Basic Index.

6.	Payments of the Principal and the Interest of the Debentures

6.1

Each installment on the account of the principal for the Debentures (Series C) will be paid to the Debenture Holders (Series C) whose names are listed in the Register of Debenture Holders (Series C) of the Company as Holders on the end of February 17 or August 20, as the case may be, of each year before the date of payment of the appropriate installment for the Debentures (Series C) (the “ Determinant Day for Payment of the Principal of the Debentures (Series C) ”).

Each installment on the account of the interest for the Debenture (Series C) will be paid to the Debenture Holders (Series C) whose names are listed in the in the Register of Debenture Holders (Series C) of the Company as Holders on the end of February 17 or August 20, as the case may be, of each year before the date of payment of the appropriate installment for the Debentures (Series C) (the “ Determinant Day for Payment of the Interest of the Debentures (Series C) ”).

Notwithstanding the foregoing, the last installment of the principal and the interest for the Debentures (Series C) will be paid against delivery of the Debentures Certificates (Series C) to the Company, at its registered office or anywhere else as advised by the Company, by no later than five (5) business days before the day stated for payment of the last installment.

6.2

In any case in which the date of payment of on the account of principal and/or interest falls on a day that is not a Business Day, the payment date will be deferred to the first Business Day thereafter without additional payment, interest or linkage.

6.3

Payment to beneficiaries will be made by checks or by bank transfer to the credit of the bank account of the persons whose names are listed in the Register of the Debenture Holders and that is indicated in the details that they give to the Company in writing in advance, in accordance with the provisions of Section 6.4 below. If the Company cannot, for any reason that does not depend thereupon, pay any sum to the entitled parties, the provisions of Section 7 below will apply.

6.4

A Debenture Holder that will be interested in informing the Company of the details of the bank account for crediting it with payments pursuant to the Debentures as stated above, or change these account details or instructions concerning the mode of payment, may do so by notice to the company by registered letter. However, the Company will

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fulfill the instruction only if it reaches its registered office at least thirty (30) days before the Determining Date for Payment of any installment pursuant to the Debenture.

In the case of the notice being received by the Company belatedly, the Company shall act thereby only concerning installments whose Determinant Payment Date is after the date of payment which is near to the day of receipt of the notice.

6.5

If a Debenture Holder who is entitled to such a payment has not given the Company in advance details concerning its bank account, any installment on the account of the principal and interest will be made out by a check that will be sent by registered mail to its last address listed in the Register of the Debenture Holders. Sending of a check to a beneficiary by registered mail as stated above will be considered, for all intents and purposes, as payment of the sum specified therein on the date of its mailing, as long as it is duly paid upon its presentation for collection.

7.	Abstention from Payment for a Reason that does not Depend on the Company

7.1

Any sum that is due to the Debenture Holder that is not actually paid for a reason that does not depend on the Company, while the company was prepared to pay it, will cease to bear interest and linkage differences from the date stated for its payment, whereas the Debenture Holder will be entitled only to the sums that it would have been entitled to on the date stated for repayment of that sum on the account of the principal, the linkage differences or the interest.

7.2

7.3

The Trustee shall deposit in a bank the sums that will be transferred thereto as stated in Section 7.2 above, to the credit of those Debenture Holders and will invest it in investments permitted hereby that are securities of he State of Israel or other securities that the laws of the State of Israel permit investment of the trust money in, as the Trustee deems fit and subject to the provisions of the law. Should the Trustee do so, it will not owe the beneficiaries for sums other than the remuneration that is received from realizing the investments less the expenses, commissions and mandatory payments, if any that are related to the said investment in managing the trust account less its fee.

7.4

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presentation of the proof that is required by the Trustee, to the full satisfaction thereof.

7.5

The Trustee shall keep these sums and invest them in the above mentioned manner until one year elapses from the final redemption date of the Debentures. After this date, the Trustee shall transfer to the Company these sums, including profits that result from their investment, less its expenses and other expenses incurred in accordance with the provisions of this Deed of Trust (such as service provider fees, etc.) to the extent that these remain in its possession on that date. The Company shall keep these sums in trust for an additional year from the day of their transfer thereto by the Trustee, for the Debenture Holders that are entitled to those sums, and with regard to the sums that are transferred thereto by the Trustee as stated above, the provisions of Section 7.3 of this Deed of Trust will apply, mutatis mutandis . Upon the transfer of the sums from the Trustee to the Company, to the satisfaction of the Trustee, the Trustee shall be exempt from payment of such sums to the entitled Debenture Holders. The Company shall approve to the Trustee in writing the holding of the sums and the receipt thereof in trust for the said Debenture Holders, and will indemnify the Trustee for any claim and/or expense and/or damage of any type that it sustains due to and for the said money transfer, as long as the Trustee has acted reasonably. The Company shall keep these sums in trust for the Debenture Holders that are entitled to these sums for an additional year from the day of their transfer to it from the Trustee. Sums that are not demanded from the Company by a Debenture Holder two years from the final repayment date of the Debentures will be transferred to the Company, which will be entitled to use the remaining sums for any purpose.

8.	The register of the Debenture Holders and Transfer of Debentures

8.1

8.2

The Company will not be required to note in the Debenture Holder Registers any notice concerning explicit, implicit or putative trusteeship, or hypothecation or pledging of any kind or any equity, claim or offset right or any other right, concerning the Debentures. The Company shall only recognize the ownership of the person whose name the Debentures are listed under, as long as the legal heirs, administrators of estate or executors of the will of the registered owner or any person who will be entitled to the Debentures due to the bankruptcy of any registered owner (and in the case of a

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corporation - due to the liquidation thereof) will be entitled to register as the Holders thereof, after giving evidence that in the opinion of the Company is satisfactory for proving the right of any of the above to be registered as the Holder thereof.

9.	The Debenture Certificates (Series C), their Split and Transfer

9.1

For the Debentures that are listed to one Holder, one certificate will be issued, or at its request, a number of certificates will be issued (the certificates referred to in this section will be referred to hereinafter as: the “ Certificates ”).

9.2

Each Certificate may be split into certificates whose total principal equals the sum of the par value of the Debentures that have been included in a Certificate whose split has been requested, as long as the new Debenture Certificates that are issued will be to par value sums in whole New Israeli Shekels, in accordance with a split request that has been signed by the registered owner of that Debenture Certificate, against the provision of that Debenture Certificate to the Company at its registered office for effecting the split. The split shall be made within seven (7) days of the end of the month on which the Certificate along with its split request were provided at the registered office of the Company. All of the expenses and commissions involved in the split, including stamp tax and other duties, if any, will apply to the party requesting the split.

9.3

The foregoing will apply accordingly to allocation letters, as long as they have not been replaced with Certificates.

9.4

The Debentures may be transferred concerning any par value sum, as long as it is in whole New Israeli Shekels. Any transfer of the Debentures that is not performed through the trading system of the Stock Exchange will be made out according to a transfer deed that is made out in a generally accepted format for transferring shares, duly signed by the registered owner or the legal representatives thereof, and by the transferee or the legal representatives thereof, which will be delivered to the Company at its registered office along with any other proof that is required by the Company for proving the right of the transferor to their transfer and the identity thereof. If any stamp tax or other mandatory payment applies to the deed of transfer of the Debentures, the company will be given proof of their payment by the requester of the transfer, which will be to the satisfaction of the Company.

9.5

It is clarified hereby that all of the expenses and commissions involved in the transfer, including stamp tax and other mandatory payments and duties, if any, will be borne by the party requesting the transfer only. The Company shall be allowed to keep the deed of transfer.

9.6

In the case of a transfer of only part of the sum of the specified principal of the Debentures in the Certificate, the Certificate will be split first as specified in Section

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9.2 above into a number of Debenture Certificates as required thereby, in such a manner that the total sums of the principal specified therein is equal to the sum of the specified principal of the said Debenture Certificate.

9.7

After fulfillment of all of the conditions stated above, the transfer will be registered in the Register of the Debenture Holders.

10.	Delisting of the Debentures from trade initiated by the Stock Exchange

11.	Purchase of the Debentures (Series C) by the Company and/or by a subsidiary

11.1

The Company shall issue the Debentures under conditions as specified in the Prospectus and in the Debentures and will not secure them with any collateral.

11.2

11.3

A subsidiary of the Company and/or the controlling shareholder and/or companies under the control of the c controlling shareholder of the Company (“ Affiliated Company ”) are allowed to purchase and/or sell from time to time within or without the Stock Exchange, including by way of issuance by the Company, Debentures at any price of their choosing and sell them accordingly. The Debentures thus held by the Affiliated Company will be considered as an asset of the Affiliated Company, and if they are listed for trading, they will not be delisted from trade on the Stock Exchange other than subject to the rules of the Stock Exchange.

On the matter of holding Meetings of Holders of Debentures, the provisions of Section 2.19 of the second addendum to this deed will apply.

11.4

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repayment rate in the case of liquidation and other conditions, as the Company sees fit, whether they are preferable to the terms of the Debentures (Series C) issued pursuant to the Prospectus, equal to them or inferior to them.

11.5

Without derogating from the foregoing, the Company is allowed, at any time and from time to time, without needing the consent of the Debenture Holders or the trustee, to issue, including to an Affiliated Company, additional Series C Debentures. The additional Debentures that will be issued, to the extent issued, including their conditions and resulting rights, will be identical and as the existing Debentures, and will together constitute one series for all purposes (it is clarified that in the case of such issuance, the offerees to whom additional Debentures will be issued will not be entitled to payment of principal and/or interest whose determinant payment date preceded the issuance date). The provisions of the Deed of Trust will apply to these additional Debentures. The Company shall publish an immediate statement on such an issuance of additional Debentures and will apply to the Stock Exchange in an application to list these additional Debentures for trading these therein. In the case of expansion of the series of the Debentures (series C) as above, the fee of the Trustee shall be increased in proportion to the increase of the size of the series.

The Company shall inform the Trustee and the Debenture Holders of the issue of these additional Debentures.

11.6

The Debentures have been issued in their par value, i.e. without discount. The Company reserves the right to allocate the Debentures following an expansion of the series at a different discount rate (higher or lower) than the discount rate of the Debentures then in circulation (including due to issuance at a price that reflects a different discount rate). The discounted allocation of the Debentures originating from expansion of the series of the Debentures at a rate exceeding the discount rate established for the Debentures before the expansion may adversely affect the state of the Debenture Holders.

11.7

The provisions of this Section 11 above itself do not bind the Company or the Debenture Holders to purchase Debentures or sell the Debentures in their possession.

11.8

Wherever the rules of the Stock Exchange apply or will apply to any action according to this Deed of Trust, they will have preference over the provisions hereof, and the

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dates of such an action will be determined in accordance with the rules of the Stock Exchange.

12.	Waiver; Settlement and Changes in the Terms of the Debentures (series C)

12.1

Subject to the provisions of the Law and the regulations promulgated and/or that will be promulgated thereby, the Trustee shall be allowed, from time to time and at any time, if it is convinced that this does not in its opinion infringe upon the rights of the Debenture Holders, to waive any violation or non-fulfillment of any of the terms hereof by the Company, as long as these do not relate to the terms of repayment of the Debentures and the grounds for calling for immediate repayment as specified in Section 16 below.

12.2

12.3

12.3.1

The Trustee is satisfied that the change does not adversely affect the Debenture Holders.

12.3.2

The Debenture Holders have agreed to the proposed change, by a special decision as specified in Sections 2.4 and 2.10 of the second addendum hereinafter.

12.4

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Debenture Holders.

12.5

The Company will give the Debenture Holders a notice of any such change, in accordance with Section 17 hereof, as soon as possible after its execution.

12.6

The general meetings as stated in this section above will be convened, as stated in the second addendum of the Deed of Trusteeship.

12.7

In any case of use of the right of the Trustee in accordance with this section above, the Trustee shall be entitled to demand that the Debenture Holders give to it or to the Company their certificates, for noting a comment concerning any such settlement, waiver, change or amendment and according to the demand of the Trustee, the Company will note such a comment in the certificates that are given to it. In any case of use of the right of the Trustee pursuant to this section, the Trustee shall announce this, within a reasonable time, in writing, to the Debenture Holders.

13.	Meeting of Debenture Holders (series C)

General meetings of the Debenture Holders (series C) will be convened and managed, as stated in the second addendum of the Deed of Trusteeship.

14.	Receipts as proof

14.1

14.2

Until the end of the period specified in Section 7.5 above, a receipt from the Trustee concerning the deposit of the sums of the principal, the interest and the linkage differences in its possession to the benefit of the Debenture Holders as stated in this Deed will be considered as a receipt from the Debenture Holders for the sums specified therein.

14.3

The sums distributed as stated in Sections 7 and 14 hereof will be considered as payment on the account of the repayment of the Debentures.

15.	Replacement of Debenture Certificates

In the case of a Debenture Certificate wearing out, being lost or destroyed, the Company shall be entitled to issue in its place a new Certificate of the Debentures, under the same conditions concerning proof, indemnification and coverage of the expenses sustained by the Company for inquiring as to the right of ownership of the Debentures that the certificate thus replaced relates to, as the Company deems fit, provided that in the case of wear, the worn out Debenture Certificate will be returned to the Company before the new Certificate is issued. Taxes, duties and other expenses involved in the issue of the new Certificate will be borne by the party

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requesting this Certificate.

16.	Immediate repayment

16.1

Subject to the provisions of Section 16.2 below, the Trustee shall be entitled to call for immediate repayment of the unsettled balance of the Debentures, in part or in full, and will be compelled to do so if demanded by a special resolution (as defined in the second addendum to this Deed) that is adopted in the general Meeting of the Debenture Holders, or by a written demand signed by the Holders of more than 50% of the unsettled balance of the principal of Debenture in circulation, in case one or more of the events enumerated below occur:

16.1.1

If the Company does not repay any sum (including principal or interest or linkage differences) that is due pursuant to the terms of the Debentures within, 7 days of the maturity of that sum, according to the terms of the Debentures.

16.1.2

A permanent liquidator has been appointed by a court, or if the court has issued the Company a final liquidation order, or if a valid resolution for voluntary liquidation of the Company is adopted.

16.1.3

A motion is filed regarding the Company to reach a settlement with the creditors of the Company in accordance with Section 350 of the Companies Law, 5759 – 1999, or if a motion for staying of proceedings is issued pursuant to this section, and if the motion has been filed other than by the company – the motion or order is not removed or cancelled within 45 days of filing or granting, as relevant.

16.1.4

If the company is dissolved or struck for any reason, including striking or dissolution for merger purposes or within a share exchange transaction, unless the Trustee is convinced that the rights of the Debenture Holders (Series C) will not be infringed following such a merger or share exchange transaction.

16.1.5

If one of the cases listed below occurs and according to the determination of the Trustee or a special resolution adopted in a general Meeting of the Debenture Holders, this may infringe upon or endanger the rights of the Debenture Holders:

16.1.5.1

16.1.5.2

Material assets of the Company are subjected to attachment and the attachment is not removed within 45 days of its imposition.

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16.1.5.3

An execution action is carried out against material assets of the Company and the action is not cancelled within 45 days of being carried out.

16.1.5.4

If a permanent receiver is appointed for the Company and/or for all of its assets or for a material part thereof, and the appointment is not cancelled within 45 days.

16.1.5.5

16.1.5.6

16.1.5.7

If pledgees of the assets of the Company realize the pledges that they have for material assets of the Company.

16.1.5.8

If another series of Debentures that the Company has issued is called for immediate repayment other than according to a resolution of the Company.

16.2

Advance notice before calling for immediate repayment

16.2.1

Despite the provisions of Section 16.1 above, the Trustee shall not call the Debentures for immediate repayment, unless the Trustee has given the Company prior written notice of its intent to do so, and the Company does not fulfill the provisions of the advance notice within 15 days of its receipt (“ the Remedy Period ”).

16.2.2

16.2.3

Despite the provisions in Section 16.2.1 above, if the Trustee holds the opinion that a deferral in calling the debt of the Company for immediate repayment as

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stated in Section 16.2.1 above will genuinely endanger the rights of the Debenture Holders, the Trustee shall be allowed to shorten the Remedy Period up to 3 business days, in order to prevent the said endangerment of the rights of the Debenture Holders, on the condition that it so confirms to the Company by a notice that is delivered to it alongside the calling of the Debentures for immediate repayment.

17.

Notices

17.1

Any notice from the Company and/or the Trustee to the Debenture Holders, as relevant, shall be given as follows:

	17.1.1	By reporting in the MAGNA system of the Securities Authority; and by

	17.1.2	A notice that will be published in two widely distributed daily newspapers that are published in Israel in Hebrew;

17.2

17.3

Any notice or demand from the Company to the Trustee may be given by a letter that is sent by registered mail to the address stated herein, or to another address that the Trustee informs the Company of in writing, or by transmission by facsimile or by electronic mail (“ email ”) or by courier and any such notice or demand will be considered as having been received by the Trustee: (1) in the case of sending by registered mail – three business days from the day of mailing thereof; (2) in the case of transmission by facsimile or by email (along with a telephone check of receipt thereof) or sending by courier – upon its delivery by the courier to the addressee or the offering thereof to the addressee for receipt, as relevant.

17.4

Copies of notices and invitations that the Company gives to the Debenture Holders will also be sent by the Company in an Immediate Report, a copy of which will be given to the Trustee.

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Cellcom Israel Ltd.

Second Addendum

Meetings of the Debenture Holders (Series C)

1.	Calling of Meetings of the Debenture Holders:

1.1

The Trustee or the Company may call a Meetings of the Debenture Holders. If the Trustee and/or the Company calls such a Meeting, they must send immediately a written notice to the Trustee and/or the Company, as relevant, regarding the site, the day and the time on which the Meeting will be held and on the matters to be brought for discussion therein, and the Trustee or the Company, as the case may be, or a representative thereof, will be entitled to participate in such a Meeting without them having a voting right. The Company will be required to call a general meeting by written request of the Trustee or of the Debenture Holders holding at least ten percent 10%) of the unsettled balance of the principal of the Debentures in circulation, as relevant. The Trustee shall be required to call such a Meeting, at the written request of the Holders of at least ten percent (10%) of the par value of the unsettled balance of the principal of the Debentures in circulation. If the parties asking to call the Meeting are the Debenture Holders, the Company and/or the Trustee, as relevant, are entitled to demand from the requesting parties indemnification for the reasonable expenses involved therein.

1.2

Fourteen (14) days advance notice will be given of each Meeting of the Debenture Holders, which will elaborate the place, the day and the time of the Meeting, and will indicate in general the subjects that will be discussed in the meeting. The Trustee is allowed, at its discretion, to shorten the duration of the advance notice if it sees that a deferral in calling the Meeting will cause material infringement of the rights of the Debenture Holders.

1.3

In case of the purpose of the Meeting being a discussion and adopting a special resolution as defined in Section 2.4 and 2.10 of this addendum hereinafter, the notice will elaborate, in addition to the foregoing, the principle of the proposed decision. No resolution that has been duly adopted in a Meeting thus called will be disqualified if notice is not given, erroneously to all of the Debenture Holders, or if such notice has not been received by all of the Debenture Holders.

1.4

Any such notice from the Company and/or the Trustee to the Debenture Holders will be given by a notice that is published in two (2) widely distributed daily newspapers that are published in Israel in Hebrew. In addition, an immediate report will be given by the Company. Any notice that is published as stated above will be considered as

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having been given to the Debenture Holders on the day of its publication as above.

2.	Meetings of the Debenture Holders:

2.1

The chairman of the Meeting will be a person who will be appointed by the Trustee. If the Trustee has not appointed a chairman or he is absent from the Meeting for half an hour from the determinant time for holding the Meeting, the attending Debenture Holders will choose a chairmen from among their number.

2.2

A Meeting of the Debenture Holders will be opened after it is proved that there is the legal quorum for starting the discussion present.

2.3

Subject to the legal quorum that is required in a Meeting that is convened for adopting a special resolution, and subject to the legal quorum that is required for the dismissal of a trustee pursuant to the Securities Law, two Debenture Holders who are attending by themselves or by proxy and together holding or representing at least a tenth (1/10) of the unsettled balance of the Debentures in circulation at that time will constitute a legal quorum.

2.4

A special resolution of the Debenture Holder Meeting will be required on the following issues (“ Special Resolution ”):

2.4.1

A change and/or amendment to the Deed of Trust, in the case of this requiring a resolution of a general Meeting pursuant to the Deed of Trust

2.4.2

Any amendment, change and/or arrangement of rights of the Debenture Holders, whether these rights result from the Debenture, the Deed of Trust or otherwise, or any settlement or waiver concerning these rights, in the case of a decision of a general meeting being required for this purpose pursuant to the Deed of Trusteeship.

2.4.3

Calling the Debentures for immediate repayment, in accordance with the terms of the Deed of Trust.

2.4.4

Giving of notices to the Trustee.

2.5

In a meeting that is called for adopting a Special Resolution a legal quorum will be constituted – if Holders of at least fifty percent (50%) of the unsettled balance of the Debentures in circulation at that time are present in the general meeting, or in a deferred meeting - if Holders of at least ten percent (10%) of the said balance are present.

2.6

If within a half an hour of the time set for starting a Meeting, no legal quorum is present, the meeting will be deferred to the same day in the following week (and in the case of this day not being a Business Day to the Business Day immediately following it) to the same place and time, without there being a duty to announce this to the

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Debenture Holders, or to another day, place and time, as chosen by the inviting party, which it will announce to the Debenture Holders at least three (3) days in advance. If no legal quorum is found in a Meeting thus deferred, half an hour after the time established for starting the Meeting, two (2) Debenture Holders attending by themselves or by proxy, regardless of the par value held thereby, will constitute a legal quorum, and other than the legal quorum required for adopting a special resolution, provided that the instruction determining the legal quorum as above is published within the notice of the original Meeting, provided that the notice to the Debenture Holders of the holding of the deferred Meeting is announced in accordance with the provisions of Section 1 hereto above, by no later than seven (7) days before the date of holding the deferred Meeting. Such a notice may be published within the notice of the original Meeting (the general meeting that was deferred).

2.7

Other than the foregoing, a Debenture Holder will not be entitled to receive any notice of a deferred Meeting and/or of matters that will be discussed in the deferred Meeting. Only matters that may be discussed in a Meeting will be discussed in a deferred Meeting.

2.8

With the consent of a majority in a Meeting in which a legal quorum has attended, the chairman is allowed, and at the demand of the Meeting is compelled, to defer the continuation of the Meeting from time to time and from place to place, as the Meeting decides. If the continuation of the Meeting is deferred by ten (10) days or more, a notice of the continued Meeting will be given by way of publishing an immediate report in the MAGNA system only.

2.9

In the vote, each Holder who is present in person or by proxy will have one vote for each NIS 1 par value of the total specified unpaid principal of the Debentures by which he may vote.

2.10

Each resolution will be adopted by a counting of votes. The majority that is required for a regular resolution is a regular majority of the number of votes represented in the vote of the Meeting (except abstainers). The majority that is required for a Special Resolution in such a Meeting is a majority of not less than 75% of the number of votes represented in such a vote (except abstainers).

2.11

A appointment letter that appoints a proxy will be in writing and will be signed by the appointer or by the proxy thereof who is duly authorized to do so in writing. If the appointer is a corporation, the appointment will be made in writing and will be signed by the stamp of the corporation, along with the signature of the secretary of the corporation or the advocate of the corporation who has the authority to do so. The appointment letter of a proxy will be made out in any generally accepted form. A proxy is not required to be a Debenture Holder himself. The appointment letter and the power .

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of attorney or the other certificate by which the appointment letter is made out or an approved copy of such a power of attorney, will be deposited in the registered office of the Company or at another address that the Company announces not less than forty eight (48) hours before the time of the Meeting for which the power of attorney has been given, unless otherwise determined in the notice calling the Meeting. The appointment letter will also be valid concerning any deferred Meeting of a Meeting that the appointment letter relates to, unless stated otherwise in the appointment letter. A vote that is made in accordance with the terms in the document appointing a proxy will also be valid if the appointer has passed away or been declared legally incompetent or if the appointment letter is cancelled or the Debenture that the vote has been given for is transferred, prior to the vote, unless a written notice of the death, decisions of legal incompetence, cancellation or transfer, as relevant, received at the registered office of the Company before the Meeting

2.12

Any corporation that owns a Debenture may, by duly signed written authorization, empower a person as it deems fit to act as its representative in any Meeting of the Debenture Holders, and the person who has been authorized will be allowed to act on behalf of the corporation that he represents.

2.13

Any proposal for a resolution that is put to the vote in a Meeting of Holders will be decided by a show of hands, unless a vote using a ballot box is demanded by the chairman or by at least two (2) Debenture Holders, who are present by themselves or by their proxy, whether a vote was made previously with a raise of hands or thereafter and the vote by ballot box will prevail. In the case of joint Holders, only the vote of the more senior Holder wishing to vote will be accepted, whether by himself or by his proxy, for which purpose seniority will be determined by the order in which the names are listed in the Register of Holders.

2.14

The Trustee shall not have a right to vote in a Meeting of the Debenture Holder.

2.15

In a vote, a Debenture Holder or the proxy thereof is allowed to vote with some of its votes in favor of a proposal that is being discussed, and with some against the proposal, as it deems fit.

2.16

Declaration of the chairman of the Meeting concerning adopting or rejecting a resolution and recording of this matter in the minutes book will serve as prima facie evidence of this fact.

2.17

The chairman of the meeting will have a minute of the Meeting of the Debenture Holders prepared, which shall be written in the book of minutes. Each such minute will be signed by the chairman of the Meeting or by the chairman of the Meeting held thereafter, and all minutes thus signed will serve as conclusive testimony of the

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proceedings in the Meeting, and as long as it is not proved otherwise, any resolution adopted in such a Meeting will be considered as having been duly adopted.

2.18

A person or persons who are appointed by the Trustee, the secretary of the Company and any other person or persons authorized by the Company will be allowed to be present in Meetings of the Debenture Holders without a voting right.

2.19

Debentures held by an Affiliated Company will not grant their Holders a voting right in the general meeting of the Debenture Holders, but they will be considered for determining the legal quorum in the general meeting, except Debentures that will be held by an Affiliated Company that is an investor that is one of the investors listed in the first addendum to the Securities Law (concerning Section 15A(B)(1) of the Law) that is not investing for itself (an "Affiliated Institutional Investor”), which will grant voting rights in a Meeting of the Debenture Holders. At the time of holding the Meeting of the Debenture Holders, the Trustee shall check for conflicting interests among the Debenture Holders in accordance with the circumstances at hand and the need for calling Class Meetings in cases in which there are differing interests among the Debenture Holders, in accordance with the circumstances at hand. The Company and the Trustee shall act to call Class Meetings of the Debenture Holders in accordance with the provisions of the law, the provisions of the Securities Law and the Regulations and guidelines promulgated thereunder. In the case of holding Class Meetings, approval of a resolution requires approval in each of the Class Meetings that are called, and in the Meeting of all of the Debenture Holders, with the majority that is required by the provisions of the Deed of Trust and the appendices thereof.

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Exhibit 4.4

TRANSLATION FROM HEBREW

THE BINDING VERSION IS THE HEBREW VERSION

Deed of Trust

Made and signed in Netanya on September 20, 2007

Between:

Cellcom Israel Ltd.

of 10 Hagavish Street, Netanya

(hereinafter: “ the Company ”)

of the one part;

And:

Hermetic Trust (1975) Ltd.

Private company no. 51-070519-7

of 113 Hayarkon St., Tel Aviv

Telephone: 03-5274867

Fax: 03-5271736

Email: hermetic@hermetic.co.il

Contact: Meirav Ofer Oren, joint CEO

(hereinafter: “ the Trustee ”) of the other part:

Whereas:	The board of the Company decided, on September 19, 2007, to approve the issue of Debentures (Series D), according to the conditions of the Prospectus; and

Whereas:	The Trustee is a limited shares company that has been incorporated in Israel according to the Companies Law/ Ordinance, whose principle goal is to engage in Trust; and

Whereas:	The Trustee has declared that there is no impediment in accordance with the Securities Law 5728 – 1968 or any other law to its entering into an engagement with the Company pursuant to this Deed of Trust, and that it fulfills all of the requirements and conditions for competency stated in the Securities Law to serve as a trustee for the issue of the Debentures (Series D) covered by the Prospectus; and

Whereas:	Within the Prospectus, the Company shall issue Debentures (Series D) of a par value that will be as determined in accordance with Section 2.2 of the Prospectus; and

Whereas:	The Company has requested that the Trustee serve as the trustee for the Debenture Holders (Series D), and the Trustee has agreed thereto, subject to the terms of this Deed of Trust;

Now therefore it has been agreed, declared and stipulated between the parties as follows:

1.	Preamble, interpretation and definitions

	1.1	The preamble to this Deed of Trust and the appendices attached hereto constitute a

		material and integral part hereof.

	1.2	The division of this Deed and Trust into sections and the titling of the sections are for the sake of convenience and as references only and may not be used for construction purposes.

	1.3	The provisions hereof in plural apply to singular and vice versa; the provisions hereof in masculine gender apply to feminine and vice versa, and all statements regarding natural persons also refer to corporations, wherever this Deed does not implicitly and/or explicitly state otherwise and/or if the content of context of the statements does not necessitate otherwise.

	1.4	In this Deed of Trust and in the Debentures (Series D), the following expressions will have the meaning beside them, unless another meaning is implied by the content or context of the statements:

“This deed” or the “ Deed of Trust”	–	This Deed of Trust, including the appendices attached hereto, which constitute an integral part hereof;

The “Prospectus”	–	The prospectus of the Company that is due to be published, inter alia , for the issue of the Debentures (Series D)

The “Debentures (Series D)” or the “Debentures”	–	The Debentures (Series D) of the Company, registered to name, that will be issued in accordance with the Prospectus;

The “Trustee”	–	Hermetic Trust (1975) Ltd. and/or any party serving from time to time as a trustee of the Debenture Holders (Series D) pursuant to this deed;

“Register”	–	Register of the Debenture Holders (Series D) as stated in Section 25 hereof;

The “Debenture Holders (Series D)” and/or the “Debenture Holders” and/or the “ Debenture Owners (Series D) ” and/or the “Debenture Owners”	–	The persons whose names are listed at the time in question in the register of the Debenture Holders (Series D) and in the case of a number of joint Holders, the joint Holder first listed in the register;

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The “Debenture Certificate (Series D)”	–	A Debenture certificate (Series D) whose form appears as the first addendum to this deed;

The “Law” or the “Securities Law”	–	The Securities Law, 5728 – 1968 and the regulations thereby, as effective from time to time;

“Business day”	–	A day on which most of the banks in Israel are open for conducting transactions;

“Principal”	–	The par value of the Debentures (Series D)

The “Consumer Price Index” (“Index”)	–	The price index known by the name of "the Consumer Price Index", which includes fruit and vegetables, as published by the Central Bureau of Statistics, including that index even if published by another official body or institute, and including any official index that replaces it, whether composed of the same data as the existing index or not. If it is replaced by another index that is published by such a body or institute, and that body or institute did not determine the ratio between it and the index thus replaced, the ratio will be determined by the Central Bureau of Statistics, and in the case of such a ratio not being determined, it will be determined by the Trustee, who will determine, following consultation with the Company and economic experts of his choice, the ration between the other index and the replaced index;

The “Known Index”	–	The last known consumer price index;

The “Basic Index”	–	The consumer price index for August 2007 that was published on September 12, 2007.

The “Payment Index”	–	The consumer price index known on the date of making any payment on the account of the principal and/or the interest;

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“Trade Day”	–	A day on which transactions are executed on the Tel Aviv Stock Exchange Ltd;

The “Stock Exchange”	–	The Tel Aviv Stock Exchange Ltd;

“Meeting”	–	A meeting of the Debenture Holders, including a class meeting.

“Class meeting”	–	A meeting of the Debenture Holders, who have an interest that is materially different from the interest of other Debenture Holders on the matter that is being discussed in the meeting.

“The Nominee Company”	–	The Israel Discount Bank Nominees Ltd.

2.	Issuance of the Debentures and the Applicability of the Deed of Trust

	The Company shall issue a series of registered to name Debentures (Series D), to an unlimited sum, bearing annual interest at a rate that is to be determined in accordance with Section 2.2 of the Prospectus, linked (principal and interest) to the Basic Index, for repayment in 5 equal annual installments on July 1 of each of the years 2013 to 2017 (inclusive). The interest on the Debentures will be paid in annual installments on July 1 in each of the years 2008 to 2017 (inclusive).



3.	Terms of the Issuance; Self-Purchase

	3.1	The Company shall issue the Debentures according to the conditions specified in the Prospectus and in the Debentures and will not secure them with any collateral.

	3.2	The Company reserves the right to purchase at any time, within or without the Stock Exchange, Debentures (Series D) at any price of its choosing, without prejudice to the obligation of repayment of the Debentures remaining in circulation as specified above. The Debentures that will be purchased by the Company will be cancelled and delisted from trade on the Stock Exchange, and the Company will not be allowed to re-issue them.

	3.3	A subsidiary of the Company and/or the controlling share Holder and/or companies under the control of the controllers of the controlling share Holder of the Company (“ Affiliated Company”) are allowed to purchase and/or sell from time to time within or without the Stock Exchange, including by way of issuance by the Company, Debentures at any price of their choosing and sell them accordingly. The Debentures thus held by the Affiliated Company will be considered as an asset of the Affiliated Company, and if they are listed for trading, they will not be delisted from trade on the

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		Stock Exchange other than subject to the rules of the Stock Exchange.

		On the matter of holding Meetings of Holders of Debentures, the provisions of Section 2.19 of the second addendum to this Deed will apply.

	3.4	The Company is allowed, at any time and from time to time, without needing the consent of the Debenture Holders or the Trustee, to issue, including to an Affiliated Company, Debentures of a different type and/or of different series and/or other Debentures securities, whether secured or unsecured, whether granting a right of conversion into shares of the Company or not granting such right, whether by public offering pursuant to a prospectus or otherwise, under terms of redemption, interest, linkage, discounting, repayment rate in the case of liquidation and other conditions, as the Company sees fit, whether they are preferable to the terms of the Debentures (Series D) issued pursuant to the prospectus, equal to them or inferior to them.

	3.5	Without derogating from the foregoing, the Company is allowed, at any time and from time to time, without needing the consent of the Debenture Holders or the Trustee, to issue, including to an Affiliated Company, additional Series D Debentures. The additional Debentures that will be issued, to the extent issued, including their conditions and resulting rights, will be identical and as the existing Debentures, and will together constitute one series for all purposes (it is clarified that in the case of such issuance, the offerees to which additional Debentures will be issued will not be entitled to payment of principal and/or interest whose determinant payment date preceded the issuing date). The provisions of the Deed of Trust will apply to these additional Debentures. The Company will publish an immediate report on such an issuance of additional Debentures and will apply to the Stock Exchange in an application to list these additional for trading these additional Debentures therein. In the case of expansion of the series of the Debentures (Series D) as above, the fee of the Trustee shall be increased in proportion to the increase of the size of the series.

		The Company shall inform the Trustee and the Debenture Holders of the issue of these additional Debentures.

		This right of the Company does not exempt the Trustee from examining such an issuance, to the extent that such a duty is imposed on the Trustee by law, and it does not derogate from the rights of the Trustee and of the Meeting of the Debenture Holders according to the Deed of Trust, including their right to make the Debentures immediately repayable as stated in Section 6 hereof.

	3.6	The Debentures have been issued in their par value, i.e. without discount. The Company reserves the right to allocate the Debentures following an expansion of the series at a different discount rate (higher or lower) than the discount rate of the

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		Debentures then in circulation (including due to issuance at a price that reflects a different discount rate). The discounted allocation of the Debentures originating from expansion of the series of the Debentures at a rate exceeding the discount rate established for the Debentures before the expansion may adversely affect the state of the Debenture Holders.

	3.7	The provisions of this Section 3 above itself do not bind the Company or the Debenture Holders to purchase Debentures or sell the Debentures in their possession.

	3.8	Wherever the rules of the Stock Exchange apply or will apply to any action according to this Deed of Trust, they will have preference over the provisions hereof, and the dates of such an action will be determined in accordance with the rules of the Stock Exchange.

4.	Under takings of the Company

	4.1	The Company undertakes hereby towards the Debenture Holders, through the Trustee, to pay, on the dates set thereto, all of the sums of the principal, the interest and the linkage differences that will be payable pursuant to the terms of the Debentures, and fulfill all of the other conditions and undertakings imposed thereupon pursuant to the terms of the Debentures and this Deed.

	4.2	The Company hereby warrants that the capital raised that it will hold until the date of their use according to the designation of the issuance remuneration as stated in chapter 3 of the Prospectus, will be deposited and invested by the company as it deems fit, as long as each investment is made in solid channels, including, but not limited to, an interest-bearing monetary deposit, a foreign currency deposit, Debentures with a rating of not less than BBB-, and so on. For this purpose, an investment in shares or basket certificates whose base asset is shares or share indices or options in the Maof or the purchase or writing of positions in derivatives, will not be considered as an investment in solid channels.

	4.3	Securing of the Debentures

	4.4	The undertaking of the Company to repay the Debentures (principal, interest and linkage differences) is not secured by any collateral.

	4.5	The Company will be allowed to pledge its assets, in part or in full, by any pledge and in any way, including to any third party, without the need for any consent from the Trustee and/or the Debenture Holders.

	4.6	The Company will be allowed to sell, lease, assign, deliver or transfer in any other way its assets, in part or in full, in any way, for benefit of any third party, without the need for any consent of the Trustee and/or the Debenture Holders.

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	4.7	For the removal of doubt, it is clarified that the Trustee has no duty to examine, and in fact the Trustee has not examined, the need for providing collateral for securing the payments to the Debenture Holders. In its entering the engagement in this Deed of Trust, and with the consent of the Trustee to serve as the trustee for the Debenture Holders, the Trustee does not express its opinion, implicitly or explicitly, as to the ability of the Company to fulfill its undertakings towards the Debenture Holders. The foregoing does not derogate from the duty of the Trustee by law and/or Deed of Trust, nor does it derogate from the duty of the Trustee (to the extent that this duty applies to the Trustee according to any law) to examine the effect of changes in the Company from the date of the Prospectus onwards, to the extent that these may adversely affect the ability of the Company to fulfill its undertakings to the Debenture Holders.

	4.8	The Debentures will be in an equal pari passu degree of security among themselves concerning the undertakings of the Company pursuant to the Debentures, without precedence or preference over each other.

5.	Delisting of the Debentures from trade initiated by the Stock Exchange If the Stock Exchange decides to delist the Debentures (Series D) because the value of the series falls below the minimum sum stated in the guidelines of the Stock Exchange, the Company will not perform immediate redemption of the Debentures (Series D), but the Debentures will be delisted from trade.

6.	Immediate repayment

	6.1	In one or more of the events enumerated below:

		6.1.1	If the Company does not repay any sum that is due from it in connection to the Debentures within 45 days of the maturity of that sum.

		6.1.2	A temporary liquidator has been appointed by a court, or if a valid resolution has been adopted to liquidate the Company (other than liquidation for merging with another company and/or restructuring of the Company) and this appointment or resolution is not cancelled within 30 Business Days of being given.

		6.1.3	If an attachment is imposed on some or all of the material assets of the Company and the attachment is not removed within 60 days.

		6.1.4	An execution action is carried out against a material asset of the Company, in part or in full, and the action is not cancelled within 90 days.

		6.1.5	If a receiver is appointed for the Company and/or some or all of its material assets, and the appointment is not cancelled within 90 days.

		6.1.6	If the Company ceases the payments of the Debentures and/or announces its

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		intent to cease the payments of the Debentures.

	6.1.7	If the Company discontinues its business affairs or managing its business affairs, as they are from time to time, and/or announces its intent to cease in engaging in or managing its business affairs as shall be from time to time.

	6.1.8	If another series of Debentures that the Company has issued is called for immediate repayment other than according to a resolution of the Company.

	6.1.9	If an order for staying of proceedings is given or if a motion has been filed concerning the Company to make an arrangement with the creditors of the Company pursuant to Section 350 of the Companies Law (other than for merging with another company and/or restructuring of the Company) against the Company and this order or motion is not cancelled within 90 days of commencement thereof.

	6.1.10	If the Company is wound up or struck for any reason.

	6.1.11	A fundamental breach of the terms of the Debentures and the Deed of Trust, including if it is found that the undertakings of the Company in the Debentures or herein are incorrect and/or incomplete, provided a notice has been given to the Company to rectify the violation and the Company does not correct such a violation within 14 Business Days of issue of the notice, and provided that the payments to the Debenture Holders and/or the rights thereof are infringed or may be infringed as a result.

	6.1.12	If there is material concern that the Company will discontinue the payments of the Debentures and/or there is material concern that it will cease managing its business affairs as shall be from time to time.

	6.1.13	In the occurrence of any other event that constitutes material infringement and/or may cause material infringement of the rights of the Debenture Holders (Series D).

	For the purposes of this entire section, "Material Asset" is an asset whose value in the books of the Company exceeds 20% of the income of the Company according to its last (audited) consolidated annual statements on the date of the event.

6.2	In the occurrence of any of the events listed in Section 6.1 above, the following provisions will apply:

	6.2.1	(A) In the case of any of the events in Sections 6.1.1 to 6.1.10 (inclusive) above, the Trustee will be required to call a Meeting of the Debenture Holders (Series D); or (B) In the case of any of the events in Sections 6.1.11 to 6.1.13 (inclusive)

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			above, the Trustee will be allowed (but not required) to call a meeting of the Debenture Holders (Series D), but the Trustee will be required to call a Meeting of Holders by a written request of Holders of at least ten percent (10%) of the par value of the unsettled balance of the principal of the Debentures in circulation, as specified in Section 1.1 of the second addendum hereto.

		6.2.2	The date of convening the meeting, which will be called in accordance with the provisions of Section 6.2.1 A or B above, will be 30 days after the date of its calling (or a shorter term in accordance with the provisions of Section 6.2.5 below), whose agenda will have a resolution concerning calling for immediate repayment the entire unsettled balance of the Debentures (Section D), due to the occurrence of any of the events specified in Section 6.1 above, as relevant.

		6.2.3	In the case that until the date of convening of the Meeting, none of the events specified in Section 6.1 above has been canceled or removed, and the Meeting of the Debenture Holders as stated resolve to call all of the unsettled balance of the Debentures for immediate repayment as a Special Resolution (as defined in the second addendum hereto), the Trustee will be required, within a reasonable time, to call all of the unsettled balance of the Debentures (Series D) for immediate repayment, as long as it has given the Company at least 15 days written warning of its intent to do so and the event for which the resolution was adopted has not been canceled or removed within this period.

		6.2.4	A copy of the notice for calling the Meeting will be sent by the Trustee to the Company as soon as the notice is published and will constitute advance written warning to the Company of the intent to act to call the Debentures for immediate repayment.

		6.2.5	The Trustee is entitled, at its discretion, to reduce the count of 30 days (in Section 6.2.2 above) and/or the said 15 days of warning (in Section 6.2.3) in the case of the Trustee opining that any deferral in calling the debt of the Company for repayment endangers the rights of the Debenture Holders (Series D), but in any case the Trustee shall not do so without first applying to the Company in writing 7 Business Days before the date of the meeting, indicating the reasons for reducing the time, at the discretion of the Trustee in the circumstances at hand.

		6.2.6	The Trustee will be responsible for reporting to the Debenture Holders of the occurrence of any of the events specified in Sections 6.1.11 to 6.1.13 (inclusive) above, whether pursuant to publications that the Company has made or according to a notice of the Company that will be sent to it according to the

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		provisions of Section 24 below, soon after it being brought to its attention or delivered to it.

7.	Claims and Proceedings by the Trustee

	7.1	Without derogating from any other provision of the Deed of Trust, the Trustee shall be allowed, at its discretion, and will be required to do so by a special resolution that is adopted by a meeting of the Debenture Holders and after issue of written notice to the Company immediately after the adoption of the resolution, to take all of the proceedings, including legal proceedings and motions for receiving orders as, it deems fit and subject to the provisions of the law, for enforcing the undertakings of the Company according to the Deed of Trust, exercising rights of the Debenture Holders and protection of their rights according to the Deed of Trust. The Trustee shall be allowed to instigate legal and/or other proceedings even if the Debentures are not called for immediate repayment, for protecting the rights of the Debenture Holders and subject to the law. Notwithstanding the provisions of this section, the right of calling for immediate repayment will apply only in accordance with the provisions of Section 6 of thus Deed and not pursuant to this section.

	7.2	The Trustee is allowed, at its exclusive discretion and without a need for notice to the Company, to apply to the appropriate court for a motion for receiving orders on any matter that is related to and/or arises from this Deed of Trust, whether before or after the Debentures are called for immediate repayment.

	7.3	Subject to the provisions of the Deed of Trust, the Trustee is allowed, but not compelled, to call at any time a general Meeting of the Debenture Holders in order to discuss and/or receive its instructions on any matter related to the Deed of Trust, and is allowed to call it repeatedly.

	7.4	The Trustee is allowed, at its exclusive discretion, to delay the execution of any action thereby pursuant to this Deed of Trust, for applying to the Meeting of the Debenture Holders or the court until it receives instructions from the Meeting of the Debenture Holders and/or orders from the court on how to act. Notwithstanding the foregoing, the Trustee is not allowed to delay proceedings for calling for immediate repayment that have been decided upon by a Meeting of the Debenture Holders pursuant to the provisions of Section 6.2 hereto.

8.	Distribution of the Receipts

	8.1	All of the receipts that are received by the Trustee as a result of calling the Debentures for immediate repayment and/or as a result of proceedings that it takes, if it takes any, against the Company, will be by it in the trust and will serve it for the following purposes and in the following order of priority:

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		Firstly, for settling all expenses, payments, duties and undertakings expended by the Trustee, imposed thereupon or caused due to or as a result of the actions of the Trust or in another manner otherwise connected to the terms of this Deed, including the fee thereof (on the condition that the Trustee does not receive a double fee from both the Company and the Debenture Holders); secondly – in order to pay the Debenture Holders the arrears interest due to them in accordance with the terms of the Debentures and subject to the terms of the linkage in the Debentures, pari passu , in proportion to the sum of the arrears interest due to each of them, without preference or priority for any of them; thirdly, in order to pay the Debenture Holders the sums of the principal that are due to them pursuant to the Debentures held thereby, pari passu , and subject to the terms of linkage in the Debentures, whether the principal sums have matured or not, in proportion with the sums due thereto, without any preference concerning priority in time of issue of the Debentures by the Company or otherwise, and the surplus, if any, will be paid by the Trustee to the Company or the successors thereof. Withholding tax will be deducted at source from the payments to the Debenture Holders, to the extent that there is a duty to deduct it by law.

	8.2	Payment of the sums by the Trustee to the Debenture Holders out of the receipts that are received thereby, will be subject to rights of other creditors of the Company, which precede or are equal to those of the Debenture Holders by law, relative to the said receipts, if there are any, in accordance with the provisions of the law.

9.	Authority to Delay Distribution of Money

	9.1	Notwithstanding the provisions of Section 8 of this Deed, if the sum of money that is received as a result of taking the proceedings stated above that is available for distribution at any time, as stated in that section, will be less than ten percent (10%) of the balance of the unsettled principal of the Debentures and the interest, subject to the terms of the linkage in the Debentures, the Trustee shall not be required to distribute it and it will be allowed to invest the said sum, in part or in full, in investments that are permitted according to the Deed of Trust and replace these investments from time to time with other permitted investments, as it sees fit.

	9.2	On the first payment date of the principal and/or the interest to the Debenture Holders that is paid after receipt of the sum stated in Section 9.1 above by the Trustee, or earlier, once the aforementioned investments, with their profits and other sums that are received by the Trustee for the said purpose, reach a sum that will suffice to pay at least ten percent (10%) of the unsettled balance of the principal of the Debentures and the interest (subject to the terms of linkage in the Debentures), the Trustee shall pay them to the Debenture Holders as stated in section 8 hereof.

10.	Notice of Distribution and Depositing with the Trustee

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	10.1	The Trustee shall inform the Debenture Holders of the day and place on which any payment is made out of the payments stated in Sections 8 and 9 of this Deed, by 14 days prior notice that is delivered in the manner stated in section 23 to this Deed hereof.

	10.2	After the day stated in the notice, the Debenture Holders will be entitled to interest for the Debentures in accordance with the rate stated in the Debentures only for the balance of the principal sum (if any) after deducting the sum that has been paid or offered to them for such payment.

11.	Abstention from Payment for a Reason that does not depend on the Company

	11.1	Any sum that is due to the debenture Holder that is not actually paid for a reason that does not depend on the Company, while the Company was prepared to pay it, will cease to bear interest and linkage differences from the date stated for its payment, whereas the debenture Holder will be entitled only to the sums that it would have been entitled to on the date stated for repayment of that sum on the account of the principal, the linkage differences or the interest.

	11.2	The Company will deposit with the Trustee by no later than 14 business days from the date stated for that payment, the sum of the payment that has not been paid for a reason that does not depend on the Company, and such a deposit will be considered as settlement of that payment, and in the case of settlement of all dues pursuant to the debenture, as redemption of the debenture.

	11.3	The Trustee shall deposit in a bank the sums that will be transferred thereto as stated in Section 11.2 of this Deed, to the credit of those Debenture Holders and will invest it in investments permitted hereby that are securities of the State of Israel or other securities that the laws of the State of Israel permit investment of the trust money in, as the Trustee deems fit and subject to the provisions of the law. Should the Trustee do so, it will not owe the beneficiaries sums other than the remuneration that is received from realizing the investments less the expenses, commissions and mandatory payments, if any that are related to the said investment in managing the trust account less its fee.

	11.4	The Trustee shall transfer to each debenture Holder for which sums and/or funds due to the Debenture Holders have been deposited with the Trustee, out of sums thus deposited, less all expenses, commissions, the mandatory payments and its fee, against presentation of the proof that is required by the Trustee, to the full satisfaction thereof.

	11.5	The Trustee shall keep these sums and invest them in the above mentioned manner until one year elapses from the final redemption date of the Debentures. After this date, the Trustee shall transfer to the Company these sums, including profits that result from their investment, less its expenses and other expenses expended in accordance with the

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		provisions of this Deed of Trust (such as service provider fees, etc.) to the extent that these remain in its possession on that date. The Company will keep these sums in trust for an additional year from the day of their transfer thereto by the Trustee, for the Debenture Holders that are entitled to those sums, and with regard to the sums that are transferred thereto by the Trustee as stated above, the provisions of Section 11.3 of this Deed of Trust will apply, mutatis mutandis . Upon the transfer of the sums from the Trustee to the Company, to the satisfaction of the Trustee, the Trustee shall be exempt from payment of such sums to the entitled Debenture Holders. The Company will approve to the Trustee in writing the holding of the sums and the receipt thereof in trust for the said Debenture Holders, and will indemnify the Trustee for any claim and/or expense and/or damage of any type that it sustains due to and for the said money transfer, as long as the Trustee has acted reasonably. The Company will keep these sums in trust for the Debenture Holders that are entitled to these sums for an additional year from the day of their transfer to it from the Trustee. Sums that are not demanded from the Company by a Debenture Holder two years from the final repayment date of the Debentures will be transferred to the Company, which will be entitled to use the remaining sums for any purpose.

12.	Receipt from the Debenture Holders as Proof

	12.1	A receipt from the Debenture Holder for the sums of the principal, the interest and the linkage differences that have been paid thereto by the Trustee for that Debenture will release the Trustee categorically in all matters related to payment of the sums stated on the receipt.

	12.2	Until the end of the period specified in Section 11.5 above, a receipt from the Trustee concerning the deposit of the sums of the principal, the interest and the linkage differences in its possession to the benefit of the Debenture Holders as stated in this Deed will be considered as a receipt from the Debenture Holders for the sums specified therein.

	12.3	The sums distributed as stated in Sections 11 and 12 hereof will be considered as payment on the account of the repayment of the Debentures.

13.	Presentation of a Debenture to the Trustee and Noting Concerning Partial Payment

	13.1	The Trustee shall be entitled to demand that a Debenture Holder present to the Trustee, at the time of payment of any interest or partial payment of principal, interest and linkage differences in accordance with Sections 8-10 hereof, the debenture for which the payments are being made.

	13.2	The Trustee shall note on the Debenture a comment concerning the sums paid as above and the date of payment thereof.

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	13.3	The Trustee shall be entitled, in any special case, at its discretion, to waive the presentation of the Debentures after it is given a statement of indemnification letter and/or a sufficient guarantee, to its satisfaction, for damages that may be sustained due to not noting the said comment, as it deems fit. In such a case, the Company will not assume any liability for the payments stated in Section 13.1 towards that Holder.

	13.4	Notwithstanding the foregoing, the Trustee shall be entitled, at its discretion, to make notes in other ways concerning such partial payments.

14.	Reporting and Undertakings of the Company towards the Trustee

	14.1	The Company hereby undertakes towards the Trustee, for as long as the Debentures (including linkage differences thereupon) have not been repaid, as follows:

		14.1.1	To inform the Trustee upon its notice to the public in writing of reasonable concern on the part of the Company that any or all of the events specified in Section 6.1 above may occur and the occurrence of any or all of the events specified in Section 6.1 above.

		14.1.2	To give to the Trustee by no later than 30 days of the date hereof an amortization table for payment of the Debentures (principal and interest) in an Excel file.

		14.1.3	To inform the Trustee in a written notice signed by the Company's senior financial officer, within 4 Business Days, of effecting any payment to the Debenture Holders and the balance of the Sums that the Company will owe on that date to the Debenture Holders after effecting this payment.

		14.1.4	To give to the Trustee immediately upon their publication a copy of the annual audited and consolidated financial statements (including the periodical statement) and the reviewed consolidated financial statements of the Company.

		14.1.5	To deliver to the Trustee, immediately upon its delivery, any statement that it must submit to the Securities Authority.

		14.1.6	To deliver to the Trustee notices concerning the purchase of Debentures by the Company or the subsidiary, as stated in this Deed of Trust.

		14.1.7	On December 31 of each year, as long as the Deed of Trust is in effect, the Company will provide the Trustee with a confirmation signed by the CEO of the Company whereby to the best of his knowledge, the Company has not violated the Deed of Trust (including violation of the terms of the Debenture), unless explicitly stated otherwise.

		14.1.8	To give the Trustee copies of notices and invitations that the Company gives to the shareholders in the Company and the Debenture Holders, as stated in

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			Section 23.1 hereof.

		14.1.9	To cause a senior financial officer in the Company to give, within a reasonable time, to the Trustee and/or the persons as he instructs, any explanation, document, calculation or information related to the Company, its business affairs and/or assets that are reasonably required for the purpose of inquires conducted by the Trustee for protecting the Debenture Holders.

		14.1.10	To keep regular account books in accordance with generally accepted accounting principles. To keep the books and the documents used for them as references (including deeds of pledge, mortgage, bills and receipts) and allow the Trustee and/or the party that the Trustee appoints in writing for this purpose, to inspect at any reasonable time any such book and/or document and/or confirmation, to the extent required for protecting the Debenture Holders. The Trustee undertakes to inform whichever party is appointed thereby as above that the Trustee has undertaken to keep information that is given to it in confidence.

		14.1.11	To allow the Trustee or a party that is appointed by the Trustee in writing for this purpose to enter its offices and anywhere where its assets may be found, at any reasonable time, for inspecting its assets, at the discretion of the Trustee, for protecting the Debenture Holders.

		14.1.12	To summon the Trustee to all of its general meetings (whether annual general meetings or special general meetings of the shareholders of the Company), without granting the Trustee a voting right in these meetings.

		14.1.13	To give the Trustee, upon his demand, an affidavit and/or declarations and/or documents and/or details and/or information, as required by the Trustee, in accordance with its reasonable discretion, for applying and exercising the authorities, powers and authorizations of the Trustee and/or its proxies according to this Deed of Trust.

		14.1.14	The Trustee undertakes, by signing the Deed of Trust, to keep in confidence all information that is given to it by the Company and any information that the Trustee and/or its representative and/or agent and/or proxy has inspected and not make any use thereof other than for the fulfillment of its undertakings according to this Deed. Notice of the authorization of a representative and/or agent for the Trustee shall be given to the Company in advance and in writing. The Trustee declares that any representative and/or agent and/or proxy on its part will be committed towards the Trustee and towards the Company to keep in confidence the information that reaches it in its activities for the Trustee. It is

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			clarified that subject to the law, the transfer of the relevant information only to the Debenture Holders for making a decision that is related to their rights in accordance with the Debentures or for giving a report on the state of the Company does not constitute a violation of its undertaking for confidentiality.

15.	Additional Undertakings

	15.1	After and to the extent that the Debentures are called for immediate repayment, as defined in Section 6 hereof, the Company will perform, from time to time and at any time it is required to do so by the Trustee, all of the reasonable actions in order to provide for the exercising of all of the authorities granted to the Trustee, and in particular the Company will perform all of the following actions, to the extent that they are reasonable.

		15.1.1	It will declare the declarations and/or sign all of the documents and/or execute and/or have executed all of the actions that are necessary and/or required by law for validating the exercise of the authorities, the powers and the authorizations of the Trustee and/or the agent thereof.

		15.1.2	It will give all of the notices, the orders and the instructions that the Trustee considers beneficial and will demand them.

		15.1.3	For the purposes of this section – a written notice signed by the Trustee that confirms that an action that is required thereby, within his authorities, is a reasonable action, will constitute prima facie evidence thereof.
16.	Agents

	16.1	The Company hereby irrevocably appoints the Trustee as its agent, to effect and execute on its behalf and in its place all of the actions that it will be required to execute according to the conditions of this Deed, and in general to act on its behalf with regard to the actions that the Company is required to perform according to this Deed, which it has not performed, or exercise some of the authorities granted thereto, and appoint any other person as the Trustee deems fit for performing its duties according to this Deed, subject to the Company not having performed the actions that it must perform pursuant to the terms of this Deed within a reasonable time from the date of the demand of the Trustee, provided it has acted in good faith and reasonably.

	16.2	The appointment pursuant to Section 16.1 above does not bind the Trustee to perform any action.

17.	Other agreements

	Subject to the provisions of the law and the restrictions imposed on the Trustee by law, the performance of the duty of the Trustee according to this Deed or pursuant to its status as a

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	Trustee will not prevent it from associating with the Company by various contracts or executing transactions with it within the normal course of its business affairs.

18.	Reporting by the Trustee

	18.1	The Trustee shall prepare, at the end of each year following the date hereof, an annual report on the trust affairs (the “ Annual Report ”)

	18.2	The Annual Report will include a breakdown of the following subjects: current details of the course of affairs of the Trust in the elapsing year; a report on extraordinary events concerning the Trust that have occurred during the elapsing year.

	18.3	The Debenture Holders will be allowed to review the Annual Report in the offices of the Trustee during acceptable business hours and will be allowed to receive a copy thereof upon demand. A copy of the report will be provided to the Company along with it being made available for review by the Debenture Holders.

	18.4	The Trustee shall give the Debenture Holders notice of the date of submission of the report as stated in Section 23 hereof. Should the Trustee learn of a material violation hereof on the part of the Company, it will inform the Debenture Holders of the violation and of the steps that it has taken for preventing it or for fulfilling the undertakings of the Company, as relevant.

19.	Fee and coverage of expenses of the Trustee

	19.1	The Company shall pay the Trustee for its services hereby as elaborated below:

		19.1.1	For the first year of Trust, i.e. until 12 months from the date of the issue, a sum of NIS 12,000. This sum will be paid within 30 days of the end of the month on which the Company has received from the Trustee a proforma invoice for this payment. The Trustee will be allowed to provide the Company with a proforma invoice within one business day of publishing the results of the issue.

		19.1.2	For each of the years from the second year (i.e. from the end of 12 months from the date of issue) in which Debentures (Series D) will be in circulation and not yet paid up, a sum of NIS 10,000, linked to the index known on the date of publication of the Prospectus, but in any case the sum will not be less than the sum specified above (“ the Annual Fee ”). The Annual Fee will be paid to the Trustee within 30 days of the end of the month on which the Company received from the Trustee a proforma invoice for the Annual Fee. The Trustee will be allowed to provide the Company a proforma invoice at the beginning of each year of Trust. The Annual Fee shall be paid to the Trustee for the period through to the end of the term of the Trust hereby even if a receiver and/or administrative receiver is appointed for the Company and/or if the Trust hereby

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		is managed under the supervision of a court.

	19.1.3	If the tenure of the Trustee expires, as stated in Section 27 below, the Trustee will not be entitled to payment of the fee thereof from the day of the expiry of its tenure. If the tenure of the Trustee expires during the Trust year, the fee that was paid for the months for which the Trustee did not serve as the trustee of the Company will be refunded. It is clarified that this refund will not apply to the first year of Trust.

19.2	The Trustee is entitled to a refund of reasonable expenses incurred within the performance of its duty and/or by the authorities granted thereto hereby, including for publications in the press, as long as for the expenses of an expert opinion, as elaborated in Section 20.2 below, the Trustee will give advance notice of its intent to receive an expert opinion.

19.3	The Trustee is entitled to additional payment, for an action that results from a violation hereof by the Company or for an action of calling the Debenture (Series D) for immediate repayment and for special actions that it will be required to perform, if required, for fulfillment its duties hereby, without prejudice to the entirety of this Section 19.

	It is agreed hereby between the parties that the Trustee will be entitled to a fee of 120 US dollars for each hour of work that is required as stated above.

19.4	For each annual meeting of shareholders or Meeting of Debenture Holders that the Trustee participates in, an additional fee of NIS 500 per meeting will be paid, linked to the Index in accordance with the provisions of Section 19.1.2 above.

19.5	If changes occur in the provisions of the Law whereby the Trustee will be required to perform actions and/or checks and/or prepare additional reports, the Company undertakes to bear all of the reasonable expenses that the Trustee incurs as a result, including reasonable fee for these actions. The Trustee will inform the Company in advance and in writing before incurring the expenses, of changes as stated in this section.

19.6	VAT, if charged, will be added to the payments that are due to the Trustee pursuant to the provisions of this section and will be paid by the Company. The Trustee will transfer to the Company a tax invoice for these payments, within 14 days of the date of payment thereof to the Trustee by the Company.

20.	Special Authorities

	20.1	The Trustee shall be entitled to deposit all of the deeds and documents that attest, represent and/or determine its right concerning any asset then in its possession, in a

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		safe and/or in any other place of its choice, in the possession of any banker and/or any banking company and/or an advocate.

	20.2	The Trustee is entitled, within the performance of the Trust affairs hereby, to act in accordance with the opinion and/or advice of any advocate, certified public accountant, appraiser, assessor, surveyor, mediator or other expert, whether such an opinion and/or advice has been prepared at the request of the Trustee and/or by the Company. The Trustee shall allow the Company to review any such opinion that the Company as paid for, upon demand. The provisions of this section do not exempt the Trustee of its responsibility by law.

	20.3	Any such advice and/or opinion may be given, sent or received by a letter, telegram, facsimile and/or any other electronic data transfer medium.

	20.4	The Trustee shall not be required to inform any party of the signing of this Deed of Trust and is not allowed to intervene in any way in the management of the business or affairs of the Company other than pursuant to the authorities that have been granted to the Trustee herein.

	20.5	The Trustee shall faithfully use the powers, authorizations and authorities granted thereto hereby in good faith and reasonably.

21.	Authority of the Trustee to Employ Proxies

	The Trustee shall be entitled to appoint a proxy/ies for acting in its place, whether an advocate or another party, in order to perform or participate in the performing of special actions that must be performed concerning the Trust, including, but not limited to, taking legal proceedings. In addition, the Trustee shall be entitled to settle, at the expense of the Company, the reasonable fee of any such proxy, and the Company will return to the Trustee immediately upon the first demand thereof any such reasonable expense, on the condition that the Trustee gives the company advance notice of such appointment of proxies.

	The Company will be allowed to object to such an appointment on reasonable grounds, including in the case of the proxy competing directly or indirectly with the business of the Company.

	The Trustee is allowed at any time to delegate from the Trusteeships, powers, authorizations and authorities granted thereto hereby, in part or in full, to another person or persons, and any such delegation will be made under the conditions and instructions (including permission for a proxy to appoint a proxy) that the Trustee deems suitable, but such delegation of authority will not release the Trustee from any responsibility assumed thereby in case the authorities were not delegated.

	Such proxies and/or delegates will be bound by the confidentially provisions stated in Section

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	14 above.

22.	Indemnification of the Trustee

	22.1	The Trustee shall be entitled to receive indemnification from the Debenture Holders or from the Company, as relevant, for reasonable expenses that it has incurred and/or will incur in connection with the actions that it has performed or must perform pursuant to its duty hereby, and/or by law and/or by order of a competent authority and/or any statute and/or upon the demand of the Debenture Holders and/or according to the demand of the Company. Notwithstanding the above, it is clarified and agreed hereby that:

		22.1.1	The Trustee shall not be entitled to demand such indemnification in advance on a matter that is urgent.

		22.1.2	The Trustee shall be entitled to indemnification for liability for torts, in the case of being found thus liable by a final court ruling or a concluded settlement towards a third party that is not one of the Debenture Holders.

	22.2	The Indemnification right detailed in section 22.1 above will be subject to the following terms:

			22.2.1 The expenses for liability for damages is reasonable.

			22.2.2 The Trustee acted in good faith and the appropriate care, and the action was preformed within the fulfillment of its duty, according to the provisions of law and this Deed. 22.3 Subject to the provisions of Sections 22.1 and 22.2 above, without prejudice to the rights to compensation and indemnification that are granted to the Trustee by law and/or the commitments of the Company and the Debenture Holders hereby, the Trustee, its proxy, manager, agent or other person appointed by the Trustee hereby will be entitled to receive indemnification out of the sums that are received by the Trustee out of the proceedings taken and/or otherwise hereby, concerning undertakings that they have assumed, concerning expenses they incurred due to the performance of the Trust or related to such actions, which in their opinion were required for executing the aforesaid and/or concerning the exercising of authorities and authorizations granted hereby and concerning all kinds of legal proceedings, opinions of advocates and other experts, negotiations, discussions, expenses, claims and demands concerning any matter and/or thing that are made and/or not made in any way concerning the subject matter, and the Trustee may withhold the funds that are in its possession and pay out of them the sums that are necessary for payment of the said indemnification. The said sums will take precedence over the rights of the Debenture Holders, subject to the provisions of the law.

	22.3	For as long as the Trustee is required pursuant to the terms hereof an/or any statute

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		and/or an order of a competent authority and/or the law and/or upon the demand of the Debenture Holders and/or the demand of the Company to perform any action, including, but not limited to instigating proceedings or filing claims upon the demand of the Debenture Holders, as stated herein, the Trustee shall be allowed to abstain from taking any such action until it receives, to its satisfaction, a letter of indemnification from any or all of the Debenture Holders, and if the action is performed owing to a demand of the Company, from the Company, for any liability for damages and/or expenses that may be incurred by the Trustee and by the Company or either of them, due to performing such an action. It is clarified that the foregoing does not exempt the Trustee from taking an urgent action that is required for preventing material infringement to the rights of the Debenture Holders.

	22.4	Notwithstanding the provisions of this Section 22, as long as the trustee deems it right for protecting and/or exercising the rights of the Debenture Holders, and/or it is required hereby and/or by law and/or by an order of a competent authority and/or any statute and/or upon the demand of the Company and/or the Debenture Holders, to take legal proceedings, in the case of taking such an action due to a demand of the Company, the Company will deposit in the hands of the Trustee a sum that will be determined by the Trustee as the expected sum of the expenses of the Trustee concerning the proceedings. In any other case, the Trustee shall immediately call a Meeting of Debenture Holders in order to confirm their responsibility for covering the expenses involved in proceedings that the Trustee takes. In the case of the Debenture Holders refusing to assume the expenses involved in taking proceedings by the Trustee, the Trustee shall assume no duty to take such proceedings. In addition, all of the sums that are received from the realization proceedings will also be used for refunding and covering expenses that the Debenture Holders thus undertake to bear. It is clarified that the foregoing does not exempt the Trustee from taking an urgent action that is required for preventing material infringement of the rights of the Debenture Holders.

23.	Notices

	23.1	Any notice from the Company and/or the Trustee to the Debenture Holders, as relevant, shall be given as follows:

		23.1.1	By reporting in the MAGNA system of the Securities Authority; the Trustee is allowed to instruct the Company and the Company will be required to report forthwith in the MAGNA system on behalf of the Trustee any report in the format as forwarded in writing by the Trustee to the Company); and by

		23.1.2	A notice that will be published in two widely distributed daily newspapers that are published in Israel in Hebrew;

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			Any notice or demand from the Trustee to the Company may be given by a letter that is sent by registered mail to the address stated herein, or to any other address that the Company informs the Trustee of in writing, or by transmission by facsimile or by courier and any such notice or demand will be considered as having been received by the Company: (1) in the case of sending by registered mail – three business days from the day of mailing thereof; (2) in the case of transmission by facsimile (along with a telephone check of receipt thereof) – one business day from the day of its transmission; (3) and in the case of sending by courier – upon its delivery by the courier to the addressee or the offering thereof to the addressee for receipt, as relevant.

	23.2	Any notice or demand from the Company to the Trustee may be given by a letter that is sent by registered mail to the address stated herein, or to another address that the Trustee informs the Company of in writing, or by transmission by facsimile or by electronic mail (“email”) or by courier and any such notice or demand will be considered as having been received by the Trustee: (1) in the case of sending by registered mail – three business days from the day of mailing thereof; (2) in the case of transmission by facsimile or email (along with a telephone check of receipt thereof) or of sending by courier – upon its delivery by the courier to the addressee or the offering thereof to the addressee for receipt, as relevant.

	23.3	Copies of notices and invitations that the Company gives to the Debenture Holders will also be sent by the Company in an Immediate Report, a copy of which will be given to the Trustee.

24.	Waiver; Settlement; and Changes in the Terms of the Deed of Trust

	24.1	Subject to the provisions of the Law and the regulations promulgated and/or that will be promulgated thereby, the Trustee shall be allowed, from time to time and at any time, if it is convinced that this does not in its opinion infringe upon the rights of the Debenture Holders, to waive any violation or non-fulfillment of any of the terms hereof by the Company, as long as these do not relate to the terms of repayment of the Debentures and the grounds for calling for immediate repayment as specified in Section 6 hereof.

	24.2	Subject to the provisions of the Law and the regulations promulgated and/or that will be promulgated thereby, the Trustee is allowed, whether before or after the principal of the Debentures is called for immediate repayment, to settle with the Company concerning any right or claim of the Debenture Holders and agree with the Company to any arrangement concerning the rights of the Debenture Holders, including waiving any right or claim of the Debenture Holders towards the Company hereby. If the Trustee settles with the Company after having received prior approval of the Debenture

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		Holders as stated above, the Trustee shall be exempt of liability for this action, as approved by the general Meeting. The foregoing does not exempt the Trustee from responsibility for its actions until the date of making a decision of the Meeting of the Holders and/or its actions concerning its application.

	24.3	Subject to the provisions of the Law and the regulations promulgated and/or to be promulgated thereby, the Trustee and the Company may, whether before or after the principal of the Debentures is called for immediate repayment, change the Deed of Trust (including a change in the conditions of the Debentures), if one of the following is fulfilled:

		24.3.1	The Trustee is satisfied that the change does not adversely affect the Debenture Holders.

		24.3.2	The Debenture Holders have agreed to the proposed change, by a special decision as specified in Sections 2.4 and 2.10 of the second addendum hereinafter.

	24.4	The Trustee shall be entitled, at the request of the Company from time to time, to make changes in the Deed of Trust and/or in the Debentures, as required by a Securities Authority and/or the Stock Exchange and/or any other governmental authority, for the purpose of listing the Debentures for trade on the Stock Exchange, as long as the Trustee is satisfied that the change does not cause a material adverse effect to the Debenture Holders.

	24.5	The Company shall give the Debenture Holders a notice of any such change, in accordance with Section 23 hereof, as soon as possible after its execution.

	24.6	The general meetings as stated in this section above will be convened, as stated in the second addendum hereto.

	24.7	In any case of use of the right of the Trustee in accordance with this section above, the Trustee shall be entitled to demand that the Debenture Holders give to it or to the Company their certificates, for noting a comment concerning any such settlement, waiver, change or amendment and according to the demand of the Trustee, the Company shall note such a comment in the certificates that are given to it. In any case of use of the right of the Trustee pursuant to this section, the Trustee shall announce this, within a reasonable time, in writing, to the Debenture Holders.

25.	Register of Debenture Holders and Transfer of Debentures

		25.1.1	The Company shall keep and maintain in its Registered office a register of the Debenture Holders, listing the names of the Debentures Holders, their addresses and the number and par value of the Debentures registered to their name. The

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			register will also list any transfer of title to the Debentures. The Trustee and any Debenture Holder will be entitled, at any reasonable time, to inspect this Register. The Company is entitled to close the register from time to time or for a period or periods that do not exceed an aggregate of thirty (30) days a year.

		25.1.2	The Company will not be required to note in the Registers of Debenture Holder any notice concerning explicit, implicit or putative Trust, or hypothecation or pledging of any kind or any equity, claim or offset right or any other right, concerning the Debentures. The Company will only recognize the ownership by the person whose name the Debentures are listed under, as long as the legal heirs, administrators of estate or executors of the will of the registered owner or any person who will be entitled to the Debentures due to the bankruptcy of any registered owner (and in the case of a corporation - due to the liquidation thereof) will be entitled to register as the Holders thereof, after giving evidence that in the opinion of the Company is satisfactory for proving the right of any of the above to be registered as the Holder thereof.

26.	Release

	26.1	Once it is proved to the satisfaction of the Trustee that all of the Debentures have been paid up, redeemed or when the Company deposits in the trust of the Trustee sums of money that are enough for redeeming all of the Debentures, and once it is proved to the satisfaction of the Trustee that all of the undertakings and expenses made or sustained by the Trustee concerning the Deed of Trust and the instructions thereof have been fully paid up, the Trustee shall be required, upon the first demand of the Company, to act with the sums that have been deposited for Debentures whose redemption is not required according to the conditions stated herein.

27.	Appointment of a New Trustee and Expiry of the Tenure of the Trustee

	27.1	The provisions of the Securities Law will apply to the tenure of the Trustee and the expiration thereof and the appointment of a new Trustee. Subject to the provisions of the Law, the Trustee and any Trustee replacing it will be entitled to resign from their functions as Trustees after giving written notice to the Company three (3) months in advance, elaborating the reasons for resignation.

	27.2	The resignation will take effect only after it is confirmed by the court, from the day established in the confirmation. In the case of such resignation or in the case of expiry of the tenure of the Trustee, the court is entitled to appoint another Trustee instead of the Trustee, for a period and under conditions as it deems fit.

	27.3	The court will be entitled to dismiss a Trustee if it does not fulfill its duty properly or if the court finds another reason for the dismissal thereof.

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	27.4	The Holders of ten percent (10%) of the unsettled balance of the Debentures are entitled to call a general meeting of the Debenture certificate Holders owners. Each Meeting thus convened is allowed to decide, according to a vote of Holders of at least fifty percent (50%) of the unsettled balance of the Debentures, for the transfer of Trustee from its duty.

	27.5	The Securities Authority is allowed to apply to the Court with a motion to conclude the tenure of the Trustee, in accordance with Section 35 N of the Law.

	27.6	The Trustee and the Company will submit an immediate report to the Securities Authority of any such event in this section, concerning the tenure of the Trustee.

	27.7	Each new trustee will have the same powers, authorities and other authorizations and may act in all senses as though appointed as the Trustee from the outset, subject to the provisions of Section 35 N of the Law.

	27.8	The Trustee shall transfer to the new Trustee all of its records concerning the Debenture Holders, if there are any, information about the payments made by the Trustee through to that time, if such were effected, any report and any information given hereby and any information that is reasonably required for the new Trustee, and the Trustee shall transfer to the new Trustee any sum that will be held thereby at that time concerning the Debentures.

28.	Meeting of Debenture Holders

	Meetings of the Debenture Holders will be managed, as stated in the second addendum hereto.

29.	Investments of Funds

	29.1	All sums that the Trustee is allowed to invest hereby will be invested thereby in bank/s, in its name or to its order, in investments that the laws of the State of Israel permit investing trust funds in, as it deems suitable, subject to the terms hereof and the provisions of the law, as long as any investment in securities will be in securities that have been given a rating of not less than AA. If the Trustee has done so, it will not owe the beneficiaries of these sums other than the remuneration received from realizing the investments less the expenses related to this investment and managing the trust accounts, the commissions, after deducting the mandatory payments imposed on the trust account. Out of these sums, the Trustee shall transfer sums to the Debenture Holders that are entitled thereto, as soon as possible after the Trustee is provided proof and confirmations of their right to these sums to the full satisfaction of the Trustee, after deducting its expenses and commission at the rate that is generally employed thereby at that time.

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30.	Applicability of the Law

	This Deed and the Debentures are subject to Israeli law. On any matter that has not been mentioned herein and in any case of a contradiction between the provisions of the law and this Deed, the parties will act in accordance with the provisions of Israeli law. In any case of a contradiction between the provisions described in the Prospectus concerning this Deed and/or the Debentures, the provisions hereof will take precedence.

31.	Exclusive Jurisdiction

	The only court that will be authorized for hearing matters related hereto and to the Debentures attached as an appendix hereto will be competent court in Tel Aviv Yaffo.

32.	General

	Without derogating from the other provisions hereof and of the Debentures, any waiver, extension, accommodation, silence, abstention from action (“ waiver ”) on the part of the Trustee concerning the non-fulfillment or partial or incorrect fulfillment of any of the undertakings towards the Trustee hereby and in accordance with the Debenture will not be considered as a waiver by the Trustee of any right but as limited consent for the particular instance on which it has been given. Without derogating from the other provisions hereof and the Debenture, any change in the undertakings to the Trustee necessitates receipt of the prior written consent of the Trustee. Any other consent, whether oral or by waiver or abstention from action or in any way that is not in writing, will not be considered as any consent. The rights of the Trustee hereby are independent and unconditional of each other and are in addition to any right that the Trustee has and/or will have by law and/or agreement (including this Deed and the Debenture).

33.	Addresses

	The addresses of the parties will be as specified in the preamble hereto, or any other address for which an appropriate written notice is given to the counterparty.

34.	Certification for MAGNA

	In accordance with the provisions of the Securities Regulations (Signing and Electronic Reporting) 5763 2003, the Trustee hereby approves that the competent party of the Company report electronically to the Securities Authority of this Deed of Trust.

In witness whereof the parties have set their hands hereunto


Cellcom Israel Ltd.		Hermetic Trust (1975) Ltd.

I, the undersigned, Tamar Einav, Adv., confirm that this Deed of Trust has been signed by Cellcom Israel Ltd. by Messrs. Tal Raz and Liat Menachemi Stadler and that their signature binds the Company concerning this Deed of Trust.


Tamar Einav, Adv.

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Cellcom Israel Ltd.

First Addendum

Debentures (Series D)

Issue of a series of up to NIS ________________________________ par value of registered to name Debentures (Series D), bearing annual interest at a rate of __%, linked (principal and interest) to the consumer price index published in August 2007, for repayment in 5 equal annual installments on July 1 of each of the years 2013 to 2017. The interest on the Debentures will be paid once a year on July 1 in each of the years 2008 to 2017 (inclusive).

Registered to name Debentures (Series D)

Number 1

Part value NIS ______________

Interest of __% annually.

This certificate attests that Cellcom Israel Ltd. (hereinafter: “ the Company ”) shall pay the Israel Discount Bank nominees Ltd. or any party that will be the registered owner of this Debenture (hereinafter: the “ Debenture Holder (Series D ”) at the end trading on June 19 of each year before the date of payment of the appropriate installment for the Debentures (Series D) out of the principal of the par value of the Debentures (Series D) that are in circulation, subject to the terms of linkage and all other terms listed in the terms of the overleaf.

The payments of the principal of the Debentures and the payments of the interest will be made against delivery of the Debenture to the Company at its registered office, as stated in the conditions of the overleaf or at any other place announced by the company by no later than five Business Days before the payment date.

3.	Debentures (Series D) are issued pursuant to the Deed of Trust (hereinafter: the “ Deed of Trust ”) of September 20 that has been signed between the Company and Hermetic Trust (1975). (hereinafter: the “ Trustee ”).

4.	The Debentures are not secured by any collateral. All of the Debentures (Series D) will have an equal degree of security among each other ( pari passu ) concerning the undertakings of the Company pursuant to the Debentures (Series D), without a preferential right or priority over one another.

5.	This Debenture (Series D) is issued subject to the conditions listed in the overleaf, the conditions listed in the Deed of Trust and in the Prospectus.

Signed with the stamp of the Company, affixed on__________________________________

Chairman of the board: _________________________

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The Conditions Listed Overleaf

General

In this Debenture (Series D), the following expressions will have the following meanings, unless another meaning is implied by the context, as follows:

“The Company” and/or "the Issuer"	–	Cellcom Israel Ltd.

The “ Deed of Trust”	–	The Deed of Trust that was signed between the Company and the Trustee on September 20, 2007, including the appendices attached thereto, which constitute an integral part thereof;

The “Prospectus”	–	The prospectus of the Company that is due to be published, inter alia , for the issue of the Debentures (Series D);

The “Debentures (Series D)” or the “Debentures”	–	The Debentures (Series D) of the Company, registered to name, that will be issued in accordance with the Prospectus;

The “Trustee”	–	Hermetic Trust (1975) Ltd. and/or any party serving from time to time as a trustee of the Debenture Holders (Series D) pursuant to the Deed of Trust;

“Register”	–	Register of the Debenture Holders (Series D) as stated in Section 25 of the Deed of Trust;

The “Debenture Holders (Series D)” and/or the “Debenture Holders” and/or the “Debenture Owners (Series D)” and/or the “Debenture Owners”	–	The persons whose names are listed at the time in question in the register of the Debenture Holders (Series D) and in the case of a number of joint Holders, the joint Holder first listed in the register;

The “Debenture Certificate (Series D)” and/or the “Debenture Certificate ”	–	A Debenture certificate (Series D) whose text appears as the first addendum to this deed;

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The “Law”	–	The Securities Law, 5728 – 1968 and the regulations thereby, as effective from time to time;

“Principal”	–	The par value of the Debentures (Series D) in circulation;

The “Consumer Price Index” (“the Index”)	–	The price index known by the name of "the Consumer Price Index", which includes fruit and vegetables, as published by the Central Bureau of Statistics, including that index even if published by another official body or institute, and including any official index that replaces it, whether composed of the same data as the existing index or not. If it is replaced by another index that is published by such a body or institute, and that body or institute did not determine the ratio between it and the index thus replaced, the ratio will be determined by the Central Bureau of Statistics, and in the case of such a ratio not being determined, it will be determined by the Trustee, who will determine, following consultation with economic experts of his choice, the ration between the other index and the replaced index;

The “Known Index”	–	The last known consumer price index;

The “Basic Index”	–	The consumer price index for August 2007 that was published on September 12, 2007.

The “Payment Index”	–	The consumer price index known on the date of making any payment on the account of the principal and/or the interest;

“Business day”	–	A day on which most of the banks in Israel are open for conducting transactions;

The “Stock Exchange”	–	The Tel Aviv Stock Exchange Ltd.

“Trade Day”	–	A day on which transactions are made on the Tel

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		Aviv Stock Exchange Ltd;

“Meeting”	–	A meeting of the Debenture Holders, including a class meeting.

“Class meeting”	–	A meeting of the Debenture Holders, who have an interest that is materially different from the interest of other Debenture Holders on the matter that is being discussed in the meeting.

The “Nominee Company”	–	The Israel Discount Bank Nominees Ltd.

	1.1	This Debenture is one of a series of registered to name Debentures (Series D) to a total specified sum that will be determined in accordance with Section 2.2 of the Prospectus. The Debentures of this series will have an equal, pari passu degree of security among each other concerning the undertakings of the Company pursuant to the Debentures (Series D), without a right of preference or priority of one over another concerning the sums due.

2.	Securing the Debentures (Series D)

	2.1	The undertaking of the Company to repay the Debentures (principal, interest and linkage differences) is not secured by any collateral.

	2.2	The Company will be allowed to pledge its assets, in part or in full, by any pledge and in any way, to the benefit of any third party, without the need for any consent from the Trustee and/or the Debenture Holders.

	2.3	The Company will be allowed to sell, lease, assign, deliver or transfer in any other way its assets, in part or in full, in any way, for benefit of any third party, without the need for any consent of the Trustee and/or the Debenture Holders.

	2.4	For the removal of doubt, it is clarified that the Trustee has no duty to examine, and in fact the Trustee has not examined, the need for providing collateral for securing the payments to the Debenture Holders. In its entering the engagement in this Deed of Trust, and with the consent of the Trustee to serve as the trustee for the Debenture Holders, the Trustee does not express its opinion, implicitly or explicitly, as to the ability of the Company to fulfill its undertakings towards the Debenture Holders. The foregoing does not derogate from the duty of the Trustee by law and/or, nor does it derogate from the duty of the Trustee (to the extent that this duty applies to the Trustee according to any law) to examine the effect of changes in the Company from the date of the Prospectus onwards, to the extent that these may adversely affect the ability of the Company to fulfill its undertakings to the Debenture Holders.

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2.5

3.	Date of Repayment of the Principal of the Debentures (Series D)

	Subject to all of the other terms of the Debentures (Series D), the principal of the Debentures (Series D) will be repaid in five (5) equal annual installments on July 1 in each of the years 2013 to 2017 (inclusive). The principal of the Debentures (Series D) is linked to the Consumer Price Index as specified in Section 5 below.

4.	The Interest

	The unsettled balance of the principal of the Debentures (Series D) in circulation will bear annual interest at a rate that will be determined in accordance with Section 2.2 of the Prospectus. The interest for the Debentures (Series D) is linked to the Consumer Price Index as specified in Section 5 below.

	The interest for the Debentures (Series D) will be paid in annual installments, on July 1 of each of the years 2008 to 2017 (inclusive), For the period of the twelve (12) months ending on the last day before each such date, except the first interest period, for which the proportionate part of the interest will be paid (calculated based on 365 days a year) for the period starting on the first day of trading after the tender (the settlement day) and ending on June 30, 2008. The first interest payment for the Debentures (Series D) will be on July 1, 2008.

	The Company will announce by immediate report, within a Business Day of the date of establishing the interest for the tender, the interest rate during the first interest period. The last payment of the interest for the Debentures (Series D) will be made on July 1, 2017, with the last payment of the principal of the Debentures (Series D), against the handover of the Debentures Certificates (Series D) to the Company.

	Income tax (see Section 2.3 of the Prospectus) will be deducted from each payment of interest for the Debentures (Series D), according to the law.

5.	Terms of Linkage of the Principal and the Interest

	The principal of the Debentures and the interest for the principal will be linked to the Consumer Price Index based on the Basic Index, as follows:

	If it is found, on the date of repayment of any installment on the account of the principal and/or the interest for the Debentures, that the payment index for that date has increased relative to the Basic Index, the Company will pay that installment of principal and/or interest increased relative to the rate of the change in the Payment Index compared to the Basic Index. However, if it is found that the Payment Index is identical to the Basic Index or is lower, the Payment Index will be the Basic Index.

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6.	Payments of the Principal and the Interest of the Debentures

	6.1	Each installment on the account of the principal for the Debentures (Series D) will be paid to the Debenture Holders (Series D) whose names are listed in the Register of Debenture Holders (Series D) of the Company as Holders on the end of June 19 of each year before the date of payment of the appropriate installment for the Debentures (Series D) (the “ Determinant Day for Payment of the Principal of the Debentures (Series D) ”).

		Each installment on the account of the interest for the Debenture (Series D) will be paid to the Debenture Holders (Series D) whose names are listed in the in the Register of Debenture Holders (Series D) of the Company as Holders on the end of June 19 of each year before the date of payment of the appropriate installment for the Debentures (Series D) (the “ Determinant Day for Payment of the Interest of the Debentures (Series D) ”).

		Notwithstanding the foregoing, the last installment of the principal and the interest for the Debentures (Series D) will be paid against delivery of the Debentures Certificates (Series D) to the Company, at its registered office or anywhere else as advised by the Company, by no later than five (5) Business Days before the day stated for payment of the last installment.

	6.2	In any case of the date of payment of the last installment on the account of principal and/or interest falls on a day that is not a Business Day, the payment date will be deferred to the first Business Day thereafter without additional payment, interest or linkage.

	6.3	Payment to beneficiaries will be made by checks or by bank transfer to the credit of the bank account of the persons whose names are listed in the Register of the Debenture Holders and that is indicated in the details that they give to the Company in writing in advance, in accordance with the provisions of subsection 6.4 below. If the Company cannot, for any reason that does not depend thereupon, pay any sum to the entitled parties, the provisions of Section 7 below will apply.

	6.4	A Debenture Holder that will be interested in informing the Company of the details of the bank account for crediting it with payments pursuant to the Debentures as stated above, or change these account detail or instructions concerning the mode of payment, may do so by notice to the company by registered letter. However, the Company will fulfill the instruction only if it reaches its registered office at least thirty (30) days before the determining Date for payment of any installment pursuant to the Debenture.

		In the case of the notice being received by the Company belatedly, the Company shall act thereby only concerning installments whose Determinant Payment Date is after the

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		date of payment which is near to the day of receipt of the notice.

	6.5	If a Debenture Holder who is entitled to such a payment has not given the Company in advance details concerning its bank account, any installment on the account of the principal and interest will be made out by a check that will be sent by registered mail to its last address listed in the Register of the Debenture Holders. Sending of a check to a beneficiary by registered mail as stated above will be considered, for all intents and purposes, as payment of the sum specified therein on the date of its mailing, as long as it is duly paid upon its presentation for collection.

7.	Abstention from Payment for a Reason that does not Depend on the Company

	7.1	Any sum that is due to the debenture Holder that is not actually paid for a reason that does not depend on the Company, while the company was prepared to pay it, will cease to bear interest and linkage differences from the date stated for its payment, whereas the Debenture Holder will be entitled only to the sums that it would have been entitled to on the date stated for repayment of that sum on the account of the principal, the linkage differences or the interest.

	7.2	The Company will deposit with the Trustee by no later than 14 business days from the date stated for that payment, the sum of the payment that has not been paid for a reason that does not depend on the Company, and such a deposit will be considered as settlement of that payment, and in the case of settlement of all dues pursuant to the Debenture, as redemption of the Debenture.

	7.3	The Trustee shall deposit in a bank the sums that will be transferred thereto as stated in Section 7.2 above, to the credit of those Debenture Holders and will invest it in investments permitted hereby that are securities of he State of Israel or other securities that the laws of the State of Israel permit investment of the trust money in, as the Trustee deems fit and subject to the provisions of the law. Should the Trustee do so, it will not owe the beneficiaries for sums other than the remuneration that is received from realizing the investments less the expenses, commissions and mandatory payments, if any that are related to the said investment in managing the trust account less its fee.

	7.4	The Trustee shall transfer to each Debenture Holder for which sums and/or funds due to the Debenture Holders have been deposited with the Trustee, out of sums thus deposited, less all expenses, commissions, the mandatory payments and its fee, against presentation of the proof that is required by the Trustee, to the full satisfaction thereof.

7.5

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		their investment, less its expenses and other expenses incurred in accordance with the provisions of this Deed of Trust (such as service provider fees, etc.) to the extent that these remain in its possession on that date. The Company shall keep these sums in trust for an additional year from the day of their transfer thereto by the Trustee, for the Debenture Holders that are entitled to those sums, and with regard to the sums that are transferred thereto by the Trustee as stated above, the provisions of Section 7.3 of this Deed of Trust will apply, mutatis mutandis . Upon the transfer of the sums from the Trustee to the Company, to the satisfaction of the Trustee, the Trustee shall be exempt from payment of such sums to the entitled Debenture Holders. The Company shall approve to the Trustee in writing the holding of the sums and the receipt thereof in trust for the said Debenture Holders, and will indemnify the Trustee for any claim and/or expense and/or damage of any type that it sustains due to and for the said money transfer, as long as the Trustee has acted reasonably. The Company shall keep these sums in trust for the Debenture Holders that are entitled to these sums for an additional year from the day of their transfer to it from the Trustee. Sums that are not demanded from the Company by a Debenture Holder two years from the final repayment date of the Debentures will be transferred to the Company, which will be entitled to use the remaining sums for any purpose.

8.	The register of the Debenture Holders and transfer of Debentures

	8.1	The Company shall keep and maintain in its registered office a Register of the Debenture Holders, listing the names of the Debentures Holders, their addresses and the number and par value of the Debentures registered to their name. The register will also list any transfer of title to the Debentures. The Trustee and any Debenture Holder will be entitled, at any reasonable time, to review this Register. The Company is entitled to close the Register from time to time or for a period or periods that do not exceed an aggregate of thirty (30) days a year.

	8.2	The Company will not be required to note in the Debenture Holder registers any notice concerning explicit, implicit or putative Trust, or hypothecation or pledging of any kind or any equity, claim or offset right or any other right, concerning the Debentures. The Company shall only recognize the ownership of the person whose name the Debentures are listed under, as long as the legal heirs, administrators of estate or executors of the will of the registered owner or any person who will be entitled to the Debentures due to the bankruptcy of any registered owner (and in the case of a corporation - due to the liquidation thereof) will be entitled to register as the Holders thereof, after giving evidence that in the opinion of the Company is satisfactory for proving the right of any of the above to be registered as their Holder thereof.

9.	The Debenture Certificates (Series D), their Split and Transfer

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	9.1	For the Debentures that are listed to one Holder, one certificate will be issued, or at its request, a number of certificates will be issued (the certificates referred to in this section will be referred to hereinafter as: the “ Certificates ”).

	9.2	Each Certificate may be split into certificates whose total principal equals the sum of the par value of the Debentures that have been included in a Certificate whose split has been requested, as long as the new Debenture Certificates that are issued will be to par value sums in whole New Israeli Shekels, in accordance with a split request that has been signed by the registered owner of that Debenture Certificate, against the provision of that Debenture Certificate to the Company at its registered office for effecting the split. The split shall be made within seven (7) days of the end of the month on which the Certificate along with its split request were provided at the registered office of the Company. All of the expenses and commissions involved in the split, including stamp tax and other duties, if any, will apply to the party requesting the split.

	9.3	The foregoing will apply accordingly to allocation letters, as long as they have not been replaced with Certificates.

	9.4	The Debentures may be transferred concerning any par value sum, as long as it is in whole New Israeli Shekels. Any transfer of the Debentures that is not performed through the trading system of the Stock Exchange will be made out according to a transfer deed that is made out in a generally accepted format for transferring shares, duly signed by the registered owner or the legal representatives thereof, and by the transferee or the legal representatives thereof, which will be delivered to the Company at its registered office along with any other proof that is required by the Company for proving the right of the transferor to their transfer and the identity thereof. If any stamp tax or other mandatory payment applies to the deed of transfer of the Debentures, the company will be given proof of their payment by the requester of the transfer, which will be to the satisfaction of the Company.

	9.5	It is clarified hereby that all of the expenses and commissions involved in the transfer, including stamp tax and other mandatory payments and duties, if any, will be borne by the party requesting the transfer only. The Company shall be allowed to keep the deed of transfer.

	9.6	In the case of a transfer of only part of the sum of the specified principal of the Debentures in the Certificate, the Certificate will be split first as specified in Section 9.2 above into a number of Debenture Certificates as required thereby, in such a manner that the total sums of the principal specified therein is equal to the sum of the specified principal of the said Debenture Certificate.

	9.7	After fulfillment of all of the conditions stated above, the transfer will be registered in

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the Register of the Debenture Holders.

10.	Delisting of the Debentures from trade initiated by the Stock Exchange

	If the Stock Exchange decides to delist the Debentures (Series D) because the value of the series falls below the minimum sum stated in the guidelines of the Stock Exchange, the Company will not perform immediate redemption of the Debentures (Series D), but the Debentures will be delisted from trade.

11.	Purchase of the Debentures (Series D) by the Company and/or by a subsidiary

	11.1	The Company shall issue the Debentures under conditions as specified in the Prospectus and in the Debentures and will not secure them with any collateral.

	11.2	The Company reserves the right to purchase at any time, within or without the Stock Exchange, Debentures (Series D) at any price of its choosing, without prejudice to the obligation of repayment of the Debentures remaining in circulation as specified above. The Debentures that will be purchased by the Company will be cancelled and delisted from trade on the Stock Exchange, and the Company will not be allowed to re-issue them.

	11.3	A subsidiary of the Company and/or the controlling shareholder and/or companies under the control of the controlling shareholder of the Company (“Affiliated Company”) are allowed to purchase and/or sell from time to time within or without the Stock Exchange, including by way of issuance by the Company, Debentures at any price of their choosing and sell them accordingly. The Debentures thus held by the allied corporation will be considered as an asset of the affiliated company, and if they are listed for trading, they will not be delisted from trade on the Stock Exchange other than subject to the rules of the Stock Exchange.

		On the matter of holding Meetings of Holders of Debentures, the provisions of Section 2.19 of the second addendum to this Deed will apply.

	11.4	The Company is allowed, at any time and from time to time, without needing the consent of the Debenture Holders or the Trustee, to issue, including to an allied corporation, Debentures of a different type and/or of different series and/or other securities, whether secured or unsecured, whether granting a right of conversion into shares of the Company or not granting such right, whether by public offering pursuant to a prospectus or otherwise, under terms of redemption, interest, linkage, discounting, repayment rate in the case of liquidation and other conditions, as the Company sees fit, whether they are preferable to the terms of the Debentures (Series D) issued pursuant to the Prospectus, equal to them or inferior to them.

11.5

Without derogating from the foregoing, the Company is allowed, at any time and from

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		time to time, without needing the consent of the Debenture Holders or the trustee, to issue, including to an affiliated company, additional Series D Debentures. The additional Debentures that will be issued, to the extent issued, including their conditions and resulting rights, will be identical and as the existing Debentures, and will together constitute one series for all purposes (it is clarified that in the case of such issuance, the offerees to whom additional Debentures will be issued will not be entitled to payment of principal and/or interest whose determinant payment date preceded the issuance date). The provisions of the Deed of Trust will apply to these additional Debentures. The Company shall publish an immediate statement on such an issuance of additional Debentures and will apply to the Stock Exchange in an application to list these additional Debentures for trading these additional Debentures therein. In the case of expansion of the series of the Debentures (Series D) as above, the fee of the Trustee shall be increased in proportion to the increase of the size of the series.

		The Company shall inform the Trustee and the Debenture Holders of the issue of these additional Debentures.

		This right of the Company does not exempt the Trustee from examining such an issuance, to the extent that such a duty is imposed on the Trustee by law, and it does not derogate from the rights of the Trustee and of the Meeting of the Debenture Holders according to the Deed of Trust, including their right to make the Debentures immediately payable as stated in Section 16 below.

	11.6	The Debentures have been issued in their par value, i.e. without discount. The Company reserves the right to allocate the Debentures following an expansion of the series at a different discount rate (higher or lower) than the discount rate of the Debentures then in circulation (including due to issuance at a price that reflects a different discount rate). The discounted allocation of the Debentures originating from expansion of the series of the Debentures at a rate exceeding the discount rate established for the Debentures before the expansion may adversely affect the state of the Debenture Holders.

	11.7	The provisions of this Section 11 above itself do not bind the Company or the Debenture Holders to purchase Debentures or sell the Debentures in their possession.

	11.8	Wherever the rules of the Stock Exchange apply or will apply to any action according to this Deed of Trust, they will have preference over the provisions hereof, and the dates of such an action will be determined in accordance with the rules of the Stock Exchange.

12.	Waiver; Settlement and Changes in the Terms of the Debentures (Series D)

12.1

Subject to the provisions of the Law and the regulations promulgated and/or that will

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		be promulgated thereby, the Trustee shall be allowed, from time to time and at any time, if it is convinced that this does not in its opinion infringe upon the rights of the Debenture Holders, to waive any violation or non-fulfillment of any of the terms hereof by the Company, as long as these do not relate to the terms of repayment of the Debentures and the grounds for calling for immediate repayment as specified in Section 16 below.

	12.2	Subject to the provisions of the Law and the regulations promulgated and/or that will be promulgated thereby, the Trustee is allowed, whether before or after the principal of the Debentures is called for immediate repayment, to settle with the Company concerning any right or claim of the Debenture Holders and agree with the Company to any arrangement concerning the rights of the Debenture Holders, including waiving any right or claim of the Debenture Holders towards the Company hereby. If the Trustee settles with the Company after having received prior approval of the Debenture Holders as stated above, the Trustee shall be exempt of liability for this action, as approved by the general Meeting. The foregoing does not exempt the Trustee from responsibility for its actions until the date of making a decision of the Meeting of the Holders and/or its actions concerning its application.

	12.3	Subject to the provisions of the Law and the regulations promulgated and/or to be promulgated thereby, the Trustee and the Company may, whether before or after the principal of the Debentures is called for immediate repayment, change the Deed of Trust (including a change in the conditions of the Debentures), if one of the following is fulfilled:

		12.3.1 The Trustee is satisfied that the change does not adversely affect the Debenture Holders.

		12.3.2 The Debenture Holders have agreed to the proposed change, by a special decision as specified in Sections 2.4 and 2.10 of the second addendum hereinafter.

	12.4	The Trustee shall be entitled, at the request of the Company from time to time, to make changes in the Deed of Trust and/or in the Debentures, as required by a Securities Authority and/or the Stock Exchange and/or any other governmental authority, for the purpose of listing the Debentures for trade on the Stock Exchange, as long as the Trustee is satisfied that the change does not cause a material adverse effect to the Debenture Holders.

	12.5	The Company will give the Debenture Holders a notice of any such change, in accordance with Section 17 hereof, as soon as possible after its execution.

	12.6	The general meetings as stated in this section above will be convened, as stated in the

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second addendum of the Deed of Trust.

	12.7	In any case of use of the right of the Trustee in accordance with this section above, the Trustee shall be entitled to demand that the Debenture Holders give to it or to the Company their certificates, for noting a comment concerning any such settlement, waiver, change or amendment and according to the demand of the Trustee, the Company will note such a comment in the certificates that are given to it. In any case of use of the right of the Trustee pursuant to this section, the Trustee shall announce this, within a reasonable time, in writing, to the Debenture Holders.

13.	Meeting of Debenture Holders (Series D)

	General meetings of the Debenture Holders (Series D) will be convened and managed, as stated in the second addendum of the Deed of Trust.

14.	Receipts as proof

	14.1	A receipt from the Debenture Holder for the sums of the principal, the interest and the linkage differences that have been paid thereto by the Trustee for that Debenture will release the Trustee categorically in all matters related to payment of the sums stated on the receipt.

	14.2	Until the end of the period specified in Section 7.5 above, a receipt from the Trustee concerning the deposit of the sums of the principal, the interest and the linkage differences in its possession to the benefit of the Debenture Holders as stated in this Deed will be considered as a receipt from the Debenture Holders for the sums specified therein.

	14.3	The sums distributed as stated in Sections 7 and 14 hereof will be considered as payment on the account of the repayment of the Debentures.

15.	Replacement of Debenture Certificates

	In the case of a Debenture Certificate wearing out, being lost or destroyed, the Company shall be entitled to issue in its place a new Certificate of the Debentures, under the same conditions concerning proof, indemnification and coverage of the expenses sustained by the Company for inquiring as to the right of ownership of the Debentures that the certificate thus replaced relates to, as the Company deems fit, provided that in the case of wear, the worn out Debenture certificate will be returned to the Company before the new Certificate is issued. Taxes, duties and other expenses involved in the issue of the new Certificate will be borne by the party requesting this Certificate.

16.	Immediate Repayment

	16.1	In one or more of the events enumerated below:

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	16.1.1	If the Company does not repay any sum that is due from it connection to the Debentures within 45 days of the maturity of that sum.

	16.1.2	If a temporary liquidator has been appointed by a court, or if a valid resolution has been adopted to liquidate the Company (other than liquidation for merging with another company and/or restructuring of the Company) and this appointment or resolution is not cancelled within 30 Business Days of being given.

	16.1.3	If an attachment is imposed on some or all of the material assets of the Company and the attachment is not removed within 60 days.

	16.1.4	An execution action is carried out against a material asset of the Company, in part or in full, and the action is not cancelled within 90 days.

	16.1.5	If a receiver is appointed for the Company and/or some or all of its material assets, and the appointment is not cancelled within 90 days.

	16.1.6	If the Company ceases the payments of the Debentures and/or announces its intent to cease the payments of the Debentures.

	16.1.7	If the Company discontinues its business affairs or managing its business affairs, as they are from time to time, and/or announces its intent to cease in engaging in or managing its business affairs as shall be from time to time.

	16.1.8	If another series of Debentures that the Company has issued is called for immediate repayment other than according to a resolution of the Company.

	16.1.9	If an order for staying of proceedings is given or if a motion has been filed concerning the Company to make an arrangement with the creditors of the Company pursuant to Section 350 of the Companies Law (other than for merging with another company and/or restructuring of the Company) against the Company and this order or motion is not cancelled within 90 days of commencement thereof.

	16.1.10	If the Company is wound up or struck for any reason.

	16.1.11	A fundamental breach of the terms of the Debentures and the Deed of Trust, including if it is found that the undertakings of the Company in the Debentures or herein are incorrect and/or incomplete, provided a notice has been given to the Company to rectify the violation and the Company does not correct such a violation within 14 Business Days of issue of the notice, and provided that the payments to the Debenture Holders and/or the rights thereof are infringed or may be infringed as a result.

	16.1.12	If there is material concern that the Company will discontinue the payments of

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		the Debentures and/or there is material concern that it will cease in managing its business affairs as shall be from time to time.

	16.1.13	In the occurrence of any other event that constitutes material infringement and/or may cause material infringement of the rights of the Debenture Holders (Series D).

	For the purposes of this entire section, "Material Asset" is an asset whose value in the books of the Company exceeds 20% of the income of the Company according to its last (audited) consolidated annual statements on the date of the event.

16.2	In the occurrence of any of the events listed in Section 6.1 above, the following provisions will apply:

	16.2.1	(A) In the case of any of the events in Sections 16.1.1 to 16.1.10 (inclusive) above, the Trustee will be required to call a Meeting of the Debenture Holders (Series D); or

		(B) In the case of any of the events in Sections 16.1.11 to 16.1.13 (inclusive) above, the Trustee will be allowed (but not required) to call a meeting of the Debenture Holders (Series D), but the Trustee will be required to call a meeting of Holders by a written request of Holders of at least ten percent (10%) of the par value of the unsettled balance of the principal of the Debentures in circulation, as specified in Section 1.1 of the second addendum hereto.

	16.2.2	The date of convening the Meeting, which will be called in accordance with the provisions of Section 16.2.1 A or B above, will be 30 days after the date of its calling (or a shorter term in accordance with the provisions of Section 16.2.5 below), whose agenda will have a resolution concerning calling for immediate repayment the entire unsettled balance of the Debentures (Section D), due to the occurrence of any of the events specified in Section 16.1 above, as relevant.

	16.2.3	In the case that until the date of convening of the Meeting, none of the events specified in Section 16.1 above has been canceled or removed, and the Meeting of the Debenture Holders as stated resolve to call all of the unsettled balance of the Debentures for immediate repayment as a Special resolution (as defined in the second addendum hereto), the Trustee will be required, within a reasonable time, to call all of the unsettled balance of the Debentures (Series D) for immediate repayment, as long as it has given the Company at least 15 days written warning of its intent to do so and the event for which the resolution was adopted has not been canceled or removed within this period.

	16.2.4	A copy of the notice for calling the Meeting will be sent by the Trustee to the

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		Company as soon as the notice is published and will constitute advance written warning to the Company of the intent to act to call the Debentures for immediate repayment.

	16.2.5	The Trustee is entitled, at its discretion, to reduce the count of 30 days (in Section 16.2.2 above) and/or the said 15 days of warning (in Section 16.2.3) in the case of the Trustee opining that any deferral in calling the debt of the Company for repayment endangers the rights of the Debenture Holders (Series D), but in any case the Trustee shall not do so without first applying to the Company in writing 7 Business Days before the date of the meeting, indicating the reasons for reducing the time, at the discretion of the Trustee in the circumstances at hand.

	16.2.6	The Trustee will be responsible for reporting to the Debenture Holders of the occurrence of any of the events specified in Sections 16.1.11 to 16.1.13 (inclusive) above, whether pursuant to publications that the Company has made or according to a notice of the Company that will be sent to it according to the provisions of Section 24 below, soon after it being brought to its attention or delivered to it.

17.	Notices

	17.1	Any notice from the Company and/or the Trustee to the Debenture Holders, as relevant, shall be given as follows:

		17.1.1	By reporting in the MAGNA system of the Securities Authority; the Trustee is allowed to instruct the Company and the Company will be required to report forthwith in the MAGNA system on behalf of the Trustee any report in the format as forwarded in writing by the Trustee to the Company); and by

		17.1.2	A notice that will be published in two widely distributed daily newspapers that are published in Israel in Hebrew;

	17.2	Any notice or demand from the Trustee to the Company may be given by a letter that is sent by registered mail to the address stated herein, or to any other address that the Company informs the Trustee of in writing, or by transmission by facsimile or by courier and any such notice or demand will be considered as having been received by the Company: (1) in t he case of sending by registered mail – three business days from the day of mailing thereof; (2) in the case of transmission by facsimile (along with a telephone check of receipt thereof) – one business day from the day of its transmission; (3) and in the case of sending by courier – upon its delivery by the courier to the addressee or the offering thereof to the addressee for receipt, as relevant.

	17.3	Any notice or demand from the Company to the Trustee may be given by a letter that is

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		sent by registered mail to the address stated herein, or to another address that the Trustee informs the Company of in writing, or by transmission by facsimile or by electronic mail (“ email ”) or by courier and any such notice or demand will be considered as having been received by the Trustee: (1) in the case of sending by registered mail – three business days from the day of mailing thereof; (2) in the case of transmission by facsimile or by email (along with a telephone check of receipt thereof) or sending by courier – upon its delivery by the courier to the addressee or the offering thereof to the addressee for receipt, as relevant.

	17.4	Copies of notices and invitations that the Company gives to the Debenture Holders will also be sent by the Company in an Immediate Report, a copy of which will be given to the Trustee.

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Cellcom Israel Ltd.

Second Addendum

Meetings of the Debenture Holders (Series D)

1.	Calling of Meetings of the Debenture Holders:

	1.1	The Trustee or the Company may call a Meetings of the Debenture Holders. If the Trustee and/or the Company calls such a Meeting, they must send immediately a written notice to the Trustee and/or the Company, as relevant, regarding the site, the day and the time on which the Meeting will be held and on the matters to be brought for discussion therein, and the Trustee or the Company, as the case may be, or a representative thereof, will be entitled to participate in such a Meeting without them having a voting right. The Company will be required to call a general meeting by written request of the Trustee or of the Debenture Holders holding at least ten percent 10%) of the unsettled balance of the principal of the Debentures in circulation, as relevant. The Trustee shall be required to call such a Meeting, at the written request of the Holders of at least ten percent (10%) of the par value of the unsettled balance of the principal of the Debentures in circulation. If the parties asking to call the Meeting are the Debenture Holders, the Company and/or the Trustee, as relevant, are entitled to demand from the requesting parties indemnification for the reasonable expenses involved therein.

	1.2	Fourteen (14) days advance notice will be given of each Meeting of the Debenture Holders, which will elaborate the place, the day and the time of the Meeting, and will indicate in general the subjects that will be discussed in the meeting. The Trustee is allowed, at its discretion, to shorten the duration of the advance notice if it sees that a deferral in calling the Meeting will cause material infringement of the rights of the Debenture Holders.

	1.3	In case of the purpose of the Meeting being a discussion and adopting a special resolution as defined in Section 2.4 and 2.10 of this addendum hereinafter, the notice will elaborate, in addition to the foregoing, the principle of the proposed decision. No resolution that has been duly adopted in a Meeting thus called will be disqualified if notice is not given, erroneously to all of the Debenture Holders, or if such notice has not been received by all of the Debenture Holders.

	1.4	Any such notice from the Company and/or the Trustee to the Debenture Holders will be given by a notice that is published in two (2) widely distributed daily newspapers that are published in Israel in Hebrew. In addition, an immediate report will be given by the Company. Any notice that is published as stated above will be considered as

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		having been given to the Debenture Holders on the day of its publication as above.

2.	Meetings of the Debenture Holders:

	2.1	The chairman of the Meeting will be a person who will be appointed by the Trustee. If the Trustee has not appointed a chairman or he is absent from the Meeting for half an hour from the determinant time for holding the Meeting, the attending Debenture Holders will choose a chairmen from among their number.

	2.2	A Meeting of the Debenture Holders will be opened after it is proved that there is the legal quorum for starting the discussion present.

	2.3	Subject to the legal quorum that is required in a Meeting that is convened for adopting a special resolution, and subject to the legal quorum that is required for the dismissal of a trustee pursuant to the Securities Law, two Debenture Holders who are attending by themselves or by proxy and together holding or representing at least a tenth (1/10) of the unsettled balance of the Debentures in circulation at that time will constitute a legal quorum.

	2.4	A special resolution of the Debenture Holder Meeting will be required on the following issues (“ Special Resolution ”):

		2.4.1	A change and/or amendment to the Deed of Trust, in the case of this requiring a resolution of a general Meeting pursuant to the Deed of Trust

		2.4.2	Any amendment, change and/or arrangement of rights of the Debenture Holders, whether these rights result from the Debenture, the Deed of Trust or otherwise, or any settlement or waiver concerning these rights, in the case of a decision of a general meeting being required for this purpose pursuant to the Deed of Trust.

		2.4.3	Calling the Debentures for immediate repayment, in accordance with the terms of the Deed of Trust.

	2.5	In a meeting that is called for adopting a Special Resolution a legal quorum will be constituted – if Holders of at least fifty percent (50%) of the unsettled balance of the Debentures in circulation at that time are present in the general meeting, or in a deferred meeting, if Holders of at least ten percent (10%) of the said balance are present.

	2.6	If within an half an hour of the time set for starting a Meeting, no legal quorum is present, the Meeting will be deferred to the same day in the following week (and in the case of this day not being a Business Day to the Business Day immediately following it) to the same place and time, without there being a duty to announce this to the Debenture Holders, or to another day, place and time, as chosen by the inviting party,

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		which it will announce to the Debenture Holders at least three (3) days in advance. If no legal quorum is found in a Meeting thus deferred, half an hour after the time established for starting the Meeting, two (2) Debenture Holders attending by themselves or by proxy, regardless of the par value held thereby, will constitute a legal quorum, and other than the legal quorum required for adopting a special resolution, provided that the instruction determining the legal quorum as above is published within the notice of the original Meeting, provided that the notice to the Debenture Holders of the holding of the deferred Meeting is announced in accordance with the provisions of Section 1 hereto above, by no later than seven (7) days before the date of holding the deferred Meeting. Such a notice may be published within the notice of the original meeting (the general Meeting that was deferred).

	2.7	Other than the foregoing, a Debenture Holder will not be entitled to receive any notice of a deferred Meeting and/or of matters that will be discussed in the deferred Meeting. Only matters that may be discussed in a Meeting will be discussed in a deferred Meeting.

	2.8	With the consent of a majority in a Meeting in which a legal quorum has attended, the chairman is allowed, and at the demand of the Meeting is compelled, to defer the continuation of the Meeting from time to time and from place to place, as the Meeting decides. If the continuation of the Meeting is deferred by ten (10) days or more, a notice of the continued Meeting will be given by way of publishing an immediate report in the MAGNA system only.

	2.9	In the vote, each Holder who is present in person or by proxy will have one vote for each NIS 1 par value of the total specified unpaid principal of the Debentures by which he may vote.

	2.10	Each resolution will be adopted by a counting of votes. The majority that is required for a regular resolution is a regular majority of the number of votes represented in the vote of the Meeting (except abstainers). The majority that is required for a Special resolution in such a Meeting is a majority of not less than 75% of the number of votes represented in such a vote (except abstainers).

	2.11	An appointment letter that appoints a proxy will be in writing and will be signed by the appointer or by the proxy thereof who is duly authorized to do so in writing. If the appointer is a corporation, the appointment will be made in writing and will be signed by the stamp of the corporation, along with the signature of the secretary of the corporation or the advocate of the corporation who has the authority to do so. The appointment letter of a proxy will be made out in any generally accepted form. A proxy is not required to be a Debenture Holder by himself. The appointment letter and the power of attorney or the other certificate by which the appointment letter is made out

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		or an approved copy of such a power of attorney will be deposited in the registered office of the Company or at another address that the Company announces not less than forty eight (48) hours before the time of the Meeting for which the power of attorney has been given, unless otherwise determined in the notice calling the Meeting. The appointment letter will also be valid concerning any deferred Meeting of a Meeting that the appointment letter relates to, unless stated otherwise in the appointment letter. A vote that is made in accordance with the terms in the document appointing a proxy will also be valid if the appointer has passed away or been declared legally incompetent or if the appointment letter is cancelled or the Debenture that the vote has been given for is transferred prior to the vote, unless a written notice of the death, decisions of legal incompetence, cancellation or transfer, as relevant, received at the registered office of the Company before the Meeting.

	2.12	Any corporation that owns a Debenture may, by duly signed written authorization, empower a person as it deems fit to act as its representative in any Meeting of the Debenture Holders, and the person who has been authorized will be allowed to act on behalf of the corporation that he represents.

	2.13	Any proposal for a resolution that is put to the vote in a Meeting of Holders will be decided by a show of hands, unless a vote using a ballot box is demanded by the chairman or by at least two (2) Debenture Holders, who are present by themselves or by their proxy, whether a vote was made previously with a raise of hands or thereafter and the vote by ballot box will prevail. In the case of joint Holders, only the vote of the more senior Holder wishing to vote will be accepted, whether by himself or by his proxy, for which purpose seniority will be determined by the order in which the names are listed in the Register of Holders.

	2.14	The Trustee shall not have a right to vote in a Meeting of the Debenture Holder.

	2.15	In a vote, a Debenture Holder or the proxy thereof is allowed to vote with some of its votes in favor of a proposal that is being discussed, and with some against the proposal, as it deems fit.

	2.16	Declaration of the chairman of the Meeting concerning adopting or rejecting a resolution and recording of this matter in the minutes book will serve as prima facie evidence of this fact.

	2.17	The chairman of the meeting will have a minute of the Meeting of the Debenture Holders prepared which shall be written in the book of minutes. Each such minutes will be signed by the chairman of the meeting or by the chairman of the Meeting held thereafter, and all minutes thus signed will serve as conclusive testimony of the proceedings in the Meeting, and as long as it is not proved otherwise, any resolution

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		adopted in such a Meeting will be considered as having been duly adopted.

	2.18	A person or persons who are appointed by the Trustee, the secretary of the Company and any other person or persons authorized by the Company will be allowed to be present in Meetings of the Debenture Holders without a voting right.

	2.19	Debentures held by an Affiliated Company will not grant their Holders a voting right in the general meeting of the Debenture Holders, but they will be considered for determining the legal quorum in the general meeting, except Debentures that will be held by an Affiliated Company that is an investor that is one of the investors listed in the first addendum to the Securities Law (concerning Section 15A(B)(1) of the Law) that is not investing for itself (an "Affiliated Institutional Investor”), which will grant voting rights in a meeting of the Debenture Holders. At the time of holding the Meeting of the Debenture Holders, the Trustee shall check for conflicting interests among the Debenture Holders in accordance with the circumstances at hand and the need for calling Class Meetings in cases in which there are differing interests among the Debenture Holders, in accordance with the circumstances at hand. The Company and the Trustee shall act to call Class Meetings of the Debenture Holders in accordance with the provisions of the law, the provisions of the Securities Law and the Regulations and promulgated there under. In the case of holding Class Meetings, approval of a resolution requires approval in each of the Class Meetings that are called, and in the Meeting of all of the Holders Debentures, with the majority that is required by the provisions of the Deed of Trust and the appendices thereof.

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Exhibit 4.7

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular) Combined Version, as at August 20, 2007

TRANSLATION FROM HEBREW

THE BINDING VERSION IS THE HEBREW VERSION

[State Emblem]

State of Israel

Ministry of Communications

General License to Cellcom Israel Ltd.

for the Provision of mobile radio

telephone services by the cellular

method (cellular)

Combined Version, as at August 20, 2007

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular) Combined Version, as at August 20, 2007

Table of Contents

General License for		1
CHAPTER A: GENERAL		2
PART A: DEFINITIONS AND INTERPRETATION:		2
1.	Definitions	2
2.	Clause headings	12
3.	Blue pencil principle	12
PART B – LEGAL PROVISIONS AND ADMINISTRATIVE PROVISIONS		13
4.	Upholding laws and provisions	13
5.	Permit obligation pursuant to any other law	13
6.	Contradiction in the License provisions	13
CHAPTER B: THE LICENSE – SCOPE, VALIDITY AND CANCELLATION		14
PART A – SCOPE AND PERIOD OF THE LICENSE		14
7.	Scope of the License	14
8.	Absence of exclusivity A16	14
9.	The License period	15
10.	Extension of the License Period	15
11.	Renewal of the License	17
12.	Termination of the License Period	18
PART B – CHANGE IN CONDITIONS AND CANCELLATION OF THE LICENSE		19
13.	Change in the License conditions	19
14.	Cancellation of the License	19
15.	Other remedies	22
CHAPTER C: OWNERSHIP, ASSETS AND MEANS OF CONTROL		24
PART A – RESTRICTIONS ON TRANSFER OF THE LICENSE AND ITS ASSETS		24
16.	Prohibition on transfer of the license	24
17.	Ownership of the Cellular System	24
18.	Restrictions on transfer of the License assets	24
19.	Engagement with another	25
Part B: Means of Control – Changes and Limitations		26
20.	Particulars of Licensee	26
21.	Transfer of Means of Control	26
22.	Encumbrance of Means of Control	28
22A.	Israeli Nationality and Holdings of Founding Shareholders or Their Substitutes	29
Part C: Cross-Ownership and Conflict of Interest		31
23.	Prohibition on Cross-Ownership	31
24.	Prohibition on a Conflict of Interest	31
Chapter D: SETUP AND OPERATION OF CELLULAR SYSTEM		33
Part A: Setting Up the System		33
25.	Definition	33
26.	Setup according to Plans and Specifications	33
27.	Execution Stages and Timetable	33
28.	Modification of Plans during Setup	34
29.	Utilization and Construction of Infrastructures	34
30.	Obligation of Interconnection	35
30A.	Rules Concerning the Implementation of Interconnection	35
30B.	Payment for Traffic Completion and Interconnection	37
30C.	Prohibition on Delaying Interconnection	37
30D.	Providing the Possibility of Utilization	37
30E.	Infrastructure Services for an Interested Company	37
30F.	Numbering Program	38
31.	Reports on the Setup Works	39
32.	Handover of Information and Documents	39

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular) Combined Version, as at August 20, 2007

33.	Supervision of Setup Works	39
34.	Correction of Deficiencies and Defects	39
35.	Safety Precautions and Prevention of Hazards	40
36.	Void A2A2)	40
37.	Intersections with Electricity and Telecommunications Lines	40
38.	Discovery of Antiquities and Site Preservation	40
39.	Land-Related Powers	40
Part B: Equipment Checks and Installation Certifications		42
40.	Compliance Check	42
41.	Responsibility for Compliance	42
42.	Performance Testing Program and Its Approval	42
43.	Notice of Setup Completion	42
44.	Terms of Fitness and Operation	42
Part C: Use of Frequencies		44
45.	Allocation of Frequencies	44
46.	Restriction on Use of Frequencies	44
47.	Prevention of Interferences	44
48.	Cellphone Activity in Emergencies	45
Part D: Inspections and Maintenance A43)		47
49.	Definitions	47
50.	Performance of Inspections	47
51.	Inspections, Malfunctions and Maintenance Log	47
52.	Repair of Deficiencies and Defects	48
53.	Void	48
54.	Void	48
Chapter E: PROVIDING CELLULAR SERVICES TO SUBSCRIBERS		49
Part A: Entering into an Agreement with Subscribers		49
55. A43)	The Contract	49
56. A43)	Modification of Contract	50
57. A43)	Void	50
58. A43)	Void	50
59.	Obligation of Connecting Applicants and Prohibition on Stipulation	50
Part B: Service Level for Subscribers		51
60.	Obligation of Maintaining the Service	51
61. A43)	Public Ombudsman	51
61A. A43)	Umpiring of Disputes	52
62.	Obligation of Maintenance	52
63.	Repair of Malfunctions	53
64.	End-user equipment – Selling and Renting	53
65.	Public Emergency Services	54
65A. A16)	Blocking Service to a Nuisance Subscriber	54
66. A16)	Protecting Subscriber Privacy	55
66A. T3)	Special Services for the Security Forces	56
66B. A12)	Security Provisions	56
67.	Bills to Subscribers	57
67A. A16)	Information Service for Clarifying Telephone Numbers T39)	58
67B. A43)	Void	60
67C. A16)	Service Dossier	60
67D. A24)	Erotic Service	62
Part C: Termination, Delay or Restriction of Service		63
68.	Definitions	63
69.	Prohibition on the Termination or Disconnection of Service	63
70.	Disconnection of Service at Subscriber's Request	63
71.	Termination of Service at the Subscriber's Request	63
72.	Termination or Disconnection of Service Due to Breach of Agreement	64
73.	Disconnection of Service Due to Maintenance Operations	64
CHAPTER F – PAYMENT FOR SERVICES		66
Part A – General		66

III

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular) Combined Version, as at August 20, 2007

73A.	Definitions	66
74.	Payment Categories	66
Part B – Setting and Publication of Rates		68
75.	Setting the Rates and Their Amount	68
75A. A25)	Completion of a Call in Another Public Telecommunications Network	70
75B. A2A25)	Completion of an SMS on Another Public Telecommunications Network	70
75C. A27)	Temporary Order	70
76.	Publication of Rates	71
77.	Void A43)	71
77A.	Fraud Prevention	71
Part C – Changes in the Rates		73
78. A43)	Change in the Rates	73
79.	Start of an Increase or Reduction in a Rate	73
80.	Arrears in Payment	73
Part D – Miscellaneous		74
81.	Onetime Debit for Connection Fee	74
82.	Collection of Subscription Fee in Installments	74
83.	Harm to Competition or to Consumers	74
CHAPTER G: PAYMENTS FROM THE LICENSEE, LIABILITY, INSURANCE AND GUARANTEE		75
Part A – Royalties and Payments A16)		75
84.	Royalties	75
85.	Arrears in the Payment of Royalties	75
86.	Payment Method	75
87.	Other Mandatory Payments	75
Part B – Liability and Insurance		76
88.	Definition of Scope of Insurance	76
89.	Licensee’s Liability	76
90.	Immunity from Liability	76
91.	Making an Insurance Contract	76
92.	Conditions in the Insurance Contract	78
93.	Remedy for Breach of Conditions with Respect to Insurance	78
Part C – Guarantee to Secure Fulfillment of the Terms of the License		79
94.	The Guarantee and Its Purpose	79
95.	Exercise of the Guarantee	79
96.	Manner of Exercise of the Guarantee	80
97.	Term of Validity of the Guarantee	80
98.	Preservation of Remedies	82
CHAPTER H – SUPERVISION AND REPORTING		83
Part A: Supervision of Licensee’s Activities		83
99.	Supervisory Power	83
100.	Preservation of Confidentiality	83
101.	Entry to Premises and Inspection of Documents	83
102.	Cooperation	83
Part B: Reporting and Correction of Defects		84
103. A43)	Duty of Submission of Reports	84
104. A43)	Types of Reports	84
105. A43)	Notice Concerning a Defect	86
106. A43)	Void	86
CHAPTER I – MISCELLANEOUS		87
107.	The License as an Exhaustive Document	87
108.	Keeping the License Document and Returning the License	87
109.	Postponement of Deadline	87

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular) Combined Version, as at August 20, 2007

110.	Reserving of Liability	88
111.	Notices	88
First Schedule		1
Second Schedule – List of Appendices		2
Appendix D – Uniform Engagement Agreement – Not Attached		1
Appendix E – Minimum Requirements and Level of Subscriber Services A16)		1
Appendix J – Accessibility to International Telecommunications Services A6)		1
Appendix K – Discontinuation of Service to Cellular End-User Equipment of the IS-54 type t7		1
Appendix O – Erotic Services A36effect)		1

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

General License for

Cellcom Israel Ltd.

Award of license

By the authority vested in me under the Telecommunications Law, 5742 – 1982 (hereinafter – the Law), the Wireless Telegraph Ordinance [New Version], 5732 – 1972 (hereinafter – the Ordinance), and my other powers pursuant to any law, I, the Minister of Communications, hereby grant a license to Cellcom Israel Ltd. (hereinafter – the Licensee) to establish, maintain and operate a mobile radio telephone system by the cellular method, and to provide thereby mobile radio telephone services to the Israeli public, as set forth in this License.

This License is granted for the period set forth in the license and is subject to its conditions as follows:

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

CHAPTER A: GENERAL

PART A: DEFINITIONS AND INTERPRETATION:

Definitions

1.1

In this License, the words and expressions below will have the meaning listed next to them, unless another meaning is evident from the written language or its context.

" Type Approval"	-	Approval given by the Minister pursuant to the Law and the Ordinance to a cellular end-equipment model.
"Means of Control"	-	In a corporation – any one of the following: (1) the right to vote at a general meeting of a company or in an entity corresponding thereto in another corporation; (2) the right to appoint a director or CEO; (3) the right to participate in the profits of the corporation; (4) the right to a share in the balance of the assets of the corporation after payment of its debts on liquidation.
"Telecommunications"	-	Broadcast, transfer or reception of marks, signals, written material, visual forms, sound or information, via wire, wireless, optical system or other electromagnetic systems;
"Franchisee" A16	-	As defined in Section 6(12)(1) of the Law;
"Interested Party"	-	Anyone holding, directly or indirectly, 5% of a certain type of the Means of Control;
"Licensee"	-	Anyone to whom the Minster granted, pursuant to the Law, a general or special license; A16
"General Licensee" A16	-	Anyone who has received a general license for implementing the Telecommunications operations and providing Telecommunications services;
"Broadcasting Licensee" A16	-	As defined in the Law;
"Accessibility Fees"	-	Payment for the use of another Telecommunications system, including for connection, transmission and collection;
"Technical Requirements and Service Quality"	-	Standards of availability and service quality, standards for Telecommunications facilities and instructions for installation, operation and maintenance, all according to the engineering plan as the Director will order from time to time relating to the services of the Licensee
“Contract” A43	-	Contract between the Licensee and a Subscriber, for the provision of all or any of the services of the Licensee;
the "Proposal"	-	The Licensee’s Proposal in the Tender;
the "Bezeq Corp."	-	Bezeq Israel Telecommunication Corp. Ltd.;
the “Law"	-	The Communications Law (Telecommunications and Broadcasts), 5742 – 1982; A16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

A16 Amendment No. 16

A43 Amendment No. 43 [Inception: This amendment shall come into force not later than March 15, 2007]

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

"Holding" A16	-	For the purpose of Means of Control – directly or indirectly, whether alone or in concert with others, including through another, including a trustee or agent, or through a right granted under an agreement, including an option for a Holding that does not derive from convertible securities, or in any other way;
"Transfer" A16	-	For the purpose of the Means of Control, whether directly or indirectly, whether for consideration or without consideration, whether in perpetuity or for a period, all at once or in parts;
"In Concert With Others" A16	-	Permanent collaboration and, with regard to an individual, permanent collaborators will be deemed – the individual, his Relative, and a corporation that one of them controls and, with regard to a corporation – the corporation, anyone controlling it and anyone who is controlled by one of them;
"Security Forces"	-	The Israel Defence Forces, the Israel Police, the General Security Service and the Mossad Institute for Intelligence and Special Operations;
"Index"	-	The Consumer Price Index published by the Central Bureau of Statistics from time to time, or any other index that may replace it;
“Cellular Radio Center"	-	A wireless facility functioning on the operating frequencies and used for creating a radio connection between cellular end-equipment units in the possession of the subscribers in its coverage area and the cellular switchboard;
"Interface"	-	The physical meeting between various functional Telecommunications units, including by optical or wireless means; A16
"Telecommunications Facility"	-	A facility or device intended mainly for telecommunication purposes, including end-equipment; A16
"Tender No. 1/01" A16	-	A tender published by the Ministry on 4 Nissan 5761 (March 28, 2001), including the clarifications given by the Ministry in the course of the Tender, as a result of which this License was amended;
the "Tender"	-	Tender No. 10/93 published by the Ministry on November 11, 1993, including clarifications given by the Ministry in the course of the Tender, as a result of which this License is granted;
the "Director"	-	The Director General of the Ministry of Communications or anyone authorized by him for the purposes of this License, in whole or in part;
"Subscriber" A43	-	Anyone who enters into an agreement with the Licensee for the purpose of receiving cellular services as an end user;
"International Telecommunications System"	-	A system of Telecommunications facilities, connected or designated for connection to the Public Telecommunications Network through an International NEP, which is used or designated for use in the transfer of Telecommunications messages between an international switch situated in Israel and a Telecommunications Facility located abroad, including a satellite ground station and other Telecommunications facilities (hereinafter – the System Components ) and including transmission facilities among the System Components; A16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

A16 Amendment No. 16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

"Mobile Radio Telephone System" (Cellular System)	-	A system of wireless facilities built by the cellular method and other installations, through which mobile radio telephone services are provided to the public, including a cellular coordinator, cellular radio centers and wireless or cable transmission arteries between cellular radio centers, a cellular radio center and a cellular coordinator, between Cellular coordinators, or between a cellular switchboard and a Public Telecommunications Network.
"NDO (National Domestic Operator)" A16	-	A General Licensee for the provision of landline domestic Telecommunications services
"Cellular Operator"	-	A General Licensee for the provision of mobile radio telephone services A16
"Another Cellular Operator"	-	A Cellular Operator that is not the Licensee.
"Switchboard"	-	A Telecommunications Facility in which are situated and operated switching and transmission means, enabling contact between various end-equipment units that are connected or linked thereto, and the transfer of Telecommunications messages between them, including control and monitoring facilities and other facilities that enable the provision of various services to Subscribers of the Licensee or to subscribers of another Licensee;
the "Ministry"	-	The Ministry of Communications
"Transit Switch" A16	-	A Telecommunications Facility in which are situated and operated the means of switching, routing and transmission enabling contact between various switchboards that are connected or linked thereto and the transfer of Telecommunications messages between them, including control and monitoring facilities;
"Officer" A16	-	Anyone acting as a director, CEO, chief business officer, deputy CEO, someone who fills such a position in a company even if the title is different, as well as any other manager who is directly subordinate to the CEO of the company;
"Appendices" A16	-	The first addendum and the Appendices set forth in the second addendum to the License A16
"NEP (Network End-Point)"	-	An Interface to which is connected on one side a Public Telecommunications Network and on the other side, end-user equipment, a private network, a mobile telephone network or other public network, as applicable;
"International NEP"	-	A connections device to which are linked a Public Telecommunications Network on one side and an International Telecommunications System on the other;
"Telecommunications operation"	-	The operation, installation, construction or maintenance of a Telecommunications Facility, all for the purpose of Telecommunications;
the "Ordinance"	-	The Wireless Telegraph Ordinance [New Version]. 5732 – 1972;
"End-User Equipment"	-	Telecommunications equipment, which is connected or is designated for connection to a public Telecommunications network through an NEP or through a private network, including a telephone, modem, facsimile or private switchboard;

A16 Amendment No. 16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

A16 Amendment No. 16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

"Cellular End-User Equipment"	-	Portable or movable Telecommunications equipment, connected or designated for connection to a Cellular System by means of a cellular radio center.
"Interconnection" A16	-	Connection between a Public Telecommunications Network of one Licensee to a Public Telecommunications Network of another Licensee, physically or logically, that facilitates the transfer of Telecommunications messages between Subscribers of the Licensees or the provision of services by one Licensee to the subscribers of the other Licensee;
"Relative"	-	Spouse, parent, son, daughter, brother, sister or their spouses;
the "License"	-	This License, with all its Appendices and any other document or condition stipulated in the License that will constitute an integral part of the License or its conditions;
the “Network" A16	-	The Cellular System of the Licensee;
the “Minister"	-	The Minister of Communications, including anyone to whom he has delegated his authority with regard to this License, in whole or in part;
"Public Telecommunications Network"	-	A system of Telecommunications facilities, used or designated for the provision of Telecommunications services to the general public throughout Israel or at least in the area of service, including Coordinators or Transit Switches, transmission equipment and an access Network, including a Cellular System and an international Telecommunications system, except for a private network, End-Equipment and Cellular End-Equipment;
"Public Telecommunications Landline Network"	-	A domestic Public Telecommunications Network, except for a Cellular System and an international Telecommunications network;
"Access Network" A16	-	Components of a Public Telecommunications Network, which are used for connection between Coordinators and an NEP by means of a landline infrastructure, wireless infrastructure or a combination of the two;
"Bezeq Network"	-	The Public Telecommunications Network used by Bezeq for provision of its services under the general license granted to it and the other Telecommunications services provided under the Law, whether by Bezeq or by any other person;
"Use" A16	-	Access to a Telecommunications Facility of the Licensee, including to the public Telecommunications network or its Access Network, in whole or in part, and the possibility of using them for the purpose of conducting Telecommunications operations and providing Telecommunications services by means thereof, including the installation of a Telecommunications Facility of another Licensee in a Telecommunications Facility or courtyards of the Licensee
"Telecommunications Service"	-	The performance of Telecommunications operations for others;
"Basic Telephone Service"	-	Two-way switched or routed transfer, including via modem, of speech or of speech-like Telecommunications messages, for example, facsimile signals;
"Telephony Service" A16	-	Basic telephone service and services related to this service;

A16 Amendment No. 16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

A16 Amendment No. 16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

"International Telephone Service (ITMS)"	-	A telephone service by means of the international system of a Licensee for the provision of international services;
"Roaming Service" A16	-	A cellular service provided abroad and in the areas of civilian control of the Palestinian Council via the Cellular System of a foreign Cellular operator (hereinafter – Foreign Operator), whereby the Subscriber pays the Licensee for the service; and, similarly, a cellular service provided in Israel via the Cellular System of the Licensee, whereby the Licensee provides service to a Foreign Operator for the subscribers of that operator; in this regard, the "Palestinian Council " – as defined in the Law for Implementation of the Interim Agreement Regarding the West Bank and Gaza Strip (Jurisdictional Powers and Other Provisions) (Legislative Amendments), 5756 – 1998 [sic];
"Related Service"	-	A service set forth in the first addendum to the License, provided on the basis of the Basic Telephone Service and which, by its nature, can only be provided by the supplier of the basic service;
" Value Added Service" A16	-	A service provided on the basis of the Basic Telephone Service, which, by its nature, can be provided by another, including another Licensee that is not the supplier of the basic service; with regard to the services of the Licensee, a service as stated, which is set forth in the first addendum to the License;
"infrastructure Service"	-	An Interconnection, or possibility of Use given to another Licensee, to a Franchisee or to a broadcast Licensee; A16
"Domestic Telecommunications Landline Service" A16	-	Infrastructure, transmissions, communication of data and landline telephony;
"Licensee Services"	-	Cellular services, Telecommunications Services and other services which the Licensee is entitled to provide pursuant to this License, to its Subscribers, to other Licensees, to broadcast licensees, to Franchisees and to the Security Forces; A16
"Cellular Services"	-	Telecommunications services provided by means of the Cellular System;
"Control"	-	The ability to direct a corporation's activity, directly or indirectly, including ability deriving from the articles of incorporation, by virtue of an agreement, either written or oral, by virtue of a Holding in the Means of Control in another corporation - or from any other source, except for ability deriving solely from fulfilling the position of director or other position in the corporation;
"the Minister"	-	The Minister of Communications, including anyone to whom he has delegated his authority with regard to this License, in whole or in part;
"Engineering Plan"	-	An engineering plan submitted by the Licensee in the Tender, including any change introduced therein with the approval of the Director and attached to the license as Appendix B;
"Numbering Plan" A16	-	As defined in Section 5A(B) of the Law;

A16 Amendment No. 16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

A16 Amendment No. 16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

1.2

Other words and expressions in the License, insofar as they are not defined in Clause 1.1, will have the meaning they have in the Law, in the Ordinance, in the regulations enacted thereunder, in the Interpretation Law, 5741 – 1981, or as set forth in the relevant places in the License, unless another meaning is implied by the written language or its context.

2.	Clause headings

The headings of the clauses in this License are provided solely for the convenience of the reader, and should not be used for interpretation or explanation of the content of any of the conditions of the License.

3. Blue pencil principle

A cancellation or determination regarding the non-validity of a condition of this License or part of a condition will apply only with regard to that condition or part, as applicable, and will not serve, per se, to derogate from the binding validity of the License or any other condition therein.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

PART B – LEGAL PROVISIONS AND ADMINISTRATIVE PROVISIONS

4. Upholding laws and provisions

4.1

In everything pertaining to the setup, existence, operation, and maintenance of the Cellular System and the provision of Cellular Services thereby, the Licensee will act in accordance with the provisions of any law and, without derogating from the aforesaid generality, will ensure compliance with the following:

(1)

the provisions of the Telecommunication Law and the regulations promulgated thereunder;

(2)

the provisions of the Wireless Telegraph Ordinance and the regulations promulgated thereunder;

(3)

administrative provisions;

(4)

international Telecommunications and radio treaties to which Israel is a party;

(5)

any other law or treaty that will apply to Telecommunications and radio, even if they go into effect after the License is granted.

4.2	The Licensee will act pursuant to laws and provisions as stated in Clause 4.1 as these will be in force from time to time during the license period, including the remedies for the breach thereof, and they will be deemed an integral part of the License conditions.

5. Permit obligation pursuant to any other law

5.1	The granting of this License will not exempt the Licensee from the obligation to obtain, with regard to execution of the License, any license, permit, approval, or consent pursuant to any other law.

6. Contradiction in the License provisions

In the event of an apparent contradiction in the License provisions, the Minister will determine the interpretation of the provisions or how to settle the contradiction between them and after the Licensee has been given a fair opportunity to voice its claims A2 .

A2 Amendment No. 2

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

CHAPTER B: THE LICENSE – SCOPE, VALIDITY AND CANCELLATION

PART A – SCOPE AND PERIOD OF THE LICENSE

7. Scope of the License

7.1

Pursuant to this License and subject to all the provisions and conditions hereof, the Licensee is entitled to set up, implement, maintain and operate a Cellular System and, through it, to provide cellular Services to the Israeli public; without derogating from the aforementioned generality, the Licensee is entitled to do the following:

(1)

to set up, implement, maintain and operate cellular radio centers and to connect them to cellular switchboards, and to connect between cellular switchboards, by means of cable and wireless transmission channels;

(2)

To connect the cellular System to the Public Telecommunications Network of Bezeq;

(3)

To connect the cellular System to the international Telecommunications system;

(4)

To connect its cellular System to another cellular System;

(5)

To contract with Subscribers for the purpose of providing cellular Services;

(6)

To provide Subscribers with cellular End-User Equipment;

(7)

To connect Subscribers to the cellular System and provide cellular Services and other services pursuant to this License;

(8)

To provide Subscribers with the following services:

(A)

Basic mobile wireless telephone service;

(B)

Related services as set forth in the first addendum;

(C)

Roaming service; A16

(D)

Any other cellular service permitted pursuant to this License. A16

7.2	The Licensee will not be entitled to provide any cellular service or other Telecommunications Service that is not explicitly permitted within the context of this License.

8. Absence of exclusivity A16

8.1	The Licensee will not have any exclusivity in the provision of its services.

8.2	The Minister is entitled, at any time, to grant a license to additional operators for the provision of cellular Services.

8.3

Should the Minister publish a tender for the provision of cellular services, the Licensee will be entitled to submit its bid in the tender, however, the Minister will be entitled to determine as part of the conditions of such a tender that if the Licensee wins the tender, the receipt of a license will be contingent on the fact that the Licensee transfer its cellular System to another as instructed by the Minister and under conditions determined thereby, and it will cease to provide cellular Services by means thereof.

A16 Amendment No. 16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

9. The License period

9.1	This License is valid for a period of 10 years, commencing on the date of the granting of the License (hereinafter – the License Period).

9.2	The License Period may be extended by additional six years in accordance with that stated in Clause 10 (hereinafter – the Additional Period).

9.3	This License may be renewed for one or more Additional Periods of six years, in accordance with that stated in Clause 11.

9.4	During the License Period and the Additional Period or on renewal of the License, the License will be subject to the authority of the Minister pursuant to Clauses 13 to 15 with regard to change, restriction, suspension or cancellation of the License.

9.5 A15

Notwithstanding the aforesaid A16 , in the context of expansion of the License, as a result of the Licensee winning Tender No. 1/01, this License will be valid for a period of twenty (20) years, commencing on 19 Shevat 5762 (February 1, 2002).

10. Extension of the License Period

10.1	The Minister is entitled, at the request of the Licensee, to extend the License Period for additional six years, if, after he has examined the following:

(A)

The Licensee has complied with the provisions of the Law, the Ordinance, the regulations thereunder and the provisions of the License;

(B)

The Licensee has continually acted to improve the scope, availability and quality of the cellular Services and to update the technology of the cellular System and its activities did not include an act or omission that would impair or restrict competition in the cellular sector;

(C)

The Licensee is capable of continuing to provide cellular Services at a high level and that it is able to make the investments required for the technological updating of the cellular System and for improving the scope, availability and quality of the cellular Services.

10.2	The Licensee must submit its request for an extension of the License Period during the forty-five days prior to the period of eighteen months preceding the end of the License Period.

10.3	The Licensee must attach the following to its request:

(A)

A report summarizing the annual statements that the Licensee has submitted pursuant to this License between the date of commencement of the License and the date of submission of its request;

(B)

Comparison of the data in the report for each year with the data for the preceding year and explanations of unusual changes in the data;

(C)

Review of the means, actions and investments taken or made by the Licensee to improve the quality, scope and availability of the Cellular Services and to develop and update the Cellular System technology.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

10.4	The summary report pursuant to Clause 10.3 must contain up-to-date and precise details and be prepared in the form of an affidavit.

A15 Amendment No. 15

A16 Amendment No. 16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

10.5

For the purpose of examining the Licensee’s request to extend the License Period, the Minister is entitled to require the Licensee to furnish, during the period and in the manner that he will determine, any information or document and, without derogating from the generality of that stated, the Minister is entitled -

(A)

To require the Licensee to attach any document to the summary report for the purpose of verifying the details therein, to complete the report or to furnish any additional detail that is not included therein;

(B)

To summon the Licensee to appear before him to respond to questions or to present documents that are in its possession or under its control, relating to the data in the report;

(C)

To require the Licensee to submit to him an Engineering Plan outlining its plans for the technological update of the Cellular System during the Additional Period;

10.6	The Licensee must fulfil every requirement or summons as stated in Clause 10.5; if the Licensee is required to appear before the Minister, the chairman of the board of directors of the company holding the License or the CEO of the company or anyone authorized to do so in writing, will appear;

10.7	If the Licensee fails at least twice to respond to the request or summons as stated in Clause 10.5, the Minister is entitled to reject its request to extend the validity of the License.

10.8	The Minister will inform the Licensee of his decision regarding the request for extending the validity of the License no later than a year before the end of the License Period.

10.9	The Additional Period will be subject to the terms of this License, including any change therein.

10.10

The provisions of Clause 100 regarding confidentiality will apply, mutatis mutandis , to data furnished by the Licensee to the Minister or anyone acting on his behalf, pursuant to the provisions of Clause 10.

11. Renewal of the License

11.1	At the end of the License Period or the Additional Period, the Minister is entitled, at the request of the Licensee, to renew the License for one or more Additional Periods of six years, as will be determined.

11.2	The Licensee will submit its request for the renewal of the License during the forty-five days prior to the eighteen months preceding of the end of the License Period or the Additional Period.

11.3	The Minister will inform the Licensee in writing, within 30 days of the date of receiving its request for renewal of the License, whether he intends to take the measures and institute the proceedings required to renew the License, or a tender will be conducted for the services under this License.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

12. Termination of the License Period

12.1

If the License Period pursuant to Clause 9.5 A16 or the Additional Period pursuant to Clause 10.1 or the License Period after its renewal pursuant to Clause 11.1 ends and the License is not extended or not renewed, the Minister is entitled to instruct the Licensee to continue to operate the Cellular System for a period to be determined (hereinafter - the Period for Terminating the Service) until a license is duly granted to another for the provision of services pursuant to this License (hereinafter – Alternate Licensee), and the procedures for transferring the system thereunder are completed, or until a license is duly granted to another for alternate services. In any case, the Period for Terminating the Service will not exceed two years from the date on which the License expires.

12.2

During the Period for Terminating the Service and no later than ten months from the date on which a license is granted to an Alternate Licensee, the Licensee and the Alternate Licensee will negotiate for the purpose of purchasing the Cellular system at its economic value and assigning the rights and obligations of Subscribers to the Alternate Licensee; if said Licensees do not reach an agreement within said ten months, the price will be determined by an arbitrator, whose decision will be final, to be appointed by the Chairman of the Institute of Certified Public Accountants.

A2 Amendment No. 16

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

PART B – CHANGE IN CONDITIONS AND CANCELLATION OF THE LICENSE

13. Change in the License conditions

13.1	The Minister is entitled to change, add to or subtract from the License conditions if he is convinced that one of the following exists:

(A)

A change has occurred in the extent of the License applicant’s suitability to perform the actions and services that are the subject of the License;

(B)

Subject to that stated in Clause 8, a change is required in the License to ensure competition in the telecommunications area;

(C)

A change is required in the License to ensure the level of services provided thereunder;

(D)

Changes that have occurred in telecommunications technology require a change in the license;

13.2	The Minister is entitled to change, increase or reduce the rates for services, if he is convinced that a change has occurred in one or more of the components of the costs, which represent a basis for calculating the rates.

13.3	The Minister will act pursuant to his authority as stated in Clauses 13.1 and 13.2 after the Licensee has been given a reasonable opportunity to voice its claims.

14. Cancellation of the License

14.1	The Minister is entitled to cancel the License before the end of its period, if one or more of the causes set forth in Section 6 to the Law exist, or in one of the following cases:

	(A)	The Licensee did not disclose to the tenders committee information that must be disclosed or it furnished inaccurate information;
	(B) A2	If the Licensee refuses to furnish the Minister or anyone acting on his behalf with information in its possession that must be disclosed and which it was obligated to disclose by virtue of the provisions of this license or pursuant to law, or the Licensee furnished the Minister or someone acting on his behalf with false information;

(C)

The Licensee did not comply with the provision of the Law, the Ordinance or the regulations thereunder;

(D)

The Licensee committed a material breach of the License conditions and, without derogating from the generality of that stated, including the following:

(1)

The Licensee is demanding for its services payments that are higher than the maximum rates prescribed in this License or pursuant thereto, or pursuant to any law;

(2)

The Licensee is not complying with the coverage or quality requirements prescribed in this license;

(3)

The Licensee did not comply with the provisions of this license with regard to the operation of digital technology in the cellular System;

(E)

The Licensee did not commence provision of the services pursuant to that set forth in the License or unlawfully discontinued, restricted or delayed one of the services;

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

A2 Amendment No. 2

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

(F)

One or more of the qualities that rendered the Licensee suitable to participate in the tender for cellular services, or to be a Licensee, has ceased to exist, including:

(1)

The Licensee has ceased to be a company registered in Israel;

(2)

Residents and citizens of Israel no longer hold, directly or indirectly, at least 20% of all of the Means of Control in the Franchisee; in this clause – "Citizen of Israel" – as defined in the Citizenship Law, 5712 – 1952; "Resident" – as defined in the Population Registry Law, 5735 – 1965;

(3)

A majority of the directors in the Licensee company are not citizens and residents of Israel;

(4)

The manager or a director of the Licensee company was convicted of an infamous crime and continues to serve in his position;

(5)

The joint equity, including surpluses, of all of the shareholders in the Licensee company, together with the equity of the Licensee, has declined to under US $200 million; in this matter, a shareholder holding less than 10% of the right to the company's earnings will not be taken into account.

(6)

Before 5 years have elapsed from the date of granting the License, the share of the cellular operator has fallen to less than 25% of the voting rights in the general meeting or of the right to appoint a director or CEO in the Licensee company;

(7)

Subject to that stated in paragraph (8), the Licensee, or an officer in the Licensee company or anyone who holds more than 5% of the Means of Control in the Licensee company, holds, directly or indirectly, more than one per cent (5%) of the Means of Control in Bezeq A2 , Another cellular Operator, or one of them acts as an Officer in a competing corporation.

(8)

If one of the following occurs in an Interested Party in the Licensee company, which is a mutual fund, insurance company, investment company or pension fund;

it holds, directly or indirectly, more than 5% of any Means of Control in a competing corporation, without receiving a permit therefor from the Minister;

it holds, directly or indirectly, more than 5% of any Means of Control in a competing company pursuant to a permit from the Minister and, additionally, it is a controlling shareholder and exercises actual Control in a competing corporation or it has a representative or appointee on its behalf among the Officers in the competing corporation, unless it is required to do so under law;

it holds, directly or indirectly, more than 10% of any Means of Control in a competing corporation, even though it has received permission to hold up to 10% of said Means of Control;

(G)

Void A2

(H)

If an act or omission in the Licensee’s operations impaired or restricted competition in the cellular sector;

A16 Amendment No. 16

A2 Amendment No. 2

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

(I)

A receiver or temporary liquidator was appointed to the Licensee company and an order was given for its liquidation or it decided on voluntary liquidation;

(J)

Void A2)

(K)

The Licensee requested cancellation of the License;

14.1.1 A2

For the purposes of sub-clause 14.1(E A2 ), the restriction of service for technological reasons, effected after the Director was provided with prior written notification of the reasons and approved by the Director, will not be considered deemed an improper unlawful cessation, restriction or delay of service.

14.2	If the Minister is convinced that, in the circumstances, the cause of invalidity does not necessitate cancellation of the License, the Minister will grant the Licensee a fair opportunity to rectify the act or omission constituting a cause for cancellation.

14.3

The Minister will notify the Licensee in advance of his intention to cancel the license, will state in the notice the cause in question, and will allow the Licensee to voice its claims relating to the cause for cancellation, either in writing or orally, according to the circumstances, within the period set forth in the notice.

14.4	The Minister is entitled to summon the Licensee to appear before him and may demand that it respond to questions, present documents or furnish him with whatever information and documents are required for the purposes of clarifying the cause for cancellation.

14.5	If the Licensee is required or summoned as stated, it must respond to the requirement or summons on the date set forth therein.

14.6	If the Licensee fails to respond, at least twice, to the Minister's demand or summons within the period stipulated by the Minister in his demand or summons, the Minister is entitled to cancel the License in a notice that will be sent to the Licensee (hereinafter - Cancellation Notice).

14.7

In the Cancellation Notice, the Minister will determine the date on which the cancellation of the License will take effect and he is entitled to instruct the Licensee to continue the provision of services pursuant to this License until a license is granted to another or until the appointment of a trustee or until a receiver is duly appointed for the purpose of managing and operating the cellular System – as applicable.

14.8	The Licensee will continue to provide services until the end of the period stipulated by the Minister in his notice and will comply with the provisions of this License and any instruction given by the Minister in this matter.

15. Other remedies

In addition to his authority to cancel the License as stated in Clause 14, the Minister is entitled, if the causes outlined in Clause 14.1 occur, to restrict or suspend the License or to change its conditions or to foreclose on the guarantee given by the Licensee to secure fulfilment of the conditions of the License, in whole or in part; the procedures set forth for cancellation of the License will

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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apply, mutatis mutandis , to the restriction or suspension of the License or forfeiture of the guarantee.

A2 Amendment No. 2

A2 Section 3 in the original version of Amendment No. 2 contained a typographical error, in which 14.1(D) was written instead of 14.1(E).

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

CHAPTER C: OWNERSHIP, ASSETS AND MEANS OF CONTROL

PART A – RESTRICTIONS ON TRANSFER OF THE LICENSE AND ITS ASSETS

16. Prohibition on transfer of the license

The license, in whole or in part, may not be transferred, encumbered or attached without the prior consent of the Minister.

17. Ownership of the Cellular System

17.1 The Licensee will be the owner of the Cellular System.

17.2

Notwithstanding that stated in Clause 17.1, the Director is entitled to permit the Licensee to utilize the cable or wireless transmission arteries of another for the purpose of connecting cellular radio centers, connecting a cellular radio center to a Cellular Coordinator of the Licensee or of another Licensee, connecting Cellular Coordinators of the Licensee, connecting a Cellular Coordinator of the licensee to a Cellular Coordinator of Another Cellular Operator A16 , or connecting a Cellular Coordinator to a Public Telecommunications Network or to an International Telecommunications Network.

18. Restrictions on transfer of the License assets

18.1	The Licensee may not sell, lease or pledge any of the assets used in performance of the License (hereinafter – the License Assets) with the Minister's prior consent and in accordance with the conditions determined by him.

18.2

Without derogating from the generality of that stated in Clauses 16 and 18.1, the Minister will give his consent for the granting of rights in the License Assets to a third party, if he is convinced to his satisfaction that the Licensee has promised that, in any event, the exercise of the rights by a third party will not cause any impairment in the provision of the services pursuant to this License, as long as the Licensee is obligated to provide these services pursuant to the provisions of this License.

18.3 A2

Notwithstanding that stated in Clause 18.1, the Licensee is entitled to encumber one of the License Assets in favour of a bank duly operating in Israel, for the purpose of receiving bank credit, provided that it has furnished notice of the encumbrance that it intends to create, whereby the encumbrance agreement includes a clause ensuring that that, in any event, the exercise of the rights by the banking corporation will not cause any impairment in the provision of the services pursuant to this license. For the purposes of this clause – "Banking Corporation" is as defined in the Banking Law (Licensing), 5741 – 1981, except for a "Foreign Corporation," as defined in the same law.

18.4 A2

The provisions of Clause 18.1 will not apply to the sale of equipment items during an upgrade, including the sale of equipment, as stated, on a "trade-in" basis.

A16 Amendment No. 16

A2 Amendment No. 2

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

19. Engagement with another

19.1

If the Licensee wishes to provide one of the services pursuant to this license, in whole or in part, through another on its behalf, it must apply to the Director for his approval therefor; the Licensee must attach the Contract A43) to its application. The provisions of this clause will not apply for the purposes of the engagement between the Licensee and a marketer of Cellular End-Equipment or anyone acting on behalf of the Licensee for the purpose of marketing its services. A2

19.2

The Director is entitled to approve or reject the application, or to condition his approval on terms that must be fulfilled, including amendment of the agreement; the Director will consider, inter alia , to what extent the terms of the engagement with the other guarantee compliance with the conditions of this License and the obligations of the Licensee hereunder. The Director will not approve an engagement with another that contradicts the obligations of the Licensee pursuant to this License.

19.3

Nothing in the engagement with another will derogate from the obligations and of the Licensee and its responsibility for performing any of the services pursuant to this License, in whole or in part, pursuant to the provisions of this License, nor will it serve to derogate from the powers of the Minister, the Director or anyone acting on their behalf.

A2 Amendment No. 2

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Part B: Means of Control – Changes and Limitations

20. Particulars of Licensee

20.1 A43)

Details regarding the Licensee's legal entity, incorporation, holders of the controlling interest, holders of a material influence, interested parties and officers, are attached as Addendum A to the license. The Licensee must submit to the Director, every year at the beginning of January, an updated Addendum A.

20.2

The Licensee will report to the Director in writing regarding any change in the information contained in Addendum A, including any transfer and acquisition of control or of 5% of the means of control in the Licensee company or change in the appointment of a director or general manager, within 14 days of the date of change.

21. Transfer of Means of Control

21.1	There will be no transfer, directly or indirectly, of ten percent or more of any means of control in the Licensee, whether all at once or in parts, unless this received the Minister's prior consent.

21.2	There will be no kind of transfer of any means of control in the Licensee, or a part of said means of control, so that as a result of the transfer, control in the Licensee is transferred from one person to another, unless this was given the Minister's prior consent.

21.3

There will be no acquisition of control, directly or indirectly, in the Licensee, and there will be no acquisition, directly or indirectly, by a person himself or together with his relative or with another person, who operate with him regularly of 10% or more of any means of control in the Licensee, whether all at once or in parts, without the prior consent of the Minister.

21.4

Subject to the foregoing in this section, there will be no transfer, directly or indirectly, of means of control, so that the share of a cellular system operator in the Licensee drops below 25% of the voting rights in the general meeting and of the right to appoint a director or general manager, except after 5 years have elapsed since the date of the granting of the license. If 5 years have elapsed since the date of the granting of the license, the cellular system operator's share can go below 25% to the point of selling all the means of control in its possession to another, all subject to the Minister's approval for the very reduction of the cellular system operator's share in the means of control in the Licensee and also regarding the purchaser.

21.5

Notwithstanding that stated in sections 21.1 and 21.3, if traded means of control in the Licensee, not entailing the transfer of control in the Licensee, have been transferred or acquired at a rate requiring approval under sections 21.1 or 21.3, without the Minister’s approval having been requested, the Licensee shall report this to the Minister, in writing, and shall submit to the Minister an application for approval of the transfer or the acquisition, all within 21 days from when the Licensee learned of this fact, provided the Minister gave his prior written approval to the holding per se of the issue or the sale of the securities to the public. In this regard, “traded means of control” – means of control, including deposit certificates, Global or American Depository Shares (GDRs or ADRs), or similar certificates, in respect of securities listed on the stock exchange in Israel and/or

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

abroad, in a non-hostile country, or means of control offered to the public pursuant to a prospectus and held by the public, in Israel and/or abroad, in a non-hostile country.

21.6

Entry into an underwriting agreement in connection with an issue or sale of securities to the public, and listing on a stock exchange in Israel or abroad, in a non-hostile country, or the deposit of securities, including deposit certificates, Global or American Depository Shares (GDRs or ADRs), or similar certificates, in respect of securities, or the registration thereof with a nominee company and/or agent, shall not in themselves be deemed as the transfer of means of control in the Licensee.

21.7

(A)

Irregular holdings shall be registered in the members register (shareholders register) at the Licensee, noting the fact of their irregularity, immediately when the Licensee learns of this fact, and a notice concerning the registration shall be delivered by the Licensee to the owner of the irregular holdings and to the Minister. In this regard, “irregular holdings” – the holding of traded means of control without the Minister’s agreement as required under section 21 or in contravention of the provisions of section 23, and the entire holdings of a holder of traded means of control who acted contrary to the provisions of section 24; the aforesaid for as long as the Minister’s agreement is required and was not given under section 21 of the license or circumstances exist involving the contravention of the provisions of sections 23 or 24 of the license.

(B)

Irregular holdings registered as stated in section 21.7(A), shall not confer any rights on the holder, and shall be “dormant shares” as defined in section 308 of the Companies Law, 1999, except for purposes of receiving a dividend or other distribution to the shareholders (including the right to participate in an issue of rights which are calculated on the basis of holdings in means of control in the Licensee, except that holdings added as stated shall also be deemed as irregular holdings), therefore no act or contention of exercise of a right by virtue of irregular holdings shall be valid, except for purposes of receiving a dividend or other distribution as stated.

(C)

Irregular holdings shall not confer voting rights in the general meeting. A shareholder participating in a vote in the shareholders meeting shall notify the Licensee prior to the vote, or where the vote is by means of a voting instrument – on the voting instrument, whether or not its holdings in the Licensee or its vote require approval under sections 21 or 23 of the License. If the shareholders did not give a notice as stated, it shall not vote and its vote shall not be counted.

(D)

A director may not be appointed to the Licensee, elected or dismissed by virtue of irregular holdings. If a director was appointed, elected or dismissed as stated, such appointment, election or dismissal, as the case may be, shall not be valid.

(E)

The provisions of sections 21.7 and 21.9 shall be included in the articles of the Licensee, mutatis mutandis.

21.8

For as long as the Licensee’s articles prescribe as stated in section 21.7 and the Licensee acts in accordance with that stated in sections 21.5 and 21.7, for as long as the holdings of founding shareholders or their substitutes are not reduced to less than 50% of each of the means of control in the Licensee, and for as long as the Licensee’s articles prescribe that a majority of the voting power in the shareholders general meeting may appoint all the

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

directors in the Licensee, excluding outside directors in accordance with any relevant statutory requirement or stock exchange directive, irregular holdings shall not in themselves be cause for the cancellation of the license.

For purposes of this section, “ founding shareholders or their substitutes” – Discount Investment Corporation Ltd., DEC Communications and Technology Ltd. and PEC Israel Economic Corporation, or any other body to which any of those enumerated above transferred, with the Minister’s approval, means of control, provided the Minister confirmed in writing that the transferee body shall be deemed in this regard as the substitute of the founding shareholder beginning from the date to be determined by the Minister, and including anyone who is an “Israeli entity” as defined in clause 22.2A, who acquired a means of control from the Licensee and received the Minister’s approval for being deemed a founding shareholder of its substitute starting from the date that was determined by the Minister. The grant of approval under this section shall not exempt the Licensee from the duty of receiving the Minister’s approval for every transfer of means of control in the Licensee that requires approval under any other section of the license.

21.9	The provisions of sections 21.5 and 21.8 shall not apply to founding shareholders or their substitutes.

22. Encumbrance of Means of Control

A shareholder of the Licensee company or a shareholder of an interested party therein may not encumber his shares in such manner so that exercise of the encumbrance results in a change in ownership of 10% or more of any means of control in the Licensee, unless the encumbrance agreement contains a limitation by which the encumbrance may not be exercised without the prior consent of the Minister.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

22A. Israeli Nationality and Holdings of Founding Shareholders or Their Substitutes

22A.1

The total holdings of “founding shareholders or their substitutes” as defined in section 21.8 (including anyone being an “Israeli entity” as defined in section 22.2A below, who acquired means of control from the Licensee and received the Minister’s approval for being deemed a founding shareholder or a substitute thereof as from the date determined by the Minister), who are mutually bound by an agreement for the fulfillment of the provisions of section 22A of the license (in this section, all of the above will be deemed: “founding shareholders or their substitutes”), cumulatively, may not be less than 26% of each of the means of control in the Licensee.

22A.2

The cumulative holdings of “Israeli entities,” one or more, included among founding shareholders or their substitutes, out of the total holdings of founding shareholders or their substitutes as stated in section 22A.1 above, may not be at any time less than 20% of the total issued capital and of the means of control in the Licensee. For this purpose, the Licensee’s issued share capital will be calculated less the number of “dormant shares” held by the Licensee.

In this section –

“Israeli entity” – With respect to an individual – anyone who is a citizen and resident of Israel; with respect to a corporation – the corporation was incorporated in Israel, and an individual who is a citizen and resident of Israel controls it, directly or indirectly, provided indirect control is solely through a corporation incorporated in Israel, one or more. However, for purposes of indirect holding, the Prime Minister and the Minister of Communications may approve holding through a corporation that was not incorporated in Israel, provided such corporation does not hold shares in the Licensee directly, where they are satisfied that this will not be detrimental to the purposes of this section. In this regard, “Israeli citizen” – as defined in the Citizenship Law 1952; “resident” – as defined in the Population Registry Law 1965; “dormant share” – as defined in section 308 of the Companies Law 1999.

22A.3

At least twenty percent (20%) of the Licensee’s directors will be appointed by Israeli entities as stated in clause 22A.2. Notwithstanding the above, in this regard, if the Licensee’s board of directors numbers up to 14 members – at least two directors will be appointed by Israeli entities as stated in clause 22A.2 above, if the Licensee’s board of directors numbers from 15 to 24 directors – at least three directors will be appointed by Israeli entities as stated in clause 22A.2 above, and so forth.

22A.4

The Licensee’s board of directors will appoint from among its members having a security classification and security clearance as will be determined by the General Security Service (hereinafter – “classified directors” ), a committee called the “Committee for Security Matters.”

At least four directors will serve on the Committee for Security Matters, among them at least one outside director. Matters pertaining to security will be considered, subject to that stated in clause 22A.5 below, solely in the framework of the Committee for Security Matters.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

A resolution that was adopted or an action that was performed by the Committee for Security Matters, will be deemed the same as a resolution adopted or action performed by the Company’s board of directors, and it will be considered by the board of directly only if this is required under section 22A.5 below and subject to that stated in section 22A.5 below. In this clause, “security matters” – as defined in the Telecommunications Order (Designation of an Essential Service Provided by Bezeq Israeli Telecommunications Company Ltd.) 1997.

22A.5

Security matters which the Licensee’s board of directors or Audit Committee are required to consider according to the cogent provisions in the Companies Law 1999 or according to cogent provisions of any other law applying to the Licensee, will be considered, insofar as necessary, by the board of directors or by the Audit Committee, with the participation of classified directors only. Non-classified directors may not participate in such meetings of the board of directors or the Audit Committee and may not receive information or inspect documents pertaining to the security matters considered in the meeting. The quorum in every such meeting will consist of classified directors only.

The Licensee will specify in its articles that an officer who by virtue of his position and by virtue of the provisions of the law or the articles should have received information or participated in meetings on security matters, and is prevented from doing so by reason of the provision of clause 22A.5, will be exempt from liability for breach of the duty of care towards the Licensee, if the duty of care was breached due to non-participation in a meeting or non-receipt of information.

22A.6

The general meeting may not assume, delegate, transfer or exercise powers that are vested in another organ of the Company, in security matters.

22A.7

(A)

The Minister will appoint an observer at meetings of the Company’s board of directors and committees, having a security classification and security clearance as will be determined by the General Security Service.

(B)

The observer will be a government employee qualifying as a director under Chapter C of the Government Companies Law 1975.

(C)

In addition, and without derogating from any duty imposed on him by law, the observer will owe the Licensee a duty of confidentiality, except as required for the fulfillment of his function as an observer. The observer may not serve as an observer or in any other position on behalf of any other entity engaging in the provision of communication services and competing directly with the Licensee, and he will avoid any conflict of interest between his function as an observer and the Licensee, except a conflict of interest stemming from his being a government employee filling the function of an observer at the Licensee. The observer will commit towards the Licensee not to serve as an observer or officer and not to hold any position or be employed, directly or indirectly, at any entity competing directly with the Licensee or being in a conflict of interest with it, except for a conflict of interest stemming, as stated, from his being a government employee filling the function of an observer at the Licensee, throughout his tenure as observer at the Licensee and during eighteen (18) after the end of such tenure.

In any case of differences of opinion as to the observer being in a conflict of interest, the Attorney General or someone on his behalf will decide in the matter.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

(D)

An invitation to meetings of the board of directors and its committees, including the Committee for Security Matters, will be delivered to the observer as well, who may participate as an observer at any meeting as stated.

(E)

The observer’s right to receive information from the Licensee will be the same as a director’s right. If the Licensee is of the opinion that certain information in the nature of sensitive business information is not required by the observer for the fulfillment of his function, the Licensee may withhold delivery of such information to the observer, notifying him in this regard. If the observer is of the opinion that he should receive that information, the matter will be referred to the decision of the head of the General Security Services.

(F)

If the observer saw that the Licensee adopted or is about to adopt a resolution on security matters contrary to any provision of the license, contract to section 13 of the Law or contrary to section 11 of the General Security Services Law 2002, it will notify the Licensee without any delay, in writing, such notice to be delivered to the chairman of the board of directors and to the chairman of the Committee for Security Matters, and to set a proper time in the circumstances of the case for remedying the breach or modifying the resolution, should this be possible.

Part C: Cross-Ownership and Conflict of Interest

23. Prohibition on Cross-Ownership

23.1

The Licensee, an officer therein or whoever holds more than 5% of any means of control in the Licensee, will not hold, directly or indirectly, more than one percent (5%) of the means of control in Bezeq, A16) another cellular system operator. Regarding this matter, "holding" – includes the holding as an agent.

23.2	Notwithstanding that stated in Section 23.1, an interested party in the Licensee that is a mutual fund, insurance company, investment company or a pension fund, may hold up to 5% of the means of control in Bezeq, another cellular system operator A16) , provided all the following are fulfilled:

(A)

It is not a controlling shareholder and does not exert, directly or indirectly, any control in Bezeq or A16) another cellular system operator;

(B)

It has no representative or person in charge on its behalf among Bezeq's or the other cellular system operator's officers, unless required to do so by law.

23.3

Pursuant to a written request, the Minister may allow an interested party in the Licensee, as stated in Section 23.2, to hold up to 10% of the means of control in Bezeq, A16) another cellular system operator, when the terms stated in Section 23.2(A) and (B) are fulfilled, if he saw, to his satisfaction, that such a holding will not harm competition.

24. Prohibition on a Conflict of Interest

The Licensee, an officer therein or an interested party in the Licensee company will not be a party to any agreement, arrangement or understanding with Bezeq, A16) another

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

cellular system operator, meant or liable to reduce competition or harm it in all pertaining to cellular system services, cellphone network end-equipment and other services provided via the cellular system.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Chapter D: Setup and Operation of Cellular system

Part A: Setting Up the System

25. Definition

In this part –

"Milestones" – Stages in the setup of the cellular system, according to the timetable detailed in the engineering plan – Addendum B to the license.

26. Setup according to Plans and Specifications

26.1	In all pertaining to the setup and operation of the cellular system (in this section – network), including the technical quality of its various components, as well as the network's structure and manner of setup, the Licensee will comply with the terms and provisions in the engineering plan.

26.2

The Licensee will follow all the specifications of the Ministry of Communications and the network-related standards prescribed by standardization organizations in Israel and around the world, as well as other international organizations, in the telecommunications and wireless field as well as in any other field pertaining to the setup and operation of the network.

27. Execution Stages and Timetable

27.1	The setup rate of the cellular system, the setup milestones, the commencement date for providing the service in the various regions in Israel, will be in accordance with the timetable set in the engineering plan – Addendum B to the license.

27.2

The Licensee may not deviate from the timetable unless authorized to do so by the Director, provided the Licensee applies in writing to the Director to receive his permission immediately after realizing that difficulties have arisen that prevent it from meeting the original timetable.

27.2.1

A delay in signing agreements with a third party or obtaining approval from the planning and construction authorities will be deemed a reasonable reason for obtaining the Director's permission for deviating from the timetable, only if the Director realizes to his satisfaction that the Licensee has done its reasonable utmost in the circumstances of the matter, to come to an agreement with a third party or to receive approval from the planning and construction authorities.

27.3

The Director may approve the Licensee's request to deviate from the timetable, in whole or in part, and to stipulate conditions for its approval. The Director may also approve deviation regarding a specific milestone, provided the Licensee undertakes to catch up with the planned setup rate in the succeeding milestones.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

28.	Modification of Plans during Setup

28.1

The Licensee may not deviate from the engineering plan unless it has been authorized to do so by the Director under the provisions of this section. However, the placement of a Cellular Radio Center in a different site from that set in the engineering plan will not be deemed a deviation, if done within the search region. As regards this section, a "search region" denotes a territory defined in the engineering plan in which a Cellular Radio center is planned to be set up, at a specific site within the territory, and regarding which it has been stated in the engineering plan that it might be necessary to place the center in another site found in the territory.

28.2

If in the course of setting up the cellular system, the Licensee realizes that it has become necessary to deviate or depart from the engineering plan, the Licensee must apply in writing to the Director to obtain his approval for the plan. In its application, the Licensee must describe the essence and nature of the requested modification and the reasons therefor. The Licensee must attach the amended plan it proposes, to the application.

28.3

The Director may reject or approve the request, in whole or in part, and may also stipulate conditions for its approval, insofar as these are needed for the rigorous assurance of the network's quality and performance level. The Director will make a decision in the matter of the request and notify the Licensee of his decision, all within a reasonable amount of time.

29. Utilization and Construction of Infrastructures

29.1	For the purpose of setting up and operating the cellular network, the Licensee may, subject to any law, set up, maintain and operate cable or wireless transmission arteries, provided such transmission arteries will be used solely for the following:

(A)

Connection between the Cellular Radio Centers forming part of the Licensee's cellular system;

(B)

Connection between the Licensee's Cellular Radio Centers and its cellular exchanges;

(C)

Connection between all the cellular exchanges;

(D)

Connection between the Licensee's cellular exchanges and a public telecommunications system, or another cellular operator's cellular network A16) , or other systems operating lawfully.

29.2	For the purpose of the connection described in Section 29.1, the Licensee may use also the cable or wireless transmission arteries of Bezeq or of another licensee or concessionaire lawfully authorized to provide aforesaid infrastructure services.

29.3

To remove any doubt, it is hereby clarified that use of the transmission arteries to be set up by the Licensee is solely for operating the cellular system as stated in Section 29.1, unless the Minister permitted the Licensee in the license to make other use thereof, in accordance with the terms he laid down.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

30. A16) Obligation of Interconnection

30.1

The Licensee will act to effect interconnection of the network with every other public telecommunications network, operating in the territory subject to the law, jurisdiction and governance of the State of Israel (including settlements, military sites and military installations in Judah, Samaria and Gaza Strip), including with every public landline telecommunications network, international telecommunications network and cellular network of another cellular operator.

30.2	The interconnection between the network and another licensee's public telecommunications network will be effected in such manner as to enable the following:

(A)

Relay of telecommunication messages between end-equipment connected to the network and end-equipment connected to the other public telecommunications network;

(B)

Proper, regular provision of services by the Licensee to the other licensee's subscribers, and the provision of services by the other licensee to the Licensee's subscribers.

30.3	Interconnection may be effected either directly or indirectly, via a public telecommunications network of another general license holder, provided it enables that stated in Section 30.2.

30.4

As regards the interconnection between the network and public landline telecommunications network, the Licensee will act to set up interface points between the two networks, for each type of service (infrastructure, data transmission and communication, telephony), with at least three transition switches, unless the Director has decided otherwise at the written request of the Licensee. Setup of the interface points will be done under an agreement between the Licensee and the domestic operator licensee. Such an agreement will include, inter alia, the technical, operational and business details of the connection, the number of connections and their location.

30.5	As regards the interconnection between the network and an international telecommunications network, the Licensee will act in compliance with the provisions of Addendum J to the license.

30A. A16 ) Rules Concerning the Implementation of Interconnection

The Licensee will act to implement interconnection in accordance with all the following:

(A)

The Licensee will verify that the network's technical and operational standards comply wit the requirements for linkup with the public telecommunications network of the domestic operators, the other cellphone operators, and the international operators (hereinafter – other operator ), that the network's activities will mesh properly with the activities of the other operator's public telecommunications network, and that the interconnection will not adversely affect the proper functioning of these networks and the normal service to their subscribers;

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

(B)	The Licensee will provide the interconnection service under equal conditions for every other operator and avoid any discrimination in actuating the interconnection, including with regard to the following:

(1)

Supply of infrastructure facilities and network linkup services;

(2)

Availability of linkup facilities;

(3)

Linkup method, quality and survival;

(4)

Alterations and adaptations in the switching in the facilities, in the protocols and at the network interface points;

(5)

Payments for interconnection;

(6)

Debiting and collection arrangements, and the transfer of information regarding subscribers;

(7)

Commercial terms for effecting interconnection;

(8)

Submission of information regarding the network and alteration therein relating to interconnection;

(C)

The Licensee will place at the disposal of the other operator any essential information the other operator needs for providing its services via the Licensee's facilities. Said information will be given subject to any law concerning the protection of privacy or commercial confidentiality. In the event the parties fail to reach an agreement regarding the nature and scope of the essential information, the Minister will decide in the matter;

(D)

The Licensee will give the other operator information regarding alterations planned in its network, which may affect the interconnection with the other operator's public telecommunications' network, or the interconnection between the public telecommunications networks of the other operators. The Licensee will provide the aforesaid information in such manner as to enable the other operator to prepare reasonably for the implementation of said alterations;

(E)

As regards Subsections (C) and (D), the Licensee may stipulate the provision of information to the other operator on signing a reasonable privacy protection agreement, intended to safeguard the Licensee's rights under any law, including trade secrets, intellectual property rights and the like, pertaining to information regarding modification of the network meant to be given to the other operator;

(F)	The terms in respect of interconnection between the network and the other operator's public telecommunications network will be formalized in an agreement between the Licensee and the other operator. If the parties fail to reach an agreement, the Minister will decide in the matter.

(G)

(1)

The Licensee will allow its subscribers to receive all the services offered to them by another operator, The Licensee may also allow another operator's subscribers to receive services from the Licensee, provided that said receipt of services is possible under any law.

(2)

The Director may order the Licensee to allow the other operator's subscribers to receive services provided by the Licensee, provided that such receipt of services is possible technically and under any law.

(3)

Notwithstanding that stated in Subsection (1), the Director may, at the written request of the Licensee, exempt the Licensee from the obligation of allowing its subscribers the possibility of receiving services from another operator, for technical, economic reasons or for other justified reasons.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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(H)	The Licensee will forward to the Director a signed copy of every agreement between it and the other operator concerning interconnection;

(I)	The Licensee will forward to the Director on demand, any information given to the other operator under Subsections (C) and (D), as well as a copy of every confidentiality agreement under Subsection (E);

(J)	The Licensee will act in compliance with additional provisions the Minister will prescribe.

30B. A16 ) Payment for Traffic Completion and Interconnection

In the event the Minister did not determine payment for interconnection or payment deriving from interconnection, the Licensee may demand in respect thereof reasonable and non-discriminatory payment.

30C. A16 ) Prohibition on Delaying Interconnection

The Minister will give the Licensee a reasonable opportunity to voice his position in all pertaining to the Minister's intention to order it regarding the manner of effecting interconnection and its scope, regarding the actions, services and arrangements incidental to effecting interconnection, and regarding payments in respect of interconnection. Once the Minister has instructed the Licensee on said matters, the Licensee will not delay in any way interconnection with the network, and will fulfill its obligations in accordance with the Minister's provisions, properly and in good faith, on the date set therefore and with full cooperation.

30D. A16 ) Providing the Possibility of Utilization

30.1D

The Minister may order the Licensee to provide the possibility of utilizing its telecommunications facility, by virtue of his authority under Section 5 of the Law.

30.2D

The Licensee will enable another licensee, by the Minister's order, to provide value added services via the Licensee's network. The Licensee will ensure reasonable and equal terms for any other licensee, in all pertaining to the provision of value added services by the latter to the Licensee's subscribers.

30.3D

As regards providing the possibility of utilization, the provisions of Sections 30A to 30C will apply, mutatis mutandis.

30E. A16 ) Infrastructure Services for an Interested Company

30.1E

The Licensee will not give preference, in providing infrastructure services, to a licensee that is an interested company over another licensee, whether in payment for the service, in service conditions, in service availability or in any other way.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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30.2E

(A)

Pursuant to a written request from the Licensee, the Director may permit the Licensee limitations on the provisions of Section 30.1E, in all pertaining to another licensee or a broadcasting licensee that is an interested company, provided the following conditions are fulfilled:

(1)

The other licensee or the concessionaire is not a material operator:

(2)

The Director is of the opinion that giving such permission does not materially harm competition in the field of telecommunications.

(B)

As regards the limitations stated in Subsection (A), these may allow the Licensee to offer an interested company the use of its telecommunications facilities under preferred conditions, and these may be limited in time or by another condition.

(C)

When considering a permit under this section, the Director will take into account the existence of a valid agreement, which was signed prior to Amendment No. 16 to this license, between the Licensee and the interested company, concerning, inter alia, the restriction of the permit in time or by other conditions.

30.3E

In this section – " interested company ," " subsidiary ," and " material operator " – as these terms are defined in the Telecommunications Regulations (Procedures and Conditions for Obtaining a General License for Providing Domestic Landline Telecommunications Services), 2000.

30F. A16 ) Numbering Program

30.1F

The Licensee will act in accordance with the numbering program, and in compliance with the Director's provisions regarding the activation and implementation of the numbering program.

30.2F

The Director ordered the activation of number portability, so that every subscriber of another cellular system licensee will be able to switch over to and be a subscriber of the Licensee or receive services from the Licensee without any change in his telephone number, and vice versa – the Licensee will incorporate into its public telecommunications network devices enabling the application of this property, on the date and using the method laid down in the Director's provision.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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31. Reports on the Setup Works

31.1

The Licensee will submit to the Director, throughout the cellular system setup period, quarterly reports describing the setup works carried out during the period of each report, according to the milestones and timetables in the engineering plan. As regards this section, "the setup period" denotes 15 months from the date the license was granted or until the date of the completion of the network's setup in full deployment, according to the engineering plan, whichever the earlier.

31.2	The reports will include a comparison of the plans' execution versus the plan for each report's period, as well as explanations for any deviation or alteration that occurred in the execution compared with the plan.

31.3	Each report will be submitted in triplicate in a format to be instructed by the Director, and will bear a date and be signed by the Licensee or whoever it empowered especially for this purpose.

31.4	The Director may demand that the Licensee prepare special reports, and also that it draw up anew or supplement a report submitted to him.

32. Handover of Information and Documents

The Licensee will furnish to the Director, on demand, any information or document regarding the execution of cellular system setup works, at the time, in the format, and in the manner instructed by the Director.

33. Supervision of Setup Works

33.1

The Director may supervise, by himself or through a designee, the Licensee's actions connected with the execution of the setup works. To this end, the Director may enter at any reasonable time, the Licensee's work sites, cellular system facilities and offices, for the purpose of making measurements, performing inspections and perusing any plan or document pertaining to the execution of the setup works.

33.2

The Licensee will cooperate with the Director in all pertaining to the supervision of the setup works, and without derogating from the generality of the foregoing, will enable him to enter the work site and its facilities, enable the perusal of any document, plan and specification, and provide him with any information he requests.

34. Correction of Deficiencies and Defects

34.1	The Director may notify the Licensee in writing about deficiencies, defects and deviations he found in the cellular system setup operations, based on reports submitted by the Licensee, documents and information it furnished him, or based on measurements and inspections he made.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

34.2

In the event the Licensee receives a notice as stated in Section 34.1, it will notify the Director, within fourteen days of the date of receiving the notice, regarding its response to that stated therein and the measures it took or plans to take, in order to correct the deficiencies, defects or deviations.

35. Safety Precautions and Prevention of Hazards

35.1

The Licensee will execute the setup works, taking adequate safety precautions to prevent personal accidents and property damage, will prevent the causation of nuisances and hazards to the public in the work areas, and if required to do excavations at the spot, will do everything to prevent damages to underground systems, including telecommunications networks, and to this end will make sure to obtain every permit required by any law, including an excavation works permit under Section 53B of the Law.

35.2	Upon completion of the setup works, the Licensee will make sure to clean up the work sites and restore them to their previous condition.

36. Void. A2A2)

37. Intersections with Electricity and Telecommunications Lines

In a place where there are electricity lines or electricity facilities prior to the installation of the cellular system, the Licensee is subject to the obligations imposed under the Telecommunications and Electricity Regulations (Convergence and Intersection between Telecommunications Lines and Electricity Lines), 1986.

38. Discovery of Antiquities and Site Preservation

38.1	Antiquities, as defined in the Antiquities Law, 1978, which are discovered at a setup work site, are state assets, and the Licensee will take the appropriate precautions to prevent damage thereto.

38.2	The Licensee will notify the director of the antiquities authority regarding the discovery of an antiquity within 15 days of the date of the antiquity's discovery and will follow the instructions of the authority's director in all pertaining to the manner of handling the antiquity.

38.3	In the course of the setup works, the Licensee will avoid, inasmuch as possible, damaging sites of historical or national value, tourist sites and landscape.

38.4	The Licensee will avoid, insofar as possible, damaging buildings and trees found in the places where setup works are being carried out.

39. Land-Related Powers

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

39.1	The Minister may, at the Licensee's request, grant it all or some of the powers prescribed in Chapter F of the Law, subject to that stated in Section 39.2.

39.2	The Licensee will specify in its request the sites at which it requires the aforesaid powers, the scope of the required powers and the reasons therefor, including the steps it took to find alternative sites, without having to use the power under Chapter F of the Law.

39.3	In the event the Minister is convinced of the need to grant the Licensee powers under Chapter F of the Law, the Minister will publish his decision in the Reshumot (Official Announcements and Advertisements Gazette).

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Part B: Equipment Checks and Installation Certifications

40. Compliance Check

The Director may determine which items of equipment should not be installed in the Cellular System before undergoing a compliance check. "Compliance" as regards this section – as emerges from that stated in Section 41. If the Director has decided as aforesaid, the items will not be installed before undergoing a compliance check.

41. Responsibility for Compliance

It is the responsibility of the Licensee to see to it that the equipment installed in the Cellular System is, at least, technically compliant with the properties detailed in the manufacturer's specifications relating to the specific item of equipment, and attached to the engineering plan.

42. Performance Testing Program and Its Approval

42.1

The Licensee will furnish the Director, no later than 30 days before giving notice of the completion of installation under Section 43, with an up-to-date, detailed testing program for carrying out the performance check, relating to that part of the Cellular System it wishes to operate (hereinafter – detailed testing program).

42.2

The Licensee will present the detailed testing program to the Director. The Director may demand within 15 days of the aforesaid presentation that the Licensee make changes in the detailed testing program or complete it, if he deems it necessary for the full and accurate execution of the performance check, and the Licensee will carry out the checks according to the Director's request.

43. Notice of Setup Completion

Once the Licensee has completed setting up a Switchboard or Cellular Radio Center in some region, so that it is possible to start providing cellular services through it, the Licensee will notify the Director in writing thereof, in the format it was instructed by the Director, along with the results of the detailed check indicating successful installation and operation.

44. Terms of Fitness and Operation

44.1	Prior to operating the network, the Licensee must meet the requirements and conditions detailed below:

(A)

Entering into an Agreement with an Equipment Manufacturer

The Licensee must have agreements in force for the entire operation period planned, with a Cellular System manufacturer, comprising the following:

(1)

Know-how agreement;

(2)

An agreement guaranteeing the supply of parts for the network's equipment for a period of at least 7 years;

(3)

An agreement guaranteeing the supply of technical literature and full documentation of the network's equipment, including updates.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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(B)

Lab and Testing Equipment

The Licensee must operate a lab, or have a valid agreement with a competent lab. The lab should include professional testing equipment for performing the checks and making the repairs on the Cellular System equipment, including mobile testing equipment.

(C)

Parts

The Licensee must maintain and run a spare parts warehouse for Cellular System equipment according to the recommendations of the equipment manufacturers.

(D)

Maintenance System

The Licensee must maintain, on its own or through another, an efficient maintenance system, consisting of maintenance personnel, service vans and communication means, ensuring the proper, ongoing operation of the network and enabling the handling of any malfunction within the response time required under this license, and also enabling, in any case of a serious problem with the Cellular System causing radio interferences, large-scale disconnection of subscribers or posing a safety risk, repair of the malfunction within 4 hours.

(E)

Communication Means

Means of communication, such as a walkie-talkie, telephone or cellphone, should be installed in the operation exchanges and centers, as well as in the service and maintenance centers.

44.2

The Licensee must present to the Director, seven days before setting the network in operation for the first time, certifications and documents regarding compliance with the requirements and conditions specified in Section 44.1. In the event the Director fails to respond within five days of the date of delivery of said documents, the Licensee may operate the Cellular System and connect subscribers thereto. If the Director orders the Licensee, based on the documents' findings, to alter or fix the network, the Licensee must make the required alteration or correction and present a certification of execution to the Director, and if the Director fails to respond within 3 days, the Licensee may operate the system.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Part C: Use of Frequencies

45. Allocation of Frequencies A16)

45.1	The Licensee may operate the Cellular Radio centers of the Cellular System, using the frequency bands allocated for its exclusive use, as detailed below:

(A) A35)

835 to 845 MHz and corresponding range 880 to 890 MHz;

(A1) A35)

1710 to 1712 MHz and corresponding range 1805 to 1807 MHz;

That stated in this subsection in no way derogates from the Director's authority to allocate an alternative frequency band with identical bandwidth for the Licensee's use, instead of the frequency band specified in this subsection.

(B)

Starting from February 1, 2002 to January 1, 2004 the following bands will be allocated:

1710 to 1715.4 MHz and corresponding range 1805 to 1810.4 MHz;

1716.6 to 1721.2 MHz and corresponding range 1811.6 to 1816 MHz;

1962 to 1967 MHz and corresponding range 2152 to 2157 MHz;

(C)

Starting from January 1, 2004 the following bands will be allocated:

1720 to 1730 MHz and corresponding range 1815 to 1825 MHz;

1960 to 1970 MHz and corresponding range 2150 to 2160 MHz;

as well as the frequency range 1905 to 1910 MHz.

(C1) A2A26)

Starting from April 4, 2004 the following frequency bands will be allocated:

1715 to 1720 MHz and corresponding range 1810 to 1815 MHz.

(D)

Notwithstanding the foregoing, in the event the Licensee asks to postpone the usage commencement date for the frequencies specified in subsections (B) and (C), or a part thereof, to a later date, the Director may suspend the allocation of frequencies to a date he decides on.

45.2	The Licensee may select a narrower frequency band than that stated above in the framework of the frequency bands specified in Section 45.1.

45.3	In the event of detection of electromagnetic interferences from other radiants that can harm the proper functioning of the Cellular System, the Director must, at the Licensee's request, take any reasonable action to find an appropriate solution or stop the aforesaid interferences.

46. Restriction on Use of Frequencies

The Licensee will make use of the frequencies allocated to it as stated in Section 45 only for providing the services under this license.

47. Prevention of Interferences

47.1	The Licensee will set up the Cellular System and operate it in such manner so that no part of its parts will emit radiation prohibited under the provisions of the Pharmacists'

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Regulations (Radioactive Elements and Their Products), 1980, and do everything required, if required, to obtain a permit in accordance with the aforesaid regulations.

47.2	The Licensee will coordinate the use of the frequencies with the Director, who will base his directives, inter alia, on the program derived from the preparation for a national emergency crisis.

47.3

The Licensee will submit to the Director, or anyone appointed for this purpose on its behalf, a detailed, up-to-date plan for the operation of Cellular Radio Centersand for the expected use of the frequencies at least 60 days before the operation, and will report to the Director regarding the actual execution, within 7 days of the operation date.

47.4

The Licensee will set up and operate the Cellular System in such a manner as to prevent interferences with other Bezeq and wireless systems operating lawfully. Prior to the activation of any Cellular System, the Licensee will perform tests and measurements for the purpose of preventing electromagnetic interferences. If found that electromagnetic interferences can be expected or interferences have been detected during operation, the Licensee will act to find a solution that will prevent these interferences and also prevent their recurrence, and in the absence of a solution it will turn in writing to the Director or to anyone appointed for this purpose on its behalf, in order to find a reasonable solution in this regard. The Director may demand that each of the parties make changes in the operation of the equipment or in the use of the frequencies or that they stop broadcasting over certain frequencies, throughout the country or in a certain region.

47.5

The granting of this license, including the approval of the engineering plan, in no way provides protection against harmonies from other radiants operating lawfully, or other radiants operating outside state territory; however, the Director must make every reasonable effort to find an appropriate solution providing the necessary protection.

48. Cellphone Activity in Emergencies

48.1

In times of national emergency or for national security reasons, the one empowered to do so by any law may take the steps needed for state security, with a notice to the Licensee A2A2) , including control of the network. In such circumstances, the Licensee will operate according to the instructions and notices of those authorized to do so by any law, including the government, the Minister, the Director and head of the unit for the management of a broadcasting spectrum and satellites in an emergency (hereinafter – head of the emergency unit).

48.2

The Licensee will give the head of the emergency unit the names of its representatives authorized to receive instructions and notices anytime, 24 hours a day, in all pertaining to national emergency and security matters. The representative will have a first and second deputy, who will substitute for him during his absence.

48.3	The Licensee will set up and operate the network in a manner that will allow reducing the network's activity, when necessary, during times of emergency:

(A)

In terms of the frequency profile;

(B)

In terms of the geographical profile;

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

(C)

Through the disconnection of part of its subscribers, according to predetermined lists, or according to directives deriving from the situation;

(D)

In terms of a profile combining profiles A, B and C.

48.4	The Licensee will organize itself in such manner, so that it will be able to carry out the reductions detailed in Section 48.3 rapidly and efficiently, by remote control or by presence at the sites themselves.

48.5	The head of the emergency unit may establish a detailed procedure formalizing and regulating the Cellular System activity during an emergency, which he will present to the Licensee, and the latter will strictly fulfill the provisions of this procedure.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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Part D: Inspections and Maintenance A43)

49. Definitions

" Periodical inspection " – An inspection of the network or any part thereof performed according to the license's provisions, at fixed time intervals and at least once every half year;

" Special inspection " – An inspection of the network or any part thereof performed due to a maintenance action or repair, following electromagnetic interferences, a malfunction, clarification of a complaint, a technological modification, an alteration in the engineering plan or the like;

" Regular inspection " – An inspection of the network or any part thereof, done on a regular, ongoing basis.

50. Performance of Inspections

50.1	The Licensee will carry out periodical inspections on the Cellular System and will submit the results of the inspection, at the Director’s request, within 30 days of the day of the request.

50.2	The Licensee will set up and operate a control system for continual monitoring of the performance and functionality of the network, and will perform, on an ongoing basis, regular inspections of the network or any part thereof, as necessary.

50.3	The Licensee will perform a regular inspection for quality of the service as detailed in Addendum E, including compliance with relevant ITU-T standards, and will submit the results of the inspection, at the Director’s request, within 30 days of the day of the request.

50.4	The Director may instruct the Licensee to perform a special inspection; The Licensee will perform such inspection in the format and at the time specified by the Director and will submit its results to him.

50.5

The Director or anyone so authorized by him will be allowed to carry out inspections himself, where he deems this to be necessary; The Licensee will permit the Director or anyone so authorized by him access to the installations and the equipment, subject to prior coordination, and will place at his disposal testing equipment used by it or professional manpower employed by it.

51. Inspections, Malfunctions and Maintenance Log

51.1	The Licensee will manage an inspections, malfunctions and maintenance log (hereinafter – maintenance log), in which details of the malfunctions in and inspections of the network are recorded.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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51.2	The Licensee will keep the maintenance log and enable the Director or a representative authorized by him to peruse it at any time, to examine it or copy it in any manner, and will submit it for inspection by the Director at his request.

52. Repair of Deficiencies and Defects

52.1

The Director may, after giving the Licensee sufficient opportunity in the circumstances of the case to present its case to him, notify the Licensee in writing of deficiencies and defects he found that are affecting the level of the service to Subscribers, the level of survivability and backup of the network or the safety level or interfering with other lawfully operating systems, based on a follow-up of the network’s performance, including by means of Subscribers’ complaints or inspections carried out by him or on the basis of inspection reports, documents and information provided to him by the Licensee.

52.2	The Director may instruct the Licensee regarding the times by which it must correct the deficiencies and defects.

52.3	In the event the Licensee received such a notice, it will notify the Director, within the time set for this purpose in the Director's notice, of the correction of the deficiencies and defects, at the level of detail requested by the Director.

53.

Void.

54.

Void.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Chapter E: Providing Cellular Services to Subscribers

Part A: Entering into an Agreement with Subscribers

55. A43) The Contract

55.1	The Licensee will prepare a wording for the contract that it intends to offer its subscribers, and will submit it for the Director’s perusal at his request.

55.2

The terms of the contract shall not contradict, explicitly or implicitly, the provisions of any law or the provisions of the license: The aforesaid shall not prevent the stipulation of various provisions in the contract that benefit the subscriber compared to the provisions of the law or the license.

55.3

The contract will be in writing and laid out in a clear manner conducive to reading and comprehension and specifying prominently any term or limitation on the subscriber’s right to cancel the contract or on the Licensee's liability toward the subscriber; Any stipulation in the contract shall be stated explicitly and not by way of reference.

For purposes of this section, “writing” – including an electronic document that can be saved and retrieved by the subscriber.

55.4	The contract will include, inter alia, in a clear manner, the following:

(a)

Terms of the service to the subscriber, including quality measures for customer and subscriber service as detailed in section 2 in Addendum E;

(b)

Terms for disconnecting from the Licensee’s services or service discontinuation terms;

(c)

Licensee’s rates for the services for which the subscriber registered, as of the day of the agreement, including the date and terms for termination of the rates program;

(d)

Limitation on the rate of arrears interest, linkage differences and collection expenses, as stated in section 80.3;

(e)

Condition for changing the rate for the service for which the subscriber registered, as stated in section 78.1;

(f)

The details set out in sections 61 and 61A regarding the public ombudsman and umpire.

(g)

Condition specifying that in case of a contradiction between the provisions relating to the rates and to the basket of services detailed in the contract, and the provisions of the license in this regard, the provisions of the license shall prevail;

(h)

Notice concerning the Director’s authority to instruct the Licensee to modify the contract, and a clarification that the subscriber’s engagement with the Licensee under the contract constitutes agreement to such modification.

55.5	The Licensee will deliver to the subscriber a copy of the contract and its appendices.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

56. A43) Modification of Contract

56.1	The Director may instruct the Licensee to modify the contract, after giving the Licensee sufficient opportunity to present its case.

56.2

If the contract was amended pursuant to the Director’s instructions or pursuant to a decision of the Standard Contracts Court, in the event that the contract was submitted for its approval, the engagement between the Licensee and the subscriber will be in accordance with the amended contract, as from the date of the amendment.

56.3	The provisions of section 55 shall apply, mutatis mutandis, to an amendment of the wording of the contract by the Licensee.

57. A43)

Void.

58. A43)

Void.

59. Obligation of Connecting Applicants and Prohibition on Stipulation

59.1

If the Licensee has met the terms for operating a Cellular System as stated in Section 44.2, the Licensee will connect any applicant to the cellular network no later than the date set in the contract with the subscriber, unless the Director has authorized the Licensee not to connect the applicant, under circumstances he deems justified. A2)

59.2	The Licensee may not stipulate the connection of an applicant on unreasonable, discriminatory or unfair terms, and without derogating from the generality of the foregoing:

The Licensee may not require a subscriber to purchase end-user equipment from it or from its designee;

The Licensee may not require the subscriber to receive maintenance services from it for the end-user equipment in the subscriber's possession;

The Licensee may not stipulate or condition cellular services, service conditions or a rate on the purchase of cellular end-user equipment from it or from any other.

59.3 Void. A1)

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Part B: Service Level for Subscribers

60. A16) Obligation of Maintaining the Service

60.1

The Licensee will put at the disposal of its subscribers all the services detailed in the First Schedule, in accordance with the terms detailed in the schedule, and will maintain all its services all year round, around the clock, both in times of calm and in times of an emergency, subject to Section 48, in accordance with the technical requirements and service quality requirements, in a proper and regular fashion, and of a quality no lower than that indicated by the service quality indexes specified in the first schedule to the license and in Addendum E to the Second Schedule to the license. In the event of a contradiction between the First Schedule and Addendum E to the license's Second Schedule, the provisions of Addendum E to the Second Schedule will prevail.

60.2	Without derogating from that stated in Section 75.3, the Licensee will provide cellular services and a service package, as this term is defined in Section 73A, to every applicant, under equal and non-discriminatory terms and at a non-discriminatory rate.

60.3	If the Director has found that the service package is liable to harm competition or the consumers, he will notify the Licensee thereof, indicating the date by which the Licensee must stop offering its subscribers the service package.

60.4

If the Licensee provides any cellular service to any person or organization, for payment, the service must be available to any subscriber throughout the network coverage area, complying with the minimal requirements as regards service quality, without discrimination, within 24 months of the date of commencing provision of the service for payment.

60.5

The Director may, at the written request of the Licensee, allow the Licensee limitations on the provision of Section 60.4, after being convinced that there is a real difficulty in providing the service to anyone that requests it, and that the specific features of the service possess a unique and exceptional flavor justifying this.

60.6 A43)

The Licensee may not provide, with or without consideration, any of its services not explicitly requested by the subscriber, except for a service given free of charge to all the subscribers, and it may not allow the provision of a service of a service provider not explicitly requested by the subscriber.

For purposes of this section, “service provider” – anyone providing a service through the network, for which payment is made by means of the telephone bill.

61. A43) Public Ombudsman

61.1	The Licensee will appoint a person to handle complaints of the public ( “the Ombudsman” ), having the following responsibilities:

(a)

Clarifying subscribers’ complaints in connection with the Licensee’s services, including the complaint of someone applying to receive a service.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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(b)

Clarifying subscribers’ complaints in connection with bills that were submitted by the Licensee, and deciding in regard thereto.

The Public Ombudsman will respond in writing to complaints as stated that were submitted in writing.

61.2	The Public Ombudsman will act according to a policy to be set by the Licensee’s management.

61.3	The Licensee will render the Public Ombudsman all the assistance required by him for filling his function.

61.4

The Licensee will notify every subscriber regarding the possibility of submitting a complaint to the Public Ombudsman, the powers of the Public Ombudsman and the ways of applying to him. The contents of this sub-section shall be included in the contract, in the bill sent to the subscriber and on the Licensee’s website.

61A. A43) Umpiring of Disputes

61A.1

The contract will stipulate that any disagreements arising between the Licensee and a subscriber in connection with the interpretation or performance of the contract, shall be submitted for clarification to the Licensee’s Public Ombudsman.

61A.2

The contract will specify that an application to the Public Ombudsman under section 61A.1 shall not:

(a)

Prevent the subscriber a priori from bringing his case before a competent court;

(b)

Derogate from the Licensee’s authority to act in accordance with the provisions of section 72 regarding the discontinuation or disconnection of a service owing to a breach of the contract.

62. Obligation of Maintenance

62.1	The Licensee is responsible for the maintenance of the Cellular System.

62.2

If a subscriber purchased cellular end-user equipment from the Licensee or from its designee, and the purchase agreement included maintenance services, the Licensee A43) will be responsible for the maintenance of said purchased end-user equipment, however the Licensee A43) will not be responsible for the maintenance of said purchased end-user equipment beyond the maintenance period undertaken by the manufacturer, unless agreed otherwise between it and the subscriber. A2)

If, in order to receive cellular services, the subscriber used cellular end-user equipment not purchased from the Licensee or from its designee, the Licensee is not obligated to look out for the maintenance of this end-user equipment, but may enter into an agreement with the subscriber for providing maintenance services also for said equipment.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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63. Repair of Malfunctions

63.1	The Licensee will maintain a regular service for handling subscribers' calls concerning problems with receiving cellular services, and to this end will operate centers for receiving messages from subscribers all year round (excluding Yom Kippur), and 24 hours a day (hereinafter – call center).

63.2	Without derogating from the generality of that stated in Section 63.1, the Licensee will operate the call center in a manner enabling the receipt of complaints from subscribers via telephone, in all pertaining to the Licensee's services.

63.3

The call center will be manned by skilled and professional personnel, having the appropriate competence for handling problems, and if a complaint has been received regarding a malfunction that led to disruption of the service or regarding poor reception quality, said personnel will act immediately to localize the malfunction and start taking measures to correct it, as detailed in Addendum E.

63.4

The Licensee will repair any malfunction for which a notification was received at the call center, within the response time detailed in Addendum E. If identification or repair of the malfunction necessitates a visit at the subscriber's site, the Licensee will coordinate the repair date in advance with the subscriber, provided that the length of time the subscriber has to wait on said date does not exceed 4 hours.

63.5

The Director may, at the Licensee's request, extend the repair time for the malfunction if he deems that the time required for its repair exceeds that stated in this section, provided that the time is not extended by more than 5 days from the date on which the malfunction occurred. If the Licensee applied to the Director for extension of the malfunction repair time as stated, and no approval was given yet, the Licensee will continue to work to repair the malfunction at the soonest possible.

63.6	The Licensee will specify in the maintenance log the details of the malfunction and the steps taken to repair it, all as stated in Section 52.

64. End-user equipment – Selling and Renting

The Licensee may sell or rent out to its subscribers cellular end-user equipment for the purpose of linkup to the Cellular System, provided it complies with the following:

The Licensee has notified the subscriber that he may purchase cellular end-user equipment from any licensed marketer and that he does not have to buy the equipment from the Licensee in order to receive cellular services;

The Licensee will not stipulate the provision of maintenance services for cellular end-user equipment on the very receipt of cellular services from the Licensee, and will notify the subscriber that he may receive maintenance service for end-user equipment, from any person, including the end-user equipment purchased or rented from the Licensee.

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65. Public Emergency Services

65.1 A21)

The Licensee will enable, anytime and at no charge, for all its subscribers, free and rapid access to public emergency services such as: Magen David Adom, the Israel Police and the Fire Station.

65.2 A42)

Starting from April 5, 2007 (“the inception day”) the Licensee will enable the call centers of the public emergency systems A) to identify the telephone number of a subscriber calling them B) , anytime and at no charge, including a subscriber with a confidential telephone number, a subscriber who blocked his number before the call and a subscriber calling from a private exchange.

The Licensee may do the aforesaid through a licensee that routes the call to the public emergency system.

Not later than two days before the inception day A44) the Licensee will notify all its subscribers, clearly, in writing, that starting from the inception day it will be possible for the call centers of the public emergency systems to identify the subscriber’s telephone number, and it will notify in writing any subscriber requesting a “confidential number” – that the number is not confidential with respect to calls to the call centers of the public emergency systems.

65.A A16)

Blocking Service to a Nuisance Subscriber

65.1A

Notwithstanding that stated in Section 65.1, the Licensee will block a nuisance subscriber's access to the public emergency service. If blockage of public emergency service alone is not technically possible, then the Licensee will block the nuisance subscriber's access to all the cellular services. As regards this section, a " nuisance subscriber " denotes a subscriber who has contacted a certain emergency center, for no justifiable reason, more than 10 times during one whole day, using the end-user equipment in his possession.

65.2A

A notice regarding a nuisance subscriber will be submitted in writing to the Licensee by a senior employee in the public emergency service (hereinafter – the employee) and will be corroborated by an affidavit signed by the employee (hereinafter – the complaint). The complaint will include, inter alia, the name of the nuisance subscriber, his telephone number, insofar as these are known to the complainant, as well as a specification of the contact times of the nuisance subscriber, and the content of the call showing that the contact was made without any justifiable reason. If the complaint does not include the telephone number of the nuisance subscriber, the Licensee will act in a reasonable fashion, to identify the nuisance subscriber based on the data provided in the complaint.

65.3A

The Licensee will block the nuisance subscriber's access to the emergency service as stated in Section 65.1A, after giving the nuisance subscriber advance warning. The notice will be given 3 workdays before the date of service blockage, in one of the following ways:

A phone call from a service center of the Licensee to the cellphone end-equipment of the subscriber;

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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An SMS message sent to the cellphone end-equipment of the subscriber;

Delivery of a registered letter to the subscriber, except for one who is a prepaid subscriber and his address is unknown.

65.4A

Blockage of service to a nuisance subscriber who is a prepaid subscriber whose address is unknown will be done no later than one full day from the time of receiving a complaint or identification as stated in Section 65.2A.

65.5A

Notwithstanding that stated in Section 65.1A, the Licensee will not block the public emergency service to a subscriber, if the circumstances of contacting, as these emerge from the explanation given by the subscriber to the Licensee, show that the contacting was justified and that he should not be deemed a nuisance subscriber. The Licensee will forward to the Director, within 10 workdays from the date of receiving the complaint or the identification as stated in Section 65.2A, the arguments for not blocking the nuisance subscriber.

65.6A

In the event it blocked the nuisance subscriber's access to emergency calls, the Licensee may collect from the subscriber all his debts, and may also collect payment from him for removing the block.

65.7A

The Licensee may remove the block once the nuisance subscriber has given it a written undertaking not to repeat his nuisance calls in the future.

65.8A

The Licensee will keep records of how the nuisance subscriber was identified, how the notice was given to the nuisance subscriber, or, alternatively, in a case where a notice was not given the nuisance subscriber, the reasoning for not giving the notice. Likewise, a record will be kept concerning the removal of the block.

65.9A

The Licensee will specify, in the framework of the nuisance subscribers report as stated in Section 104(B) A43) , the number of nuisance subscribers whose access to the public emergency service or to all the cellular services was blocked under this section, and the subscribers for whom said block was removed, as well as the number of subscribers that were not blocked under this section and the reasons for this.

66. A16)	Protecting Subscriber Privacy

66.1	Without derogating from the provisions of the Law, The Wiretapping Law, 1979, The Privacy Protection Law, 1981, or any other law concerning the safeguarding of an individual's privacy, the Licensee may not wiretap the telephone or any other communication of the subscriber without the written permission of the subscriber, except for the purpose of controlling the quality and standard of the service or for preventing frauds.

66.2

Subject to that stated in Section 66A, the Licensee, its workers, agents and designees may not disclose lists or documents containing the name and address of a subscriber or any other information pertaining to him, including account details, phone call traffic, call durations and destinations, to any person whatsoever except to the subscriber or to anyone empowered by the subscriber for this purpose.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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66.3	Notwithstanding that stated in Section 66.2, the Licensee may do the following:

(A)

To give the subscriber's details to another licensee for the purpose of collecting monies owed him by the subscriber in respect of services it provided him through the network, provided that the information relayed is necessary fro collecting monies and preparing bills, and the other licensee has undertaken to safeguard the subscribers' privacy;

(B)

To transfer a subscribers' details to another, insofar as the particulars are in its possession, by lawful authority.

66A. T 3) Special Services for the Security Forces

(A)

The Licensee will provide special services to the security forces as detailed in the classified security addendum attached to the license as Addendum I and in the classified security addendum attached to the license as Addendum L A12) .

(A1)

A12) The Licensee will enable the security forces, regarding which the Director informed in writing, to realize, subject to any law, their powers with respect to any telecommunications activity in the framework of the license, and will be responsible for the maintenance, proper functioning, and technological adaptation of the equipment and infrastructure required for realizing said execution capability, all in coordination with the security forces, as detailed in Addenda I and L. The security forces will bear the payment under the provisions of Section 13 of the Law.

(B)

The Licensee will see to it that Addenda I and L are guarded A12) in accordance with the provisions of the procedure for safeguarding records to be laid down by the Licensee in conjunction with the security officer of the "General Security Service."

(C)

The Licensee will be exempt from the duty of indemnification toward the State, by virtue of the provisions of Section 91.2 of the general license and/or by virtue of any law, in respect of the very execution of the special services for the security forces.

66B. A12) Security Provisions

(A)

The Licensee will appoint a security supervisor in accordance with the provisions of the Security Arrangement in Public Bodies Law, 1998, and rigorously follow the security provisions detailed in the Addendum M to the license.

(B)

The Licensee will establish appropriate provisions in the incorporation documents and in its regulations, and will act in such manner so that only a person who meets the conditions set out below will be appointed and serve in a position or function enumerated in Addendum M to the license:

(1)

An Israeli citizen, as this term is defined in the Citizenship Law, 1952, and a resident of Israel;

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General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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(2)

Was given security clearance by the General Security Service, by which there is no prevention to his serving as stated.

(C)

The Licensee will act to safeguard the secrecy of the security forces' operations, and act according to the security directives of those same security forces, including in the matter of the appropriate security classification for officers and holders of important functions working for the Licensee, and compartmentalization of knowledge pertaining to activities involving the security forces.

(D)

The Licensee will take the measures necessary to protect the network, its components and the databases used for providing services, and for operating and controlling the network in the face of activities carried out by unauthorized entities, according to the provisions detailed in Addendum M to the license.

67. Bills to Subscribers

67.1 A16)

A bill that the Licensee submits to the subscriber should be clear, succinct, readable and understandable. The bill should contain an accurate breakdown of the components of the payment required according to the types of payments and the rules specified in Chapter F.

67.2	A credit due a subscriber from the Licensee will be included in the successive bill immediately after the subscriber's right to the aforesaid credit has been established.

67.3	The Licensee may collect payments for his services from the subscriber through another, including through Bezeq.

67.4 A34)

(A)

Without derogating from the rest of the license provisions pertaining to the manner of preparing the bill for the subscriber and to the manner of debiting, the Licensee will act in compliance with Israel Standard 5262, concerning debiting credibility and due disclosure in telephone bills (hereinafter – "the Standard").

(B)

Subsection (A) constitutes a "service condition," as concerns Section 37B(a)(1) of the Law.

(C)

Notwithstanding that stated in subsection (A) -

(1)

Regarding the provision in Section 2.2.2 of the Standard, the rounding off method will apply as follows:

(a)

An amount in the bill will be rounded off to the nearest amount ending in two digits after the decimal point of the shekel, with an amount ending in five tenths of an agora (three digits after the decimal point) to be rounded up.

(b)

An amount to be paid for a single call will be rounded off to the nearest amount ending in three digits after the decimal point of the shekel, with an amount ending in five hundredths of an agora (four digits after the decimal point) to be rounded up.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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	(2)	The Licensee may present any amount included in the bill with a breakdown exceeding that required by the provision in Section 2.2.2 of the Standard, provided the rounding off method stated in Subsection (C)(1) above will apply thereto.

	(3)	The price of a phone call (voice) that includes a changing rate, will be presented in the bill submitted to the subscriber as an average price per minute, computed by dividing the payment amount for that same call by the its total number of minutes.

		In this paragraph, "changing rate" denotes a rate that varies in the course of the call according to various criteria, such as a rate that diminishes with increasing consumption, or a rate that varies due to a transition from a "peak period" to a "slack period" in the course of the call or vice versa.

	(4)	In addition to that stated in the provision of the last part of Section 2.2.4 of the Standard regarding service packages, the bill will contain a breakdown of the services included in the package, along with the overall rate paid for the package as a whole. In this paragraph, "service package" denotes several services marketed to the subscriber as a single package, in return for an overall rate (and without a breakdown of the payment for each component separately).

(D)

(1)

Chapter B in the Standard concerning due disclosure in telephone bills will come into effect no later than Friday, October 14, 2005.

(2)

Chapter C in the Standard regarding debiting credibility will come into effect no later than Sunday, January 14, 2006.

67A. A16) Information Service for Clarifying Telephone Numbers T 39)

67.1A

Without derogating from the provisions of Section 66, the Licensee will provide, by itself or through another on its behalf, an information service for clarifying the telephone number of anyone who is a subscriber of a NDO or of a Cellular System operator, excluding an ID-restricted subscriber (hereinafter – "information service"), as follows:

(A)

For the general public and at no charge, via a website through which the service will be provided;

(B)

For its subscribers, at a reasonable price, via a phone center, the access to which will be effected by means of a network access code set by the Director;

(C)

The information service will be given through each of the aforesaid means based on the same information characteristics to be provided by the subscriber applying to receive the service.

67.2A

Without derogating from that stated in Section 67.1A, the Licensee will provide to the general public and at no charge, by itself or through another, an information service for clarifying the telephone number of any subscriber, excluding an ID-restricted subscriber,

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via a phone center, the access to which will be effected by means of a national access code set by the Director.

67.3A

In addition to that stated in Sections 67.1A and 67.2A, the Licensee may offer, at a reasonable price, by itself or through another on its behalf, an information service, by any other means, including by means of a national access code or by means of an SMS.

67.4A

In order to execute that stated in Subsections 67.1A and 67.3A:

(A)

The Licensee may send a query on its behalf to any database of a NDO or cellular system operator (hereinafter – "another licensee"), or to receive information from the database of another licensee by any other method and with the consent of the other licensee, all subject to the duty of safeguarding the subscriber's privacy;

(B)

In order for an information service to be provided by another licensee under its general license, the Licensee will enable any other licensee access to the Licensee's database;

(C)

The Licensee will update the database on a regular basis, so that each name, address or telephone number of a subscriber that was added, altered or removed, will be updated in the database within one workday following execution of the update in the Licensee's system being used to provide telephony services.

As regards this section –

"Database" denotes a collection of data including the name, address and telephone number of any subscriber that is not ID-restricted, including a subscriber that is a business.

67.5A

(A)

The Licensee will request the consent of each new subscriber for including his details in the database. If the subscriber gives his consent, the Licensee will include his details in the database.

(B)

The Licensee will grant the first request of any subscriber who wishes to remain ID-restricted, free of charge.

In this subsection, a "new subscriber" denotes a subscriber who has signed a contract with the Licensee after the commencement date as stated in Section 67.7A.

67.6A

(A)

The terms for providing an information service for clarifying telephone numbers, given under Section 67A, will be established by the Licensee, provided they are fair and non-discriminatory, including as regards the order of the data presented to the user of the service. The service will be given twenty four (24) hours a day, all year round, except for Yom Kippur. In this subsection, "order of the data presented" – Insofar as the answer to the service user's query comprises several different data, the requested data will be presented to the service user in random order.

(B)

The response in respect of the information service for clarifying telephone numbers as stated in Section 67.2A will be given within a reasonable time. If the Director sees that the waiting times for the service are not reasonable, he may establish response time indexes.

(C)

An information service for clarifying telephone numbers as stated in Section 67.1A(B) and an information service using a phone center, the access to which is

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effected by means of a national access code as stated in Section 67.3A, will comply with the service indexes specified below:

(1)

At any time, in the event of a heavy service call load 6 , the number of inquirers receiving service should not be less than 90%;

(2)

The average waiting period of a caller until the start of receiving service 7 should not exceed 30 seconds;

(3)

The maximum waiting period for a caller until the start of receiving the service should not exceed 60 seconds.

67.7A

Section 67A will go into effect on February 8, 2007, except for Subsection 67.1A(a), which will go into effect on March 15, 2007 (“the commencement date”), and except for Section 67.2A A45) , which will go into effect at the time of signing this amendment.

67.8A

The Licensee, by itself or through another, including together with another licensee, will advertise all the information services for clarifying telephone numbers given free of charge by the Licensee, as well as the national access codes allocated to the cellular service licensees for providing the service ("free information services"). The advertising should include at least the following:

(A)

The Licensee's website;

(B)

At least once every half year, the Licensee will attach, in the framework of the bill submitted to the subscriber, a separate information sheet A43) regarding the free information services, which will not include any other information, starting from the first bill submitted to the subscriber following the commencement date.

(C)

At least four (4) times during the first year following the commencement date, the Licensee will run large, prominent ads in at least the 3 largest Hebrew language newspapers, and in the largest newspaper in Arabic, in English and in Russian, as well as in the largest economic newspaper. These ads will include no other information. The first ad in all the aforesaid newspapers, except for the economic newspaper, will be on the first Friday after the commencement date or on the following one, and in the economic newspaper it will run on the first Tuesday after the commencement date or on the following one, regarding the free information services.

Without derogating from the foregoing, the Director may instruct the Licensee regarding the manner and format for advertising the information services.

67B. A 43 ) Void

67C. A16) Service Dossier

67C.1

If the Licensee wishes to operate a service included in the list of services in the First Schedule and marked “future”, it must notify the Director of this in writing not later than thirty (30) days before the date on which it plans to begin providing the service.

6. Busy Hour Call Attempts

7 Start of receiving service – the beginning of the response by a center operator or of an IVR system, which ask the inquirer for the information needed to find the requested phone number and the like.

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67C.2

If the Licensee wishes to operate a service not included in the list of services in the First Schedule which it intends to provide to any recipient of its services, it must notify the Director of this in writing not later than thirty (30) days before the intended date for commencement of provision of the new service.

67C.3

The Director will notify the Licensee within thirty (30) days of the date of receipt of the Licensee’s notice as stated in sections 67C.1 and 67C.2, whether it is allowed to commence provision of the service or whether it must submit a service dossier for the Director’s approval, as a condition for commencement of the service.

67C.4

The Licensee will submit a service dossier for the Director’s approval, at his request; If the Licensee fails to submit a service dossier as instructed by the Director, or if the Director does not approve the service dossier, the Licensee shall not commence provision of the service.

67C.5

The Director will give a decision regarding the service dossier that was submitted to him within sixty (60) days from when the Licensee has submitted to the Director all the documents and information requested by him for the purpose of approving the service dossier. In special cases, the Director may extend the times set in this section, by a written, explanatory notice to be given to the Licensee.

67C.6

The Director may require the Licensee to submit for his approval a service dossier for an existing service regarding which no service dossier was previously required, and he may require the Licensee to submit for his approval a new service dossier for a service regarding which a service dossier was approved in the past.

67C.7

The service dossier will be submitted to the Director in the format and at the time specified by the Director and will include, inter alia, the following: the name of the service; a detailed description of the service and the manner in which it is provided; the service rate, and an engineering description, all as set out in the First Schedule; The Director may give instructions on additional matters which are to be included in the service dossier.

67C.8

If the service dossier is approved, the Licensee will provide the service according to the terms of the approved dossier, and the approved service dossier will be deemed an integral part of the license.

67C.9

The Licensee will advertise an approved service dossier, with details and in the manner specified by the Director, and the Director may advertise it himself, provided he does not do so until after the Licensee has begun providing the service. The advertising will not include information comprising a trade secret, which was identified as such by the Licensee and attached to the service dossier as a separate addendum marked as a trade secret.

67C.10

Any new service which the Licensee begins to provide pursuant to this section will be deemed a part of the First Schedule; The Director will update the First Schedule from time to time.

67C.11

The provisions of this section will apply, mutatis mutandis, to a trial using the Licensee’s network.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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67D. A24) Erotic Service

An erotic service provided through the network, will be provided in accordance with the provisions of Addendum O in the Second Schedule.

As regards this section –

"Erotic service" – as defined in Section 1 of Addendum O in the Second Schedule.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

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Part C: Termination, Delay or Restriction of Service

68. Definitions

In this part –

"Disconnection of service" – Temporary discontinuation of cellular system service to a subscriber;

"Termination of service" – Absolute discontinuation of cellular system services to a subscriber.

69. Prohibition on the Termination or Disconnection of Service

The Licensee may not terminate or disconnect cellular system services and other services, which the Licensee must provide under this license, unless that stated in this part is fulfilled, or that stated in Section 48.

70. Disconnection of Service at Subscriber's Request

70.1

A subscriber may ask the Licensee for a temporary disconnection of service for a period no less than thirty days and no longer than ninety days (hereinafter – disconnection period). The subscriber's request will be made in writing, and may be done through the cellular system end-user equipment in his possession, provided that the Licensee has verified the request's credibility by a return call to the subscriber's cellular system end-user equipment or by any other reliable way.

70.2	The Licensee will effect the disconnection of service no later than the workday following the day of the request's submittal.

70.3

The Licensee will resume the cellular system services to the cellular system end-user equipment in the subscriber's possession at the end of the disconnection period. If the subscriber requests, in a written notice, to resume the cellular system services to the cellular system end-user equipment in his possession before the end of the disconnection period, the Licensee will resume the services no later than the workday following the day on which the subscriber's notice was submitted.

71. Termination of Service at the Subscriber's Request

71.1	A subscriber may request in writing from the Licensee the termination of service to the cellular system end-user equipment in his possession.

71.2

The Licensee will terminate the provision of cellular system services to the cellular system end-user equipment in the subscriber's possession no later than the workday following the date specified by the subscriber in his notice. If the subscriber did not specify a date, the termination of service will be done no later than the workday following the day on which the notice was received by the Licensee.

71.3 A2)

Notwithstanding that stated in Section 71.2, the Licensee may disconnect service to the subscriber without prior notice with the fulfillment of one of the following:

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(A)

The subscriber did not pay for the third time during the same year the bill in respect of the payments he was charged for cellular system services on the date set therefor in the payment notice. In this section, "year" denotes the period from January 1 to December 31;

(B)

There is reasonable suspicion of a fraudulent act being committed through the subscriber's end-user equipment or using the features of the end-user equipment;

(C)

the Licensee found that the subscriber used the cellular system services in an unusual amount for that type of subscriber, and after the Licensee's service center contacted the subscriber in a phone call placed to the end-user equipment in his possession, and the subscriber did not give a reasonable explanation for said anomaly. As regards this paragraph, consumption will not be deemed unusual when less than threefold the average consumption for the same type of subscribers.

71. A2)

The Licensee may disconnect service to a subscriber if it has found that the end-user equipment in the subscriber's possession, through which the subscriber receives cellular system services, causes interference with the provision of cellular system services to other subscribers or interference with the cellular system activity, provided that the Licensee gave the subscriber anotice in writing of at least 21 days prior to the expected disconnection date. The notice will specify the reason for the expected disconnection and state that the subscriber is being given an opportunity, within an amount of time to be set in the notice, to repair the end-user equipment in such manner as to prevent said interference.

72. Termination or Disconnection of Service Due to Breach of Agreement

72.1	The Licensee A16) may terminate or disconnect the service to a subscriber if one of the following is fulfilled:

(A)

The subscriber did not pay a payment he owes in respect of service he received, on the date set for its defrayal in his contract with the Licensee;

(B)

The subscriber breached a condition in the contract between him and the Licensee, which was established as a material condition;

(C)

The subscriber used unlawfully or allowed another to use as aforesaid the end-user equipment in his possession.

72.2

Service to a subscriber will not be terminated or disconnected in the cases detailed in Section 72.1(A) and (B), except after the Licensee gives the subscriber a notice in writing at least 10 days prior to the expected termination or disconnection date. The notice will state that the subscriber is being given an opportunity, within the time set in the notice, to rectify the act or default, in respect of which the service will be terminated or disconnected.

73. Disconnection of Service Due to Maintenance Operations

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

73.1	The Licensee may temporarily disconnect or restrict services that it is obligated to provide (hereinafter – disconnection due to maintenance), if the need to carry out vital cellular system maintenance or setup operations necessitates this, provided the following are fulfilled:

(A)

The duration of the disconnection due to maintenance does not exceed twelve (12) consecutive hours;

(B)

The number of disconnections due to maintenance does not exceed two (2) during a single year;

(C)

Void. A2)

73.2

The Director may ask the Licensee for a detailed explanation regarding the circumstances necessitating disconnection due to maintenance, and may ask the Licensee to postpone said disconnection if he came to the realization, after considering the Licensee's contentions, that a vital public interest necessitates such a postponement.

73.3

If due to the need to carry out vital maintenance or setup operations in the cellular system requires disconnection of service exceeding 12 hours, the Licensee will ask in advance for the Director's approval. The request will specify the maintenance operations required and the actions taken by the Licensee to speed up these operations and reduce, inasmuch as possible, the duration of the service disconnection.

73.4

Void. A2)

73.5

If disconnection or restriction of service is required urgently for the purpose of carrying out immediate, vital operations, the Licensee will notify the Director forthwith, including by phone, cable or fax, regarding the urgent disconnection or restriction. The Licensee will notify its subscribers about the aforesaid urgent disconnection or restriction, as early as possible, including via the public address system operating through the cellular system, insofar as this is possible, as well as through the public media.

73.6	Notwithstanding that stated in Sections 73.1 and 73.4, the Licensee does not have to notify the Director or the subscribers about disconnection due to maintenance, when the following are fulfilled:

(A)

The duration of the disconnection due to maintenance does not exceed half an hour;

(B)

Disconnection due to maintenance is being done between 24:00 Saturday night and 05:00 Sunday morning the following day.

Such a disconnection will not be counted in the number of disconnections as required under Section 73.1(B).

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

CHAPTER F – PAYMENT FOR SERVICES A8)

Part A – General

73A. Definitions

In this chapter –

“Licensee” -	Anyone to whom the Minister has granted, in accordance with the Law, a general or special license;

“Airtime” -	Duration of the time in which a subscriber receives cellular services, whether the connection is initiated by the subscriber or by someone else;

“Airtime unit” A31A31) -	Time unit of 12 seconds at the most, but starting from Thursday, 1 January 2009, a time unit of 1 second.

“Package of services” -	Several services sold to a subscriber as a package, for which a rate has been set as specified in section 75.2.

“Public telecommunications - network” -	Including an international telecommunications system.

“Payment for completion of a call” -	Payment made by the initiator of a call which began on end-user equipment connected to one public telecommunications network and ended on another public telecommunications network, or on end-user equipment connected to such a public telecommunications network, for completing the call on the other public telecommunications network.

74. Payment Categories

The Licensee may collect from its subscribers payments for Cellular services, as follows:

(a)

A onetime installation fee for connecting mobile or portable end-user equipment held by the subscriber to the Cellular system, including issuance of a smart (SIM) card to the subscriber, or a onetime registration fee (hereinafter – connection fee);

(b)

A fixed payment;

(c)

Payment for airtime as specified in section 75A;

(d)

Payment for completion of a call as specified in section 75A;

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

(e)

Payment for basic telephone services, related services and value added services, detailed in the First Schedule to the License;

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Part B – Setting and Publication of Rates

75. Setting the Rates and Their Amount

75.1

The Licensee shall fix a rate for every service and package of services provided by it to its subscribers, and it may determine the manner of linkage of the rate to the index. The Licensee shall notify the Director of the amount of each rate, before the rate comes into effect.

75.2

The Licensee may designate packages of services according to types of services included in the package or time periods or by any other method. The Licensee may set a separate rate for each of the services included in the package or set a general rate for the package.

75.3

The Licensee shall offer each package of services at equal terms and at a uniform rate according to categories of subscribers; For purposes of this section, “category of subscribers” – A16) a group of subscribers whose attributes provide reasonable justification for distinguishing it from another group.

75.4

The Licensee shall allow any subscriber, without discrimination, to switch from one package of services to another that is being offered by it at the time. The Licensee shall include such a provision in the contract with its subscribers. In the framework of this provision it may set times when it is permissible to make such a switch and it may set conditions, including payment terms, for implementing the switch.

75.5

If the Licensee contracts with the subscriber in regard to a certain package of services, and the contract includes a condition whereby the subscriber commits to a certain contract period (hereinafter – the commitment period), the package of services, its rates and conditions shall be known and fixed in advance for the entire commitment period. The Licensee shall include such a provision in the contract with its subscribers. The Licensee may set, for a package of services, different rates that will apply during the commitment period.

75.6

The Licensee may not condition a contract with a subscriber or a subscriber’s switch from one package of service to another on the purchase of value added services or end-user equipment from the Licensee.

75.7

A package of services in which a payment in installments is set for end-user equipment or for one of the services, shall include also a payment arrangement in the event that the subscriber wishes to be released from that package or to switch from that package to another package of services, according to the outstanding balance of the payments due from the subscriber or according to the remainder of the commitment period.

75.7

75.8

(a)

The Licensee may not collect from a subscriber payment for a call when the call was not initiated by the subscriber (hereinafter – uninitiated call).

(b)

Notwithstanding that stated in subsection (a), the Licensee may collect from a subscriber payment for an uninitiated call in the following cases:

(1)

Call transferred to the subscriber by means of a roaming service;

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

(2)

Collect call to which the subscriber has given his agreement;

(3)

Call created by dialing a service number containing the access code 1-800, that was allocated to the subscriber under an agreement with him;

(4)

The subscriber’s share in a call created by dialing a service number containing the access code 1-700 (split debit), that was allocated to the subscriber under an agreement with him.

75.9 A18) I nception

(a)

The Licensee may collect from a subscriber who initiates a call by means of access code 1-800, whose destination is on another licensee’s network, a lower rate than the one applying to the subscriber for a call not initiated through such an access code, provided it does not exceed the amount set by agreement between the Licensee and the other licensee, and in the absence of such agreement – does not exceed the amount set by the Minister 2 .

(b)

That stated in subsection (a) shall not apply to calls destined for 1-800 numbers with a special numbering format that were allocated to the international operators for the purpose of providing international telecommunication message services, as this term is defined in the international operator’s license A ) .

75.10

The payment for airtime will be determined in the manner set out below:

(a)

The payment for airtime will be determined according to an airtime unit A31) ; For the purpose of calculating the payment, a part of an airtime unit shall be deemed the same as a whole airtime unit.

(b)

Void A46) .

(c)

The duration of the call for payment purposes is from the moment the connection is established between the subscriber who initiated the connection (hereinafter – the calling subscriber) and the subscriber receiving the call, until the moment when the call is terminated, which is the moment when an instruction to terminate the connection is received from the calling subscriber or from the subscriber receiving the call; The duration of the connection setup time, until the moment the connection is established, and the duration of the disconnection time, from the moment the instruction to terminate the connection is received until it is actually implemented, is not included in the count of the duration of the call.

In this regard, subscriber receiving the call – including a voice mailbox.

Inception The inception of section 75.9 is on December 15, 2002.

2 On November 26, 2002, the Minister issued a directive prescribing as follows: For a call originating in a cellular network and destined for a Bezeq subscriber for a 1-800 service Bezeq will transfer to the cellular licensee a sum of 22 agorot per minute (excluding VAT); Bezeq may collect this amount from the 1-800 subscriber; In addition, the cellular licensee will collect from its subscriber, who initiated the call, a sum not exceeding 22 agorot per minute (excluding VAT).

A) Simultaneous two-directional voice transfer and simultaneous transfer of fax messages, in an international telecommunications system.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

“Voice mailbox” – an installation or device forming part of the cellular system, designed to enable the calling subscriber to leave a voice message for the called subscriber A40) .

(d)

A40) Regarding a call that is transferred to a voice mailbox, the Licensee shall play to the calling subscriber an introductory voice message, lasting at least 2 seconds (in this subsection – “message” ), and will enable the calling subscriber, at his option, to disconnect the call without any debit, in the course of the message, or within a reasonable time being not less than one second after the end of the message ( “reasonable time” ). In such case, the moment of establishing the connection with the subscriber receiving the call, within the meaning of subsection (c) above, will be deemed to occur at the end of the reasonable time.

The wording of the message will be: “The call is being transferred to a voice mailbox,” and it will be articulated clearly and at a reasonable speed. In this subsection, “call transferred to a voice mailbox” – excluding a call originating in an international telecommunications system.

75A. A25 ) Completion of a Call in Another Public Telecommunications Network

The payment for completion of a call to be collected by the Licensee shall not exceed the interconnection rate specified in the Telecommunications Regulations (Payments for Interconnection), 2000.

75B. A2A25) Completion of an SMS on Another Public Telecommunications Network

	The Licensee may collect from a subscriber for the transfer of an SMS which is being transferred from end-user equipment that is connected to the network to end-user equipment that is connected to a cellular system of another cellular licensee, a payment not exceeding the payment which the Licensee collects from the subscriber for the transfer of an SMS which is transferred from end-user equipment that is connected to the network to end-user equipment that is connected to the network, plus a payment not exceeding the rate for the transfer of an SMS specified in the Communications Regulations (Telecommunications and Transmissions) (Payments for Interconnection), 2000.

	For purposes of this section –

	“SMS” – telecommunications messages comprised of writing, including signs or symbols, transferred from end-user equipment that is connected to the network, to end-user equipment that is connected to the network or to a cellular system of another cellular licensee.

75C. A27 ) Temporary Order

Notwithstanding that stated in section 75B, for the period beginning May 9, 2004 and ending February 9, 2005 A29) , the following provisions shall apply:

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

(a)

The Licensee may collect from a subscriber for the transfer of an SMS which is destined for end-user equipment that is connected to a cellular system of another cellular licensee (hereinafter – “inter-network SMS”) a payment not exceeding the payment which the Licensee collects from the subscriber for the transfer of an SMS which is transferred from end-user equipment that is connected to the network to end-user equipment that is connected to the network, plus a payment not exceeding the rate for the transfer of an SMS specified in the Communications Regulations (Telecommunications and Transmissions) (Payments for Interconnection), 2000, less a rate of 0.7% 8 ;

(b)

The Licensee may collect from a subscriber payment for an inter-network SMS as stated in subsection (a), even if its transfer to the called subscriber was not completed.

76. Publication of Rates

76.1

The Licensee shall provide to anyone so requesting, at the service offices and at the call centers, free of charge, full and detailed information concerning the up-to-date rates for all its services, including the payment for completion of a call; The Director may instruct the Licensee concerning the manner and format of publication of the rates.

76.2

The Licensee shall indicate in every account sent to a subscriber the package of services according to which the subscriber is being debited.

76.3

The Director may request to receive from the Licensee at any time details of the rates charged by it.

77. Void A43)

77A. Fraud Prevention

77A.1

The Licensee shall take suitable and reasonable steps to prevent fraud and shall maintain a control and follow-up system for verifying, to the extent possible, that the calls for which the subscriber is being debited were actually made from end-user equipment connected to the Licensee’s cellular system in the subscriber’s name.

77A.2

The Licensee shall disconnect the service to the subscriber’s end-user equipment after receiving at the service offices the subscriber’s notification that the end-user equipment

8 The 0.7% reduction is based on a report received from some cellular operators concerning the rate of inter-network SMS messages that did not reach their destination. Section 75C was enacted as an temporary order, with the cellular operators to make the necessary adjustments in the cellular systems and in the interconnection arrangements between them to enable full implementation of section 75B of their license. To remove doubt, it is clarified that this temporary order was enacted only for a limited time, owing to difficulties that were pointed out by the cellular operators concerning the possibility of receiving information about non-completion of an SMS on another cellular network; However, beyond this, nothing may be inferred from this temporary arrangement concerning permission to collect payment for an SMS that was not transferred to its destination, and said arrangement does not detract from the Ministry’s basic position according to which, in general, no payment may be collected for a telecommunications service that was not realized.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

was lost or stolen, or that there is a possibility that someone else is making calls through the end-user equipment without having received permission to do so; The subscriber may give such a notification by telephone or in writing, including by fax or email; Upon receipt of a telephone notification or immediately after receipt of a written notification, the Licensee shall verify its reliability and disconnect the service.

77A.3

The Licensee shall cooperate with other licensees in locating and preventing fraud.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Part C – Changes in the Rates

78. A43) Change in the Rates

Subject to that stated in section 75, the Licensee may change the rate that was set by it for any service or basket of services (in this section – “service”), provided:

(a)

It submits to the Director a written notice giving details of the new rate, before such rate goes into effect;

(b)

It gave prior written notice to every subscriber who joined the service; Notwithstanding that stated, notice regarding a reduction may be given to the subscriber up to one month after the reduction.

For purposes of this section, “change” – any change in a rate resulting in an increase or reduction in the payment before VAT which a subscriber is required to pay for the Licensee’s services.

79. Start of an Increase or Reduction in a Rate

In case of an increase or reduction in any rate for cellular services according to the provisions of the license, such increase or reduction shall not apply to payments made for such a service prior to the starting date of the increase or the reduction; An increase or reduction shall apply only to cellular services provided to a subscriber after the date of the increase or reduction; This section shall not apply to a rate adjustment ordered by the Minister under section 83(A).

80. Arrears in Payment

80.1

The Licensee may debit a subscriber arrears interest, linkage differences and collection costs on payments for cellular services which were not paid by a subscriber on their stipulated payment date, in a payment notice sent to the subscriber, according to the contract between them A33) (hereinafter – the payment date).

80.2

Void A43)

80.3

The amount of the arrears interest shall not exceed the rate specified in the definition of “linkage differences and interest” in section 1 of the Adjudication of Interest and Linkage Law, 1961, plus linkage differences for the period between the stipulated payment date and the actual payment date of the specified amount.

80.4

A33) The Licensee may debit a subscriber collection costs on a payment for a service which it provided to the subscriber, which was not paid on the payment date (hereinafter – the amount of the debt), provided at least fourteen (14) days have elapsed from the payment date, excluding a case of nonpayment due to the bank’s or the credit-card company’s refusal to pay a debit for the collection of which the Licensee received an authorization; The amount of the collection costs to be collected by the Licensee shall be reasonable and in proportion to the amount of the debt and the actions which the Licensee must take in order to collect it.: In this regard, “collection costs” – including legal handling by the Licensee or someone acting on its behalf, of the collection of the amount of the debt before application is made to the courts.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Part D – Miscellaneous

81. Onetime Debit for Connection Fee

If the Licensee decides to collect a connection fee as defined in section 74(A), it may debit a subscriber a connection fee only for the connection of the subscriber for the first time to the cellular network and the provision of the cellular services, or for a connection after the termination of a service under section 71 or the termination or disconnection of a service under section 72.

82. Collection of Subscription Fee in Installments

The Licensee may collect the connection fee as stated in section 81 for connection to the cellular system in a number of installments, at the times agreed upon with the subscriber and in the amount specified in the contract.

83. Harm to Competition or to Consumers

(a)

If the Minister finds that any of the Licensee’s rates or any payment required to be made to or through the Licensee is contrary to the provisions of the License, the Minister shall notify the Licensee in that regard, indicating the correction that needs to be made and that if the Licensee fails to do so, the Minister will act pursuant to his power under sections 5 and 15 of the Law; The Licensee shall send the Minister a written notification setting out the corrected rate and shall act to refund the excess amount, if any, which a subscriber was debited according to the rate prior to its correction.

(b)

If the Minister finds that any of the Licensee’s rates or any payment required to be made to or through the Licensee is unreasonable or is liable to harm competition or the consumers, the Minister shall notify the Licensee in that regard, indicating the correction that needs to be made and that if the Licensee fails to do so, the Minister will act pursuant to his power under sections 5 and 15 of the Law; The Licensee shall send the Minister a written notification setting out the corrected rate

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

CHAPTER G: PAYMENTS FROM THE LICENSEE, LIABILITY, INSURANCE AND GUARANTEE

Part A – Royalties and Payments A16)

84. Royalties

84.1

The Licensee shall pay royalties as prescribed in the Telecommunications Regulations (Royalties), 2001, or in any other regulations replacing them (hereinafter – “the Royalties Regulations” ).

84.2

To every payment of royalties under this section the Licensee shall attach two copies of an unaudited quarterly income report, signed by the Licensee and certified by an accountant; The report shall contain a detailed calculation of the liable income according to the Royalties Regulations, and any other particular on which the Licensee based the amount of the royalties.

84.3

Upon the submission of an annual income report audited and signed by the Licensee’s accountant (hereinafter: “the audited report” ), the Licensee shall submit a report, prepared by quarters, setting out the adjustment between the income on which it paid royalties, and the income appearing in the audited report (hereinafter – “the adjustment report” ).

84.4

If it becomes apparent that the amount of the royalties to be paid by the Licensee, according to the adjustment report, is greater than the amount paid by it for the quarter to which the audited report relates, the Licensee shall pay royalties differences, in addition to interest and linkage differences, as prescribed in the Royalties Regulations.

84.5

If it becomes apparent that the amount of the royalties paid by the Licensee is greater than the amount it was required to pay for the quarter to which the audited report relates, the Licensee shall be credited with the amount of the excess payment; The excess payments to which the Licensee is entitled shall be offset, pursuant to a written approval of the Director, from the next payment of royalties, and linkage differences and interest shall be calculated according to the last index published before the date of the offset; In this regard – interest and linkage differences, as prescribed in the Royalties Regulations.

85. Arrears in the Payment of Royalties

The Licensee shall pay linkage differences, arrears interest and collection costs, as set forth in the Royalties Regulations, on royalties that were not paid at the time stipulated therefor in the regulations.

86. Payment Method

Royalties as well as linkage differences, arrears interest and collection costs in respect thereof shall be paid to the Ministry of Communication’s accountant by a bank transfer to the ministry’s account.

87. Other Mandatory Payments

The royalties under this Part shall be in addition to any other fee, tax or mandatory payment which the Licensee is required to pay under any law.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Part B – Liability and Insurance

88. Definition of Scope of Insurance

In this Part, “use of the license” – setup, installation, maintenance, upkeep or operation of the cellular system, whether by the Licensee itself or through anyone acting on its behalf, including its employees, contractors, agents or representatives.

89. Licensee’s Liability

89.1

The Licensee shall be liable at law for death, damage or loss to the body or property of any person, directly or indirectly resulting from or consequent on the use of the license.

89.2

When using the license, the Licensee shall take all reasonable precautions to prevent damage or loss to the body or property of any person, and where such damage or loss was caused due to the use of the license, the Licensee shall repair the damage at its expense and compensate the aggrieved party, all subject to any law, excluding a case in respect of which the Minister granted the Licensee immunity as specified in section 90.

To avoid doubt, this section shall not impose on the Licensee liability beyond the liability in torts established in the regular law of torts.

90. Immunity from Liability

90.1

The Minister may, at the Licensee’s request, grant it all or any of the immunities enumerated in Chapter I of the Law, subject to that stated in section 90.3.

90.2

The Licensee shall set out in its request the immunities which it is requesting and the reasons therefor.

90.3

If the Minister is persuaded of the necessity of granting the Licensee the immunities under Chapter I of the Law, he shall publish his decision in a notice in Reshumot .

91. Making an Insurance Contract

91.1

The Licensee shall make, at its expense, an insurance contract with a licensed insurer according to the terms contained in section 92; The insurance contract shall be presented to the Director at the time of the grant of the license.

91.2

The Licensee shall indemnify the State in respect of any financial liability as stated in section 89.1, for which it may be held liable towards a third party due to the use of the license; Any indemnity under this section shall be insured by the Licensee for liability insurance.

91.3

The Licensee shall insure itself, including its employees and contractors, against any financial liability as stated in section 89.1, for which it may be held liable at law owing to damage caused to the body or property of a person from the use of the license, and against any loss or damage caused to all or a part of the cellular system from the use of the license, including against third party risks.

91.4

The Licensee shall submit to the Director an opinion of a lawyer specializing in insurance, confirming that the insurance policy covers everything required in sections

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

91.2 and 91.3; The Licensee shall attach to the opinion a copy of the insurance contract and its attachments; Said documents shall be submitted to the Director within 7 days of the signing of the insurance contract and shall be attached to this license as Addendum G.

92. Conditions in the Insurance Contract

92.1

The insurance contract shall specify the period of insurance and shall stipulate that at the end of the period of insurance the insurance shall be extended automatically.

92.2

The Licensee shall present to the Director, once a year, the insurer’s confirmation that the insurance contract is valid, there are no arrears in the Licensee’s payments of the premiums and there are no pending notices concerning the cancellation, suspension, limitation, amendment or termination of the insurance contract.

92.3

The insurance contract shall stipulate that in the event the insurer wishes to cancel the insurance contract, owing to nonpayment of the premium, it must give the Director prior notice in that regard not less than 90 days before the contract is actually due to be cancelled (hereinafter in this section – cancellation notice).

92.4

If a cancellation notice has been sent as stated in section 92.3, the Licensee shall act immediately to eliminate the cause of the cancellation, or shall act immediately to obtain an alternative insurance contract as stated in section 92.6, and it shall notify the Director of the actions it took for this purpose; Where the cause of cancellation was nonpayment of the premium by the Licensee, the Director may pay the premium in the Licensee’s stead, and he may exercise the bank guarantee or any part thereof to cover amounts which he expended on payment of the premium or collect them in any other manner.

92.5

If the Licensee wishes to cancel the insurance contract, it must notify the Director in that regard at least 45 days before the contract is actually due to be cancelled.

92.6

If the Licensee has agreed to the cancellation of the insurance contract by the insurer or itself wishes to cancel the insurance contract, it shall make an insurance contract with another licensed insurer, in such manner that the new insurance contract will come into effect simultaneously with the lapse of the previous contract; The new insurance contract shall be submitted for approval to the Director, together with an opinion as stated in section 91.4, 45 days before its effective date, and it shall be subject to the provisions of the sections in this Part.

93. Remedy for Breach of Conditions with Respect to Insurance

If the Licensee did not make an insurance contract, or if it becomes apparent that the insurance contract which it made was cancelled or expired, the Director may effect insurance and pay the premium in the Licensee’s stead, and it may exercise the bank guarantee to cover amounts expended by it on the insurance or collect them in any other manner; All the foregoing without derogating from the authority to cancel, restrict or suspend the license owing to the Licensee’s failure to effect insurance according to the terms of this license.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Part C – Guarantee to Secure Fulfillment of the Terms of the License

94. The Guarantee and Its Purpose

94.1

A30) The Licensee shall present to the Director an unconditional bank guarantee in favor of the State of Israel, in shekels, equivalent to ten (10) million US dollars, as security for fulfillment of the terms of the License; The guarantee is attached to this license as Addendum H to the Second Schedule.

94.2

The guarantee shall serve as security for fulfillment of the terms of the license and for compensation and indemnification of the State for any damage, payment, loss, detriment or expense caused or liable to be caused to the State – whether directly or indirectly – due to nonfulfillment of all or any of the terms of the license, fully and on time, or due to the cancellation, restriction or suspension of the license.

95. Exercise of the Guarantee

95.1

Without derogating from the general purport of section 94.2, the Director may exercise the guarantee, in whole or in part, if damage is caused due to nonfulfillment of the terms of the license, including in each of the cases set out below:

(a)

The State incurred a loss of income from royalties owing to a lack of revenues from subscribers’ payments, including by reason of:

(1)

Failure to operate the cellular services at a time stipulated therefore in the timetable determined by the Director, or as approved by the Director;

(2)

Discontinuation, suspension or restriction of services;

(3)

Restriction or suspension of the license;

(b)

No insurance contract was made according to sections 91-92, the premium was not paid, or the insurance contract was cancelled or expired;

(c)

The Licensee is debiting its subscribers for payments contrary to that stated in section 75;

(d)

The Licensee is not complying with the coverage and service quality requirements as stated in Appendix B, or the Licensee consistently stops, suspends or limits the service contrary to the provisions of the license;

(e)

The Licensee does not convert the cellular system to a digital technology by the date specified in Appendix B.

(f)

The Licensee consistently or willfully violates any of the provisions, terms or requirements of the license;

(g)

A claim or demand was submitted against the State for payment of compensation and damages due to a violation of a condition in the license or faulty implementation of the license or due to the cancellation of the license, and where the State incurred expenses due to such claim or demand; The exercise of the

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

guarantee for the purpose of covering the amount of a claim as stated, shall be done only after the judgment in that claim has become absolute;

(h)

Royalties according to section 74 were not paid fully and on time;

(i)

The State incurred costs or damage due to the cancellation of the license;

(j)

The Licensee did not complete the guarantee fees as specified in sections 96.2 and 79.2.

(k)

A16) The Licensee did not present the license fee on the required date, as stipulated in section 40.1 of the conditions of Tender No. 1/01.

(l)

A16) A monetary sanction was imposed on the Licensee in accordance with the law, and the required amount was not paid on time, provided no amount above the amount of the sanction is collected.

95.2

The Director may exercise the guarantee as stated in this Part also by reason of an expected violation of the terms of the license or frustration of the terms of the license that justify, at his discretion, early exercise of the guarantee.

96. Manner of Exercise of the Guarantee

96.1

The Director may exercise the guarantee, in whole or in part, up to the amount specified therein, provided it warned the Licensee that if it does not correct the act or omission the subject of the warning within the period specified in the warning – the guarantee will be exercised, in whole or in part.

96.2

If the entire amount of the guarantee or a part thereof was exercised, the Licensee shall provide a new guarantee or complete the balance up to the original amount of the guarantee immediately upon the Director’s demand; Failure to complete the amount of the guarantee as stated shall constitute a material breach of the terms of the license, and the Director may – without derogating from his authority to cancel, restrict or suspend the license – exercise any remaining balance of the guarantee.

96.3

The Licensee may appeal a decision of the Director to exercise the guarantee, in whole or in part, before the Minister within 15 days of being notified of the Director’s decision.

97. Term of Validity of the Guarantee

97.1

The guarantee shall be valid throughout the term of validity of the license and for A16) two years after the end of the term of the license, or until the Licensee satisfies all its obligations under the license to the Director’s satisfaction – according to the later of these two dates.

97.2

If the Director determines that the Licensee did not satisfy all its obligations under the license, within 60 days before the expiry of the term of the guarantee, he may require the Licensee to extend the term of the guarantee or to present a new guarantee, within the period specified by the Director; The new guarantee shall be valid up to the date specified by the Director or until the Licensee satisfies, to the Director’s satisfaction, all its obligations under the licenses – according to the later of these two dates; If the

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Licensee fails to present a new guarantee as stated, the Director may exercise the guarantee.

97.3

Where the Director confirmed receipt of a guarantee the validity of which may be extended from time to time upon his demand, the Licensee shall extend the validity of the guarantee before the expected end of its term, for a year, unless the Director exempted it from this obligation; If the Director did not grant an exemption from the obligation to extend the validity of the guarantee, and the validity of the guarantee was not extended at the specified time, the Director may exercise the guarantee in its entirety without advance warning.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

98. Preservation of Remedies

98.1

Exercise of the guarantee, in whole or in part, does not derogate from the authority to cancel, restrict or suspend the license.

98.2

The amount of the guarantee shall not serve to limit the scope of the Licensee’s liability towards the State for payment of the full damages caused to it, where the Licensee is obligated to make such payment under the license or by law.

98.3

The exercise of the guarantee, in whole or in part, shall not derogate from the Director’s right to demand from the Licensee in any other manner payment for damages which it is obligated to cover under this license or to exercise other reliefs that are available to him by law.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

CHAPTER EIGHT – SUPERVISION AND REPORTING

Part A: Supervision of Licensee’s Activities

99. Supervisory Power

The Director or anyone authorized by him for this purpose may supervise the Licensee’s activities with respect to the implementation of the license and compliance with the provisions of the Law, the Ordinance and the Regulations pursuant thereto.

100. Preservation of Confidentiality

The Director and anyone engaging on his behalf in supervising the Licensee shall not disclose any information or document coming into their possession by virtue of their function, to a person who is not authorized to receive such information or document, unless it was already published in public or disclosure is necessary for the performance of their function under this license or by law.

101. Entry to Premises and Inspection of Documents

For the purpose of exercising the supervision as stated in this Part, the Director may:

(a)

Enter at any reasonable time any facility or office used by the Licensee to provide its services under this license.

(b)

Carry out measurements and tests on the cellular system, and he may inspect any record, document, plan, account book, ledger or data base, whether regular or computerized, of the Licensee or of anyone employed by the Licensee in subjects over which the Director has supervisory power as stated; The Director may inspect them and copy them in any manner he deems fit.

102. Cooperation

The Licensee shall cooperate with the Director or with anyone authorized by him with respect to the exercise of supervision over its activities as stated, and without derogating from the general purport of the aforesaid, it shall allow them to carry out that stated in sections 100 and 101 and shall furnish to them, upon their demand, any information in its possession or control that is required by them for the exercise of the supervision.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

Part B: Reporting and Correction of Defects

103. A43) Duty of Submission of Reports

103.1

The Licensee shall submit to the Director the reports specified in this license, in the format and at the times stipulated in this part.

103.2

Every report shall reflect the correct facts relating to the subject thereof, updated for the period of the report.

103.3

A report shall be submitted in two (2) copies, printed and prepared in an easily readable form, bearing the date of its preparation and signed by the Licensee or whoever it authorized for this purpose; The report shall be submitted in a format as directed by the Director, including with respect to its contents, structure and manner of submission.

103.4

The Director may require the Licensee to prepare anew or to complete a report which it submitted, if he found it lacking in necessary details or details which, in the Director’s opinion, should have been included by the Licensee in the report.

104. A43) Types of Reports

The Licensee shall submit to the Director, at his request and at least once a year, at the end of the calendar year and not later than ninety (90) days thereafter, annual reports describing its activity in the period from January to December of the past year:

(a)

Financial statement audited and signed by an accountant;

(b)

Subscribers report, including the following data:

(1)

Number of subscribers broken down according to business and private subscribers and according to post-paid and pre-paid;

(2)

Amount of income broken down according to subsection (1), with each type of income from interconnection appearing separately, and broken down as well according to airtime and added-value services.

(c)

Report on the use of frequencies according to Chapter D Part C;

(d)

Addendum A – “Particulars of Licensee” updated as of the beginning of January, as detailed in section 20.1.

104.2

The Licensee shall submit to the Director once a quarter, not later than a month after the end of the quarter, the following reports:

(a)

Unaudited quarterly financial statement signed by an accountant;

(b)

Unaudited quarterly income report signed by an accountant, giving details of income on which royalties are payable;

(c)

Traffic report – in a format as directed by the Director.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

104.3

The Licensee shall submit a report on any special occurrence, as set out in regulation 8 of the Control Regulations.

104.4

The Licensee shall submit to the Director the following report, at his request:

(a)

Report concerning development works of the network;

(b)

Malfunctions report – containing a brief description and discussion of the malfunctions that occurred in the network, the number of malfunctions and the cumulative duration of malfunctions of each type, an analysis of the malfunctions and the steps taken to repair them;

(c)

Service quality report – Analysis of the Licensee’s compliance with the requirements of sections 49 to 51 and Addendum E – Level of Services for Subscribers, during the period of the report;

(d)

Complaints report – detailing the written service complaints that were submitted by subscribers, including the subject of the complaints, the dates on which they were received, the written response given, the manner in which they were dealt with and details of the activity of the Public Ombudsman;

(e)

List of the Licensee’s rates;

(f)

Updated engineering program;

(g)

Encumbrances report – The Licensee must report to the Director immediately any case of imposition of an attachment or encumbrance on any of the Licensee’s assets or any case of an encumbrance on means of control in the Licensee, any realization of such encumbrances or voidance of any right of the Licensee in an asset; The Licensee must also submit to the Director, at his request, a report detailing all such encumbrances.

(h)

Report on number of subscribers, income and minutes broken down according to private and business subscribers, and within each category – broken down according to subscribers for programs priced according to an “inclusive standard rate” and subscribers for programs priced separately for payment in respect of “airtime” and interconnection, in a format as directed by the Director;

(i)

Nuisance subscribers report as detailed in section 65A.9;

(j)

Any other data required for performance of control on the Licensee’s activities, and any information required by the Ministry for regulating the telecommunications sector.

104.5

The Director may add or remove periodical, annual or quarterly reports, and he may request the Licensee to submit special reports as directed by him.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

105. A43) Notice Concerning a Defect

105.1

Where the Director finds defects or deficiencies in the Licensee’s activities, he shall notify the Licensee thereof in writing.

105.2

If the Licensee received a notification as stated, it shall submit to the Director, within thirty (30) days from receipt of the notification, its written response detailing the measures taken by it to correct the defects indicated therein.

106. A43) Void.

CHAPTER I – MISCELLANEOUS

107. The License as an Exhaustive Document

107.1

The Licensee’s rights, obligations and powers with respect to the setup, maintenance and operation of the cellular system and the provision of services by means thereof, originate in and derive exclusively from and according to this license.

107.2

Void. A2)

108. Keeping the License Document and Returning the License

108.1

The Licensee shall keep the license documents in its office and shall allow the public to inspect their true and up-to-date copies; In case the terms of the license are modified, the Licensee shall attach the modification wording to said license documents.

108.2

A16) If the license and its documents are made available for public inspection, the public shall not be allowed to inspect the following documents, which are included in the Second Schedule to the License:

(a)

Appendix A – Details of the Licensee;

(b)

Appendix B – Engineering program;

(c)

Void A43) ;

(d)

Appendix G – Insurance contract;

(e)

Appendix H – Bank guarantee;

	(f)	Appendix I – Special services for the security forces;
	(g)	Appendix L – Special services for the security forces – security addendum (confidential);
	(h)	Appendix M – Security directives;
	(i)	Appendix N – Letters of undertaking.

108.3

The license documents are the property of the State and are entrusted to the Licensee for the term of validity of the license; Upon the cancellation or expiry of the license, the Licensee shall return the license with all its documents to the Director.

108.4

A16) The Licensee shall allow the public to inspect the license documents via the Internet; The Licensee may do this also by way of referral to the website of the Ministry of Communications, as long as the Ministry publishes the license on its website.

108.5

A16) The Ministry may publish the license, excluding the appendices indicated in section 108.2, at the time and in the manner deemed fit by it.

109. Postponement of Deadline

109.1

A duty imposed on the Licensee in this license, for which a performance deadline has been set, must be performed by the Licensee within the deadline.

109.2

A2) The Director, at the Licensee’s request, may postpone a deadline set as stated, if it deems it impossible to perform the duty within such deadline for reasons of force majeure.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

110. Reserving of Liability

Any approval or supervisory authority granted under this license to the Minister or to the Director, including the exercise of such authority, shall not impose on them any liability which is imposed by this license on the Licensee, and shall not derogate or detract from or void or diminish the Licensee’s liability as stated.

111. Notices

111.1

A notice concerning this license or its implementation shall be in writing and shall be delivered by hand or dispatched by registered post with confirmation of delivery; A notice sent by registered post as stated shall be presumed to have reached its destination by the end of 48 hours from the time of its delivery for dispatch.

111.2

Any notice of the Licensee to the Minister shall be delivered or sent through the Director.

111.3

The Licensee’s address for receipt of notices under this section is: 10 Hagavish St., Poleg Industrial Area, Netanya 42140; The Licensee shall notify the Director immediately of any changes in this address.

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

First Schedule

List of Services and Measures for Quality of Service A16)

General

1.1.

This Schedule includes the list of services the Licensee will provide, under the conditions set out in Section B of Chapter E – “Level of Services for Subscribers”.

1.2.

The services will be provided in each of the technologies operated by the Licensee, unless otherwise noted in the License or in the Schedule to the License.

1.3.

Wherever the term: “ Support in Various Languages” is used, this denotes support in at least these four languages: Hebrew, Arabic, English and Russian.

1.4.

A43) The Licensee must include in the service dossier at least the following details:

Name of the service: Name of the service, including its trade name and a general description of the service.

Detailed description of the service: A mong other things –

Is it a new service / expansion of an existing service / combination of services / is there any need for a pretrial;

Manner of operating the service;

Date on which provision of the service is to commence;

Availability and measures for quality of service;

Support centers;

Price of the service;

Target audience of the service;

How to order the service;

Process of connecting to the service;

Implications or effects of this service on other services.

Engineering description:

Description and block diagram of the system;

End-user equipment – dedicated equipment for receiving the service.

Miscellaneous:

The need for numbering;

Required coordination with other licensees or entities.

2. List of Services

First Schedule - 1

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

2.1. Basic Telephone Services

No.	Name of Service	Description of Service	Date provided	Measures for quality of service	Remarks
1.	Cellular Calls	Telephone calls to and from Licensee’s subscribers to any telephone or other appropriate end user equipment in another public telecommunications network in Israel or throughout the world	Existing service	98% availability
2.	Emergency Calls	Free dialing to emergency services determined by the Director (for example: police, ambulance, fire dept., etc). Caller will be referred to the emergency hotline according to the services provider’s definition with reference to the subscriber’s location.	Existing service	98% availability	According to the Director’s rules

2.2. Related Services

No.	Name of Service	Description of Service	Date provided	Measures for quality of service	Remarks
1.	Call Waiting	Subscriber may receive incoming calls while on another call. Subscriber may cancel service at will.	Existing service	99.9% availability
2.	Selective Call Waiting	Only calls from a list of numbers defined by the subscriber will activate call waiting alert	Future service	99.9% availability
3.	Call Forwarding	Diversion of incoming calls to a phone number at the subscriber’s choice: Always	Existing service	99.9% availability

First Schedule - 2

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

		When busy When call is not answered When subscriber unavailable
4.	Selective Call Forwarding	Diversion of incoming calls according to a list of numbers predefined by the subscriber, to another destination at the subscriber’s choice: · Always · When call is not answered · When busy	Future Service	99.9% availability
5.	Call Transfer	Subscriber may transfer call to another telephone number	Future Service	99.9% availability
6.	Hunting Group	Determining a leading number for a subscriber’s group of numbers: dialing the leading number will refer the call to a free number in the group.	Future Service	99.9% availability
7.	Caller ID	Caller’s number will appear on the screen	Existing Service	99.9% availability	Depends on caller's end device
8.	Calling ID Restriction	Allows blocking subscriber’s number from appearing on call receiver’s screen. Block may be permanent or one-time.	Existing Service	99.9% availability
9.	Caller Name Announcement	Option of identification of caller by voice signature	Existing Service	99.9% availability
10.	Conference Call	Establishing a call for a number of subscribers simultaneously	Existing Service	98% availability
11.	Closed User Group	A group of phone numbers than may establish a call only among themselves	Existing Service	98% availability	GSM network only
12.	Voice Mail	Storing messages of callers to the subscriber in a personal box and allowing extraction of such	Existing Service	99% availability

First Schedule - 3

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

13.	Advanced Voice Mail	Voice mail system as described in paragraph 12 above, with added “smart” element, including visual or audio indication of messages waiting, transfer of messages to other platforms and receiving messages from such platforms.	Existing Service	98% availability
14.	Voice Mail Notification	When message received in voice mail box, the mail box will dial or send message to destinations defined by subscriber	Future Service	99.9% availability
15.	Voice Activated Service	Allows operation of telephone and basic services, related services and value added services by voice	Partialy existing, Future Service expansion.	70% chance of correct identification in regions where signal strength is better than 85dbm
16.	Call Tracking	Allows subscriber to send the applicant an indication, while talking, for purposes of later identification of source of call.	Future Service	99.9% availability	Subject to law
17.	Virtual Private Network (VPN)	Allows short dialing according to a private numbering program	Existing Service	99.9% availability	For subscribers according to relevant types. Currently provided to business sector.
18.	Centrex	Allows maintaining a private network while using network resources	Future Service
19.	Facsimile Services	Allows receiving, storing and extracting facsimile messages via phone	Existing Service	99.9% availability
20.	Roaming	Allows receiving, extracting and blocking messages abroad	Existing Service	99.9% availability	Subject to availability of foreign operator. In GSM network in 3 months of launching of the network.

First Schedule - 4

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

21.	GPRS Roaming	Allows using certain communications data services while using roaming services	Future Service	99.9% availability	Subject to operator availability
22.	Toll Free Call (1-800)	Free call to caller. Subscriber – call receiver – is charged for cost of call.	Future Service		According to numbering program and Director’s rules
23.	Split Charge (1-700)	Splits cost of call between call maker and subscriber receiver	Future Service		According to numbering program and Director’s rules
24.	Call Screening	Defining a list of phone numbers subscriber will receive calls from. Call from other numbers will be referred to another destination.	Existing Service	99.9% availability
25.	Talk Two	One number for two end user equipment units.	Existing Service	99% availability
26.	One number for two SIM cards	cellular services for two or more telephones in one number	Future Service	99% availability
27.	Two numbers for one SIM card	Defining two telephone numbers for the same SIM card	Future Service	99% availability
28.	Change of number announcement	A caller to a subscriber will receive an announcement of the subscriber’s new number, and will be given the option of directing the call to the new number.	Existing Service	99.9% availability	GSM network only
29.	Wake-up Service	Allows subscriber to request the system call him at an hour defined.	Future Service	Precision of service approx. 5 minutes. 99.9% availability

First Schedule - 5

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

30.	Camp on busy line	Call automatically put through to busy number when number frees up.	Future Service	99.9% availability
31.	Personal Number Service	Allows subscriber to define calls to a certain number be forwarded to various destinations according to parameters set by subscriber.	Future Service	99.9% availability
32.	Collect Call	Cost of call to be paid by subscriber receiver, after confirmation.	Existing Service	99.9% availability	Between licensed subscribers only
33.	Message Distribution	Distribution of messages to a list of addressees, using various platforms	Future Service	99.9% availability
34.	Hot Billing	Provides updated information to subscriber regarding his bill with the applicant via various platforms	Future Service	99% availability
35.	Over the Air Services (OTA)	Update of data and applications on SIM card via SMS by the applicant. Running applications from SIM card will be performed by subscriber, using end device.	Future Service	99% availability
36.	Account Code Billing	Splitting charge for one phone number into separate accounts. Subscriber’s instructions regarding the account to be billed will be performed by punching a code at the beginning or during a call.	Future Service	99% availability
37.	Star Services	Allows establishing a connection by dialing a short access code according to applicant’s internal numbering program.	Existing Service	99.9% availability
38.	Short Messages Service (SMS)	Allow receiving and sending written messages via phone	Existing Service	99% availability	Depends on end user equipment

First Schedule - 6

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

39.	Circuit Switch Data (CSD)/High speed circuit switch data (HSCSD)	Access to data service using a dial-up modem on phone or independent dial modem	Existing Service	98% availability	Depends on end user equipment
40.	Data communications in Packet Switch	Subscriber connection via phone or independent modem to TCP/UDP/IP communications for broadcastung using packet switch	Existing Service	98% availability on best effort basis	Depends on end user equipment
41.	Discontinuation of Service	Discontinuation of service upon subscriber's request	Existing Service	Will be performed no later than the next business day after subscriber's request
42.	POC (Push to Talk Over Cellular)	Call made by pressing a button on cellular end user equipment Call may be private (between subscriber and subscriber) or group on data communications network	Service Exists (just started)	According to service file	According to temp. provision

Temporary Provision

The Licensee will allow operation of Push to Talk Over Cellular services (hereinafter: the Service) to any subscriber who is a legal entity (individual or corporation), provided the number of users (number of cellular end user equipment units permitted use of this service, hereinafter – end user equipments) in the possession of such subscriber does not exceed 20 during the first year starting on the date service begins. Notwithstanding the aforesaid, should there be any considerable changes in the cellular sector influencing provision of such service, the Ministry will consider a shorter period.

Application

This service will not begin before Sunday, the 29 th day of Tamuz, 5764 (July 18, 2004)

First Schedule - 7

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

* availability of service is the percentage of time the service is available, not including availability of basic services.

2.3. Value Added Services

No.	Name of Service	Description of Service	Date provided	Measures for quality of service	Remarks
1.	Speaking Clock	Notice of time	Future Service	99.9% availability
2.	Directory Assistance	Allows receiving information on phone numbers and automatic establishment of calling number so given.	Future service	99.9% availability
3.	Connectivity to Information and Entertainment Services	Allows subscriber to connect to information, entertainment, applications and content services, whether interactive or noniteractive, whether by download, by upload, or by various means of access.	Existing service	99.9% availability	Depends on end user equipment. Subject to Director’s rules
4.	Access to Internet Provider Services	Allows subscriber access to internet provider.	Future Service
5.	Location Based Information & Tracking	Receiving and sending information depending on location of phone, subject to law.	Future Service
6.	M-Commerce	Connection via end user equipment for performing transactions	Existing Service		Depends on end user equipment. Subject to Director’s rules
7.	Unified Messaging	Allows subscriber to receive and send voice messages, speaking messages, faxes, SMS, E-mail messages, application messages and multimedia files, to and from unified cell, allowing the convertion of the data received from one format to another, as well as access to data from various means of access.	Future Service	99.9% availability	Depends on end device

First Schedule - 8

General license for Cellcom Israel Ltd. for the provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at August 20, 2007

8.	Telemetry Command and Control	Use of phone or cellular modem for receiving indication and sending orders concerning various device operation (for example: alarm systems, inventory systems, traffic lights, controllers, etc.)	Existing Service	99.9% availability
9.	Sponsored Call	Connection during which subscriber will be exposed to commercial information and advertisements	Future Service		Subject to law
10.	Video Conference	Allows visual and audio communication between a number of users.	Future Service		Depends on end device
11.	Instant Messaging	Message transfer service between “community” participants, organizations, groups of friends, groups of people with same interests. Subscriber notifies he is on network and ready to receive messages. Service notifies subscriber members of group who are in geographic proximity.	Future Service
12.	Surf & Talk	Allows subscriber to receive an indication of call waiting and reply while connected to internet	Existing Service	99% availability	Depends on end user equipment. GSM network only
13.	Personal Information Management	Access and synchronization via end user equipment to personal data base.	Existing Service		Depends on end user equipment.

availability of service is the percentage of time the service is available, not including availability of basic services.

First Schedule - 9

Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services.

Consolidated Version as of August 20, 2007.

Second Schedule – List of Appendices

Appendix A	Particulars of Licensee – not available to public;
Appendix B A16	Engineering Plan - not available to public;
Appendix C	Maintenance Scheme - not available to public;
Appendix D	Uniform Engagement Agreement – not attached;
Appendix E A16	Level of Subscriber Services;
Appendix F A8	Void;
Appendix G	Insurance Contract - not available to public;
Appendix H A16	Bank Guarantee - not available to public;
Appendix I t 3t 5	Special Services for security forces - not available to public;
Appendix J A6	Access to International Communications Services;
Appendix K A7	Discontinuation of Services for cellular end user equipments of IS-54 type;
Appendix L A12	Special Services for security forces - not available to public;
Appendix M A12	Security Instructions - not available to public;
Appendix N A16	Letters of Undertaking - not available to public;
Appendix O A24	Erotic Services

A3 Amendment no.3

A5 Amendment no. 5

Second Schedule - 2

Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services.

Consolidated Version as of August 20, 2007.

Appendix D

Appendix D – Uniform Engagement Agreement – Not Attached

Not Attached

Second Schedule - Appendix D - 1

Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services.

Consolidated Version as of August 20, 2007.

Appendix E

Appendix E – Minimum Requirements and Level of Subscriber Services A16)

1.	System Performance


1.1.	The system and its services will fulfill performances, qualities and measures defined in the Engineering Plan – Appendix B.

1.2.	The system performance and services will not fall, in any event, from the following minimum requirements:

	1.2.1.	Digital Technology: the system and the services under the extension of the license will be operated using digital technologies, according to relevant international standards.

	1.2.2.	Service Coverage:
		Subject to the provisions of section 60.5 of the license, all services will be provided in the entire coverage area of the system, keeping up minimum requirements in the matter of quality of service, for twenty four (24) months from the date on which the service for pay commences.

	1.2.3.	Quality of Service :

		(A)	In this section:

			(1)	“ Blocked Calls” : calls that cannot be established or messages that cannot be sent immediately upon entering the order to connect because of non-availability of cellular system resources or resources for connection between the cellular system and other systems;

			(2)	“ Dropped Calls ” – calls stopped not by the initiative of the subscriber caller/connector or that of the receiving subscriber;

		(B)	Quality of service in cellular system will not be less than the following:

			(1)	the amount of blocked calls during hours of maximum use will not exceed two percent (2%);

			(2)	The amount of dropped calls during hours of maximum use will not exceed two percent (2%);

		(C)	The system will uphold the requirements set out in sub-sections (A) and (B) ninety-nine percent (99%) of the time during maximum use hours;

Second Schedule - Appendix E - 1

Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services.

Consolidated Version as of August 20, 2007.

Appendix E

(D)	Subject to the provisions of section 60.5 of the license, the system will reach the level of requirements set out above by no later than twenty four (24) months from the date of start of provision of such services for pay; from that time, said quality of service will be upheld in all the system’s coverage areas;

(E)	The number of blocked and dropped calls will be measured as follows:

	(1)	measure will relate to the time span of one hour;
	(2)	the maximum use hour to which the measure will refer will be the busiest hour of the system, on the day the measure is taken;
	(3)	The measure will be taken at the maximum use hours on each of five (5) consecutive work days as stated;
	(4)	The final number indicating the likelihood of blocked and dropped calls will refer to the average of the five (5) measured over the five (5) said consecutive work days, and for each type of service provided by the system;

(F)

Measurement and calculation will be performed for each cell separately, for each switch separately, and for the entire system; notwithstanding the aforesaid, at the written request of the Licensee, the Director may allow exceptions to the provisions of section 1.2.3, after having been satisfied that there is a true difficulty in performing the measure and calculations as stated, provided an alternative measuring and calculation system is proposed.

2.	Customer and Subscriber Services Quality Measures

2.1.	Services for provision of information to customers and subscribers: will be given by referral to call centers, at service centers, at the internet site, by e- mail, by telephone and by facsimile.

2.2.	Standards for accessibility and provision of information:

(A)

A call center will be available twenty four (24) hours a day, all days of the week except on Yom Kippur.

(B)

The call center will be manned at least thirteen (13) hours a day Sundays through Fridays, and five (5) hours a day on Fridays and eves of holidays.

(C)

The reply at the call center will be within a reasonable time. Should the Director observe that the waiting time at the call center is not reasonable, he may set measures for response time.

Second Schedule - Appendix E - 2

Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services.

Consolidated Version as of August 20, 2007.

Appendix E

(D)

A caller to a call center during unmanned hours will be referred to a message box to leave a message, and will receive a reply on the following day.

(E)

The Licensee will operate additional channel allowing subscribers to contact it for provision of information and for queries, such as:

Computerized voice system IVR;

queries via post;

queries via fax;

queries via e mail.

(F)

The Licensee will publish its service office address and telephone number of the call center in the following ways, among others:

In the engagement agreement with the subscriber;

In the bills sent to the subscriber;

In any document sent on behalf of the Licensee to the subscriber in a matter relating to customer services;

In telephone directories and in telephone information centers.

2.3.	Bills to Subscribers

(A)

Bills to subscribers will set out the relevant details for such bill, out of the following:

(1)

monthly charge (fixed charge)

(2)

duration of calls or air time (minutes, seconds)

(3)

volume of data use (MB,kB) – if the service provided is charge by volume of data transmitted.

(4)

Other charges (such as for receipt of data, SMS transmission, mobile electronic commerce).

(5)

Combination of the above charge methods.

(B)

Structure of the Bill

Bills will be sent in a fixed form, as follows:

(1) Following payment; the bill will serve as a receipt, including:

the amount for payment not including VAT, rate of VAT and total for payment including VAT. In this section, the identifying particulars of the Licensee will be specified, and the identifying particulars of the subscriber.

(2) The Licensee may include information regarding deals and personal notices to the subscriber.

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Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services.

Consolidated Version as of August 20, 2007.

Appendix E

(C)

Production and delivery of bills

(1)

The Licensee will produce monthly bills for its subscribers or at any other time with subscriber’s consent.

(2)

A subscriber wishing to disengage with the Licensee will receive a final bill on the closest date possible, and no later than two months from the date of disengagement.

(3)

Subscriber bills may be obtained via post or via any other means agreed upon with the subscriber, and to the address chosen by the subscriber.

2.4.	A43) Measures for Handling Public’s Applications

(A)

Level of handling a written complaint – The response times for complaints will be up to 14 workdays; the response for 5% of complaints will be within a month.

(B)

Measures for quality of service of the service centers –

90% of applications will be handled directly by the service representatives, up to completion.

Not more than 10% of applications, some due to escalation of complaints, will be referred to more senior levels.

(C)

Applications clarified by the senior level – In any case where the Public Ombudsman’s reply to a complaint does not satisfy the applicant, the application will be passed on to the managerial level, which will examine the it again and reply directly to the applicant. In any event, the applicant will receive a response within 30 days from the day of his application.

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Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services. Consolidated Version as of August 20, 2007.

Appendix J

Appendix J –Accessibility to International Telecommunications Services A6)

1.	Definitions

1.1

In this document, the following words and terms will have the definitions noted at their sides, unless otherwise deriving from the language or context:

Bezeq International -		The Bezeq International Company Ltd. ;
Barak -		Barak I.T.C. (1995) Company for International Telecommunications Services;
Chance caller -		A Licensee subscriber, calling abroad using an international operator, using a three digit dialing code, as set out in section 2;
Subscriber number (or telephone number) -		A group of numbers in a certain order, including area code, the dialing of which should create a telecommunication’s connection between the reading subscriber’s end user equipment and the reader subscriber’s end user equipment; a reader subscriber number may be a subscriber number of a number to a call answering center of a subscriber or a number to a call answering center of a licensee 2
International operator -		Anyone providing international telecommunications services to the public in Israel under a general license from the Director;
Chosen operator -		An international operator chosen by appointment, under the provisions of section 4 3
Access code -		A group of numbers in a certain order, the dialing of which allows access to a certain telecommunications service of a certain operator; dialing additional codes, as needed, and the subscriber number, should create a telecommunication connection to the subscriber’s end user equipment 4 ; if the access code is a manned call center, the service is given via the operator.

2 The phone number is determined by the licensee, according to rules and directives prescribed by the Director.

3 A chosen operator may be Bezeq International, Barak or Golden Lines.

4 for example: dialing an access code for international services, and after a country code, area code in that country and telephone number of the designated subscriber abroad

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Appendix J

Short dialing code -		“00” ” and “188” access code, designated to receive international telecommunications services, by direct dialing, or via an operator, as explained in section 2;
Golden Lines -		The Golden Lines International Communications Services Company;
Subscriber ascription		The technically defining action an internal operator performs in his switch so that his subscriber’s calls, performed through a shortened dialing code, are channeled into the chosen operator’s switch;
Outgoing ITMS calls -		Transferring a verbal message or facsimile message via an international telecommunications service, initiated by a Licensee subscriber;
Ingoing ITMS calls -		Transferring a verbal message or facsimile message via an international telecommunications service, initiated by an international caller;
International Telecommunications Services -		Telecommunications services given to the public in Israel, under license from the Director, via an international operator’s international telecommunication services;
ITMS service		International telecommunications message service, that is, two-directional simultaneous transfer of talk and simultaneous transfer of facsimile messages, in an international telecommunications system.

1.2

Words and expressions in this document not defined above shall have the meaning as defined in the Law, regulations enacted by virtue thereof, in the Interpretation Law, 5741 – 1981, or as set out in the appropriate places in the Licensee’s general license and in the International Operators’ licenses, unless otherwise deriving from the language or context.

2. Allocation of Access Code

2.1	A Licensee will channel subscriber dialing, to the international operators’ switches, for access to international telecommunications’ services, using the following codes:

(A)

double-digit access code – the ‘00’ access code, which will serve as short access code for international telecommunications services provided by a

Second Schedule—Appendix J – 2

Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services. Consolidated Version as of August 20, 2007.

Appendix J

chosen operator; the Licensee will channel a subscriber dialing the prefix ‘00’ to the chosen operator;

(B)

triple-digit access code – an access code of ‘01X’ type, which will serve as an access code for international telecommunications services provided to a chance user; the Licensee will channel any subscriber dialing the prefix ‘01X’ code to the international operator according to the X digit; the X digit is the international operator’s code, according to the following:

‘2’ – code for Golden Lines’ services;

	2.	‘3’ – code for Barak services;
	3.	‘4’ – code for Bezeq International services;

(C)

‘188’ access code – that will serve as a number for operator services ; any subscriber dialing ‘188’ will be channeled by the Licensee to the chosen operator’s operator services;

(D)

four - digit access code – numbers of the ‘18XY’ type, that will serve as an access code for various international telecommunications services of any and all international operators; any subscriber dialing ‘18XY’ will be channeled by the Licensee to the international operator according to the X digit; the X digit is the code of the international operator under section 2.1(B); the Y digit is any number from 1 to 9 and the 0 digit; the use of the Y digit will be determined by the Director, under advisement with the international operators, in order to ensure uniformity and fair competition; each international operator will be allocated ten (10) such four digit numbers/ these numbers will be accessible for both the chosen operator’s subscribers and for chance callers.

2.2	If the Licensee allows its subscriber the use of another short dial code (such as +), instead of the “00” dial code (hereinafter: a special code), all the provisions and rules applicable to the short “00” dial code will apply to the special code as well.

2.3

Dial by pre-paid program for unidentified subscribers who are not blocked for outgoing ITMS calls will be possible only using three-digit access codes of the 01X type, and four-digit access codes of the 18XY type; upon dialing a short access code or a special access code, a voice announcement will be heard referring the customer to dial via said access codes available to him.

2A. A23	Subscriber Access to Outgoing ITMS Calls :

2A.1	The Licensee will allow subscribers to act as follows, with regard to outgoing ITMS calls:

(A)	as an ascribed subscriber.

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Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services. Consolidated Version as of August 20, 2007.

Appendix J

(B)	As blocked

(C)	As a chance caller only.

3.	Blocking Outgoing International Calls and Removal of the Blocking

3.1

The Licensee will block outgoing ITMS calls, and may also block collect incoming ITMS calls for any subscriber requesting to block access to international services or subscribers for whom the international service for outgoing ITMS calls has been stopped or cut off, in accordance with the conditions of the License; the licensee may not block incoming ITMS calls except collect calls.

3.2	If a block for outgoing ITMS calls has been implemented at a subscriber’s request, the Licensee will remove the block as follows: A23

(A)	If the subscriber has asked to join, he will indicate his choice international operator who shall serve as his “chosen operator”, by his signature on the appropriate form; notice given by means of facsimile will be deemed notice in writing given to by the subscriber in this matter.

(B)	If the subscriber has asked to be a chance caller, he will notify the Licensee of such; if the notice is verbal, the Licensee will verify the requesting party’s identity.

3.3	The Licensee will perform the block for ITMS or removal thereof, performed in accordance with the subscriber’s request, according to the following:

(A)	70% - Within one working day of receipt of notice; requests received after 1500 hours will be deemed having been received on the following work day;

(B)	20% - within two working days of receipt of notice;

(C)	the rest – within 5 working days.

3.4	The Licensee will ensure that a subscriber who has blocked his outgoing ITMS calls cannot make outgoing calls using ‘00’ dialing code, ‘01X’ dialing code, ‘188’ or ‘18XY’ dialing codes, or using any other code that may come in place thereof A23 .

3.5	The Licensee may collect reasonable payment for performance of a block for outgoing ITMS calls or for removal of the block.

3.6	Notwithstanding that stated in section 3., the Licensee will allow all its subscribers to block outgoing ITMS calls before initiation of services for such subscriber, free of charge.

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3.7	The Licensee will verify that all subscribers whose access to outgoing ITMS calls has been blocked receive appropriate voice message when dialing access codes or telephone numbers for international services.

3.8	If a subscriber who has chosen a chosen operator asks to block outgoing ITMS calls, the Licensee shall notify such to the chosen operator, within seven (7) working days of the date of performance of the block.

4.	Choosing a Chosen Operator

4.1

A Licensee’s subscriber may notify the international operator in writing, on a signed form approved by the Director, regarding his choice of a chosen operator through whom such wishes to receive international telecommunications services using ‘00’ or ‘188’ access codes; the form will including the particulars of the subscriber – first name, last name or name of corporation, ID number of ID number of the corporation, address and telephone numbers the subscriber asks to define the international operator as the chosen operator for, and the date and time when instruction regarding the appointment was given. The form will explain that any phone number may have one chosen operator only, and such will fulfill the requirements prescribed in this matter in the international operator’s license 7 (hereinafter: the ascription form).

4.2	Subscribers may change the chosen operator at any time by written notice on the ascription form; for initial ascription made at the subscriber’s request, the subscriber will not be asked to pay anything, however the subscriber may be charged a reasonable fee for any change in the ascription.

4.3

The chosen operator will send the Licensee notice regarding the subscriber’s having chosen him as the chosen operator (hereinafter: ascription notice); ascription notice will include the subscriber’s particulars - first name and last name, address and telephone numbers the subscriber asked to define the international operator as the chosen operator for, and the date and time of the ascription form on which the subscriber signed; the chosen operator will give ascription notice to the Licensee in accordance with the ascription forms signed by him; ascription notice will be given via magnetic media files, or in any other manner agreed upon between the Licensee and the international operators. If two or more ascription notices are given to the Licensee, relating to the same telephone number, the sc will act in accordance with the ascription notice with the later date and hour.

4.4

If a person has asked to become a new Licensee subscriber, he must make note, in the request to the international operator of his choice to engage with as a chosen operator; the Licensee will allow any new subscriber to choose a chosen operator for himself or to block the outgoing ITMS calls, or will allow the subscriber to receive ITMS

7 Attention is called to section 52.3 of the Bezeq license, and section 56.4 to the Golden Lines and Barak license.

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Appendix J

services as a chance caller only; ascription services to a chosen operator or connection as a chance caller, and blocking outgoing ITMS calls will be given to new subscribers, at the time of initial registration, free of charge A23 .

4.5	In order to choose a chosen operator, and without derogating from the aforesaid, the Licensee will act as follows:

(A)	the Licensee will allow all subscribers having a subscriber line number to choose one chosen operator will be for certain subscriber lines, and another for other subscriber lines;

(B)	Void A2A23 .

(C)	the Licensee will perform ascription of a subscriber within one working day of receipt of ascription notice form the chosen operator A2A23 .

(D)

The Licensee will report to the international operator regarding completion of said subscriber ascription as stated in sub-clause (C) above, including change of ascription at the time and under such plan as agreed upon between the Licensee and the international operator; the report will include particulars of the subscriber – first name, last name or name of corporation, address and telephone numbers the subscriber asked to ascribe to the international operator.

(E)

A20 The Licensee will send a daily modification file of subscriber ascription to all international operators (hereinafter: the modification file), containing the particulars of the subscribers who ascribed to the international operator or who unsubscribed on that day. The modification file will be handed over at the time and under such procedure as shall be agreed upon between the Licensee and the international operator. The file will include the particulars of the subscriber, including at least the first name, last name or name of corporation, ID number of ID number of the corporation, address and telephone numbers the subscriber asks to define the international operator as the chosen operator for. e ffect

(F)

The Licensee may request that the Director allow in certain cases, all the prescription of rules and limitations on the matter of subscriber ascription, the Licensee will set out the technical or operational reasons on which such request is based; if the Director consents to the Licensee’s said request, at his professional discretion, the Director will prescribe the time frame for the applicability of said rules and limitation;

(G)	The Licensee will submit a written quarterly report to the Director, by the 15 th of the month following the end of the quarter; the information in the report will be correct as of the last day of the calendar quarter preceding the date of the report, and will include the following:

effect This amendment will go into effect by no later than Thursday, the 29 th of Nissan, 5763 (May 1, 2003)

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(1)	The number of subscribers blocked form international telecommunications services;

(2)	The number of subscriber engaged for international services using short dialing codes or using special codes, for each of the international operators;

(3)	A23 The number of subscribers engaged for international services as chance dialers only.

(H)

If there should be any disputes between the international operator or between the Licensee and the international operator on the matter of a subscribers choosing a chosen operator, the matter will resolved by the Director, or resolved by an independent arbitrator appointed by the Director, at his exclusive discretion.

4.6

The Licensee will channel any subscriber dialing using the ‘00’ prefix or any other special prefix for access to international telecommunications services, or channeling a call to a Licensee’s subscriber located abroad using an international operator (follow-me subscriber service) to the chosen operator.

Void A23

6.	Block for short dialing code

6.1	Subject to the provisions of this appendix, the Licensee will perform a block for short dialing code for any subscriber so requesting A23 .

6.2

The Licensee will perform the block for short dialing code as follows: the Licensee will channel the subscriber’s calls using the double-digit ‘00’ prefix and the ‘188’ prefix to an announcer playing a recorded announcement stating the following in Hebrew, English, Arabic and Russian: “This service is blocked, for further details please dial ___ (a telephone number of the announcer under the provisions of section 6.7) A23 .

6.3

Void A23

6.4

Void A23

6.5

Void A23

6.6

Void A23

6.7

The Licensee will operate the voice announcement 24 hours a day, including Saturdays and holidays, using such method and wording allowing a subscriber to receive an explanation regarding the ascription and overseas dialing, in Hebrew, English, Arabic and Russian; the explanation will include the following matters:

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Appendix J

(A)	Performance of ascription – the ascription process and where to call in order to request the ascription form;

(B)	How one may make an international call when the subscription is blocked for short dialing codes;

(C)	The option of blocking overseas dialing and the option of removing such block;

(D)	Where one may call in order to find out about additional matters – telephone numbers of international operators.

7.	Interconnection

7.1

The Licensee will connect its system to all international telecommunications system, directly or indirectly, according to the terms of its license, in a manner allowing provision of international telecommunications services to all subscribers through the international telecommunications services of all international operators, including outgoing and incoming ITMS calls, direct dialing, dialing through an operator (‘188’ service, as stated in section 2.2(A)), “Direct Israel” services, collect service (from abroad to Israel, from Israel abroad), international 1-800 service (incoming and outgoing), calling card services, from any destination abroad and to any destination abroad.

7.2	The technical, operational and commercial arrangements between the Licensee and any international operator will allow the provision of the following to all subscribers:

(A)	Quality service, including service quality control and means for investigating and dealing with subscriber’s complaints regarding quality of service;

(B)	Accurate and precise billing of subscriber, including control over the billing and means for investigating and dealing with subscriber’s complaints regarding incorrect billing and tools and means of identification and prevention of fraud and deception;

(C)	Consumer response to subscriber’s queries and questions, including tools and means of providing an itemized bill for subscribers, and for investigating subscriber’s queries in all matters related to receipt of international services.

7.3	In order to implement the provisions of this appendix, the Licensee will act, inter alia, as follows:

(A)	Allow any subscriber who has not blocked outgoing international ITMS calls to make international calls at any time via his chosen international operator or as a chance caller, using dialing methods set out in section 2;

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Appendix J

(B)	Allow all subscribers to change their chosen operators; this service will be given in return for a reasonable charge,

(C)	Take reasonable measures to prevent subscriber ascription to a chosen operator without his knowledge or against the subscriber’s wishes (“slamming”); these measures will include identification of the subscriber and verification of the subscriber’s right to receive service;

(D)	Give all subscribers, free of charge, service allowing them to identify the name of their chosen operators;

(E)

The Licensee will offer non-discriminatory conditions to all international operators, including in all matters regarding the commercial conditions, billing and collections arrangements, availability of connection installations and quality of service; without derogating from the generality of the aforesaid, the Licensee will provide service for all international operators under equal conditions including in the matter of interconnection, provision of infrastructure installations and connection services to the network, performance of changes in switching, in installations, protocols and network interface;

(F)	The conditions for interconnection between the Licensee’s system and the international operator’s international telecommunications system will be reasonable and non-discriminatory; if the parties have not reached any agreement, the Minister will determine matters between them;

(G)	A copy of any agreement between the Licensee and international operator in the matter of interconnection will be delivered to the Director;

(H)

Any international operator requesting the particulars of a subscriber refusing to make payments to the Licensee designated for the international operator for services used via the international operator’s international telecommunications system will be given over, whether such subscriber was an ascription subscriber or a chance caller; these particulars will include the first name, last name or name of corporation, ID number of ID number of the corporation, address and telephone number.

(I)

A22 Allow international operators to collect payment directly for services from subscribers ascribed to such international operator, and who have chosen to receive billing and collections services directly; the Licensee will have any vital information required by the international operator at his disposal allowing the international operator to provide billing and collection services for such aforesaid ascribed subscribers;

(J)	A22 Provide services under equal and non-discriminatory conditions and for such charge not discriminating against an ascribed subscriber who has chosen to receive billing and collection services from the international operator.

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7.4

The international operators will bear the costs of implementation of the interconnection including the process of survey and blocking short dialing codes, and, if so required, for a subscriber’s initial ascription to a chosen operator; the rate of payments, as stated, will be determined under negotiation between the Licensee and the international operator; the Licensee’s shared expenses that cannot be ascribed to a particular international operator will be divided equally between all international operators; if the parties have not come to an arrangement, the Minister will prescribe instructions in these matters, after giving the parties a fair opportunity to argue their claims before him.

First Schedule – Void A23

Second Schedule – Void A23

Second Schedule—Appendix J – 10

Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services. Consolidated Version as of August 20, 2007.

Appendix K

Appendix K – Discontinuation of Service to Cellular End-User Equipment of the IS-54 type t 7

Definitions

In this appendix -

“Old technology phone” –	A cellular phone operating on IS-54 format;
“New technology phone” -	A cellular phone operating on IS-136 format;
“Upgradeable telephone” -	An old technology phone that may be upgraded to a new technology phone;
“Date of cessation of service” -	The date on which the Licensee ceases to provide cellular services to an old technology phone owner.
“Eligible customer” -	The Licensee’s subscriber or customer who has lawfully purchased an old technology telephone and has not exchanged or upgraded it to a new technology phone;
“Telephone Number” -	The number of the cellular telephone given to a subscriber or customer who lawfully purchased an old technology phone and connected to the Licensee’s network;
“Upgrade” -	Exchanging the software version of the telephone upgrades the telephone, wherein it becomes a new technology phone.

Discontinuation of service	2.	Notwithstanding the aforesaid in section C of chapter E of the General License, the Licensee may discontinue provision of cellular services to eligible customers, provided all the following provisions apply:
Publication	3.	(A) The Licensee will publish an appropriate notice under these provisions in three of the largest newspapers in Israel, one of which is published in Arabic, on the closest Friday to the date 30 days before the date of cessation of service. (B) The Licensee will publish an appropriate notice under these

t7 Amendment 7

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Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services. Consolidated Version as of August 20, 2007.

Appendix K

		provisions in three of the largest newspapers in Israel, one of which is published in Arabic, on the closest Friday to the date 30 days earlier than the end of six months from the date of cessation of service.

Exchange of telephone	4.	The Licensee will exchange an old technology telephone including all accessories thereto, including a hands-off device, for a new technology telephone, including all accessories thereto, for any eligible customer, on the basis of accessory for accessory, including the installation thereof, provided the new technology telephone is of no lesser features than the new technology telephone’s features, free of any direct or indirect charge to the customer.
Upgrade	5.	The Licensee will upgrade an eligible customer’s upgradeable telephone, free of any direct or indirect charge to the customer.
Telephone number	6.	The Licensee will keep the telephone number allocated to any eligible customer before the date of cessation of service for a period of six months from the date of cessation of service; after this period the Licensee may exchange the telephone number of an eligible customer who did not exchange the old technology telephone to a new technology telephone or did not upgrade an upgradeable phone during that period.
Notice of Application	7.	The Licensee shall inform the Director in advance and in writing of the day of Discontinuation of Service and of the days of Publication as detailed in sub-sections 3(A) and (B) above and shall furnish the Director with copies of the notices as published.

Period	8.	The Licensee will fulfill the provisions of sections 4 and 5 above starting on the date of publication prescribed in sub-section 3(A) above for a period of 7 years from the date of cessation of service.
Conditions of service	9.	The provisions of sections 4, 5 and 6 will be deemed a condition of service, as defined in section 37B.(A)(1) of the Telecommunications Law.

t7 Amendment 7

Second Schedule—Appendix K – 2

Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services. Consolidated Version as of August 20, 2007.

Appendix O

Appendix O – Erotic Services t 36 e ffect

1. Definitions

1.1 In this appendix –

Licensee -	One who has been given a general license by the Minister for provision of NDO or cellular services;
Telephone bill -	A bill given to the subscriber by the Licensee for services provided;
Writing -	Including via facsimile or electronic mail;
Service number -	A number of digits allocated to an erotic services provider by the Licensee, given by dialing a telephone number, subject to the provisions of the numbering program and administrative provisions in this matter, the dialing of which, following a dialed prefix, allows the subscriber access to the service;
Services provider -	One who provides erotic services via the network, and payment for the service is made through the telephone bill; in the matter of erotic services provided through dialing a telephone number, access to the services is achieved through a service number;
Erotic promo	Broadcast or presentation of an audio or visual message with sexual content, including a recorded message, given via a telecommunications facility, directly or indirectly, and such message is intended to provide information on a service following or to encourage the use thereof, provided the broadcast of the message or presentation are made without additional charge beyond the charge for a telephone call collected via the telephone bill; In this matter, “indirectly” – including by way of creating a connection from the subscriber’s end user equipment as a condition of providing the erotic promo.
Area code	A national area code in such model as prescribed by the Ministry for erotic services;
The network -	The Licensee’s public telecommunications network.
Erotic services -	Audio broadcast or presentation of an audio or visual message with sexual content, including recorded messages, given via a telecommunications facility, directly or indirectly, including services for dating, chats, or sending messages between chance callers, designated or serving, even in part, for sexual purposes,

A36 Amendment no. 36

effect This amendment will go into effect on the 1 st of Nissan, 5766(March 30, 2006)

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Appendix O

	which are any of the following: (1) A service provided through the dialing of a telephone number given by a service provider; (2) An access service to a closed data base of contents including multimedia files, held by the Licensee or by another provider of the service with the Licensee’s consent (hereinafter: the “ cellular portal” ). In this matter, “indirectly” – including by way of creating a connection from the subscriber’s end user equipment as a condition of providing the service or for charging for it;

Payment regulations -	The Communications Law (Telecommunications and Broadcasts) (Payment for Telecommunications’ Services), 5765 – 2005;
Special payment -	A price fixed as stated in section 6, which the subscriber is required to pay for erotic services in addition to the regular payment;
Payment Per time -	A special payment, the rate of which is determined by the amount of time the subscriber used the erotic service;
Regular payment -	One of the following: (A) For a call within the network – a payment that does not exceed the fixed charge according to the rate agreement between the subscriber and the Licensee regarding a call to another subscriber in the same network; (B) For a call from one cellular network to another cellular network or to a NDONDO network – payment as set out in sub-section (A) plus a payment that does not exceed NIS 0.50 per minute (including VAT); (C) For a call from the Bezeq company network to a cellular network – a charge that does not exceed that prescribed by the letter D in table A in the First Schedule of the Payment Regulations, plus NIS 0.50 per minute (including VAT); (D) For a call from a NDONDO network, except the Bezeq company network, to a cellular network – a charge that does not exceed the fixed charge according to the rate agreement between NDO subscribers and NDO, with respect to another subscriber number within the same network, plus NIS 0.50 per minute. (E) For erotic services given via the cellular portal – a charge that does not exceed the fixed charge according to the rate agreement between the subscriber and the Licensee with regard to access service to the cellular portal.

2. Access through Dialing

2.1	Subject to the provisions of section 4, access to erotic services given through dial-up will be made available to subscribers via an area code and service number.

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Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services. Consolidated Version as of August 20, 2007.

Appendix O

3.	Allocation of Service Number

3.1.	In the matter of erotic services provided by dial-up, the Licensee may allocate a service number to a service provider; in such case, the Licensee will allow the service provider to provide services to both the Licensee’s subscribers as well as subscriber to other licensees.

4.	Blocking Access

4.1

A. A38 A Licensee will block access to erotic services from all end-user equipments connected to the network; without derogating from the aforesaid, for the purpose of blocking access to erotic services given though the cellular portal, the Licensee may make use of a means of blocking, including content filtering programs, provided they efficiently block access to said service.

B. A38 Should the Ministry of Communications notify the Licensee that an erotic promo is being given through the Licensee’s telephone line or network, without access through a service number, the Licensee will cut off said line, or block the line from receiving incoming calls;

4.2	A subscriber 18 years of age or more may request the Licensee remove a block imposed as described in section 4.1A A38 from his end user equipment.

4.3	A request for such removal of a block will be made in writing, or verbally, provided the Licensee has prescribed a procedure allowing accurate identification of the requesting subscriber.


4.4	If a subscriber has so requested a block removed, the Licensee will remove the block within a reasonable time, in a manner allowing the subscriber access to erotic services via the end user equipment in his possession.

4.5

If a block has been removed for erotic services as stated, and the subscriber requests that his end user equipment again be blocked for such services, the Licensee shall perform the block at the soonest possible opportunity, and by no later than 2 work days from the date of receipt of the subscriber’s request.

4.6

The first removal of a block against erotic services, made at the subscriber’s request as stated in sections 4.2 and 4.3 will be made free of charge; the Licensee may charge the subscriber a reasonable fee for any additional blocking access to erotic services or for additional removal of such block, made at the subscriber’s request.

5.	Early Registration

5.1

Notwithstanding that stated in section 4 above, the Licensee may establish a duty of early subscriber registration for receipt of a password, a submission of which will be a precondition for receipt of erotic services. The provisions of this section do not derogate from the provisions of sections 4.2 and 4.3 above.

6.	Special Payment

Appendix O – 3

Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services. Consolidated Version as of August 20, 2007.

Appendix O

6.1	If special payment is prescribed for erotic services, the rate shall be fixed by the Licensee or in agreement between the Licensee and the services provider.

7.	Charging the Subscriber

7.1.	If special payment is prescribed for erotic services, the Licensee’s phone bill will show the payment for the service separately from charges for the Licensee’s other services, unless the subscriber has requested otherwise.

7.2.	The Licensee shall provide the subscriber, upon demand and within ten (10) working days, details of the special payment for erotic services as follows:

(A)	The service number the service allocated;

(B)	The date and time service was provided;

(C)	Billing time units – when charging per time – the number of time units charged or the total amount of the special payment; in the case of a charge according to traffic volume (such as MB, KB), the number of volume units transferred;

(D)	The sum charged for the service.

The Licensee may collect a reasonable fee for specification of the special payment.

8.	Mandatory Tender

8.1	If a special payment has been fixed for erotic services provided through the network, the Licensee, either himself or via the services provider, will play a recorded message at the beginning of the call, containing the following details:

A.	The essence of the service;

B.	Rate of special payment for the service, according to payment per time or per traffic volume, as the case may be;

C.	The option to discontinue the service, without charge, before the signal is heard, as stated in section 8.4.

8.2	The recorded message will be played in the language in which the erotic service is provided, in comprehensible language, at a reasonable pace and without recording defects.

8.3	At the start of erotic services provided in a language not Hebrew, a message will be played announcing the language in which the service is provided, and after, the recorded message will be played, as stated in sections 8.1 and 8.2, in the language in which the service is provided.

8.4

Upon completion of the recorded message, as stated in section 8.1, the caller will have a 5 second interval, at the end of which a signal indicating the start of the erotic services; if the caller disconnected the call before the signal was heard, he will not be charged the special payment. Alternatively, the caller will be asked to press a certain key on his end

Appendix O – 4

Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services. Consolidated Version as of August 20, 2007.

Appendix O

	user equipment in order to confirm that he desires to accept the service, and will be charged the special payment only from the moment he so acts.

8.5	If a special payment is fixed for erotic services provided by access to the cellular portal, the Licensee will notify subscribers regarding the price of the service in an obvious and clear manner, providing the subscriber the option to disconnect from the service without being charged the special payment.

9.	Licensee –Services Provider Relations

9.1	The Licensee may allow a services provider to perform telecommunications operations via its installations in order to provide erotic services; the services provider will be exempt from the duty of obtaining a license for telecommunications services, under the provisions of section 3(5) of the Law.

9.2	The Licensee will include the provisions of this appendix, mutatis mutandis, in the agreement between the Licensee and the services provider, in such manner that the services provider will be obligated to fulfill said provisions.

9.3	The Licensee will provide the Director with any agreement between such and a services provider, upon demand.

10.	Interconnection

10.1

The conditions for interconnection between the network and the Licensee’s public telecommunications network, in all matters relating to provision of billing and collection services by one Licensee to another licensee, for purposes of provision of erotic services given via the network to another licensee’s subscriber, will be formalized in an agreement between the Licensee and the other licensee; if the parties cannot reach an agreement, the Minister will decide on the matter.

10.2	The Licensee will, upon demand, provide the Director with a signed copy of all agreement it has with other licensees in the matter of said interconnection.

11.

General

11.1

The Licensee will be responsible to handle all erotic services customer complaints, in all matters relating to subscriber access to the service, and problems of billing and collection in connection with the service, and will establish a mechanism for dealing with customer queries for such purpose; the services provider will be responsible to deal with subscriber complaints in regard to service content. If the Licensee himself provides the erotic services, the Licensee will be responsible to handle erotic services customer complaints regarding the service content as well.

11.2	The Licensee may not disconnect, stop or harm the basic telephone services of a subscriber who has used erotic services and refuses to pay for such, however, the Licensee may disconnect such subscriber from continued use of the erotic services.

11.3	The Licensee may not provide a subscriber’s particulars to another services provider or to others, without the subscriber’s written consent , and only after verification of the authenticity of such consent.

Appendix O – 5

Second Schedule for Cellcom Israel Ltd. Company’s General License for Cellular Telephone Network (Cellular) Services. Consolidated Version as of August 20, 2007.

Appendix O

11.4	A Licensee shall, within three (3) working days, provide any subscriber so requesting the following particulars regarding the services provider, without charge:

A.	The name and address of the provider;

B.	The telephone number at which such provider may be reached.

11.5	The provisions of this appendix will apply, mutatis mutandis, to provision of erotic services provided as a network service to the Licensee’s subscribers only.


11.6	The Licensee may himself provide erotic services, and the provisions of this appendix will apply thereto, mutatis mutandis.

Appendix O – 6

Exhibit 12.1

I, Amos Shapira, Chief Executive Officer of the Company, certify that:

1.	I have reviewed this annual report on Form 20-F of Cellcom Israel Ltd;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)	Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)	Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5.	The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 18, 2008

	/s/ Amos Shapira
	Amos Shapira Chief Executive Officer

Exhibit 12.2

I, Tal Raz, Chief Financial Officer of the Company, certify that:

1.	I have reviewed this annual report on Form 20-F of Cellcom Israel Ltd;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

(a)

(b)

(c)

Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5.	The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 18, 2008

	/s/ Tal Raz
	Tal Raz Chief Financial Officer

Exhibit 13.1

The certification set forth below is being submitted in connection with the Annual Report on Form 20-F of Cellcom Israel Ltd. for the year ended December 31, 2007 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Amos Shapira, the Chief Executive Officer and Tal Raz, the Chief Financial Officer of Cellcom Israel Ltd., each certifies that:

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cellcom Israel Ltd.

Date: March 18, 2008

	/s/ Amos Shapira
	Name: Amos Shapira
	Chief Executive Officer

	/s/ Tal Raz
	Name: Tal Raz
	Chief Financial Officer

Exhibit 15


Somekh Chaikin	Telephone	972 3 684 8000
KPMG Millennium Tower	Fax	972 3 684 8444
17 Ha'arba'a Street, PO Box 609	Internet	www.kpmg.co.il
Tel Aviv 61006 Israel

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Cellcom Israel Ltd.:

We consent to the incorporation by reference in the registration statement on Form S-8 ( No. 333-1 41639) of Cellcom Israel Ltd. of our report dated March 17, 2008, with respect to the consolidated balance sheets of Cellcom Israel Ltd. and subsidiaries, as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007 , and the effectiveness of internal control over financial reporting as of December 31, 2007, which report appears in the December 31, 2007 annual report on Form 20-F of Cellcom Israel Ltd. Our report contains emphasis paragraphs noting the following:

The consolidated financial statements as of and for the year ended December 31, 2007 have been translated into United States dollars solely for the convenience of the reader. The consolidated financial statements expressed in NIS have been translated into dollars on the basis set forth in Note 2C of the notes to the consolidated financial statements.

/s/ Somekh Chaikin

Somekh Chaikin

Certified Public Accountants (lsr.)

Member Firm of KPMG International

Tel Aviv, Israel

March 17, 2008

Somekh Chaikin, a partnership registered under the Israeli Partnership Ordinance, is the Israeli member firm of KPMG International, a Swiss cooperative.