UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 20–F
 
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2014
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                                       to                                                  
 
OR

o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
Date of event requiring this shell company report
 
 
Commission file number 001-33271
 
CELLCOM ISRAEL LTD.  
(Exact name of Registrant as specified in its charter
and translation of Registrant’s name into English)
 
ISRAEL
(Jurisdiction of incorporation or organization)
 
10 Hagavish Street, Netanya   4250708 , 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, 2014, the Registrant had outstanding 100,584,490 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 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  has been subject to such filing requirements for the past 90 days.  [X]  Yes    [  ]  No

Indicate by check mark whether the Registrant (1) has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) .    [  ]  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 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  [ X ]

Other [  ]

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 [  ]

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
 

 
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TABLE OF CONTENTS
 
   
Page
     
PART I
5
5
5
30
84
85
113
142
147
149
151
165
167
PART II
167
167
167
168
168
169
169
169
169
170
171
PART III
171
171
171
Financial Statements
F-1

 
3

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 International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board   ("IASB").
Unless we indicate otherwise, U.S. dollar translations of the NIS amounts presented in this annual report are translated for the convenience of the reader using the rate of NIS 3.889 to $1.00, the representative rate of exchange as of December 31, 2014 as published by the Bank of Israel. The translation is for the convenience of the reader only, and it does not represent the fair value of the translated assets and liabilities.
 
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, Brandman Marketing Research and Consultancy Institute, Sapio Research and Development, Geocartography Research Institute, Rotem TRI Institute, Informa Telecom, OVUM and Meida Shivuki C.I (survey institute). 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. Key Information - 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
 

 
4

factors discussed under the caption entitled “Item 3. Key Information - D. Risk Factors.”  You should specifically consider the numerous risks outlined under “Item 3. Key Information - 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, 2014, 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, 2013 and 2014, and for each of the years in the three-year period ended December 31, 2014, 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 and the convenience translation of the consolidated financial statements as of and for the year ended December 31, 2014 into U.S. dollars solely for the convenience of the reader.
 
On August 31, 2011, we completed the acquisition of 100% of the share capital of Netvision Ltd., or Netvision. Therefore, the consolidated results for the year ended December 31, 2011, included elsewhere in this annual report, include Netvision's results for the months of September through December 2011 only.
 


 
The information presented below under the caption “Other Data” contains information that partly is not derived from the financial statements.
 
For your convenience, the following tables also contain U.S. dollar translations of the NIS amounts presented at December 31, 2014, translated using the rate of NIS 3.889 to $1.00, the representative rate of exchange on December 31, 2014 as published by the Bank of Israel.
 
   
Year Ended December 31,
 
   
2010
   
2011(1)
   
2012
   
2013
   
2014
   
2014
 
   
(In NIS millions, except per share data)
   
(In US$ millions)
 
Income Statement Data:
 
                                   
Revenues
    6,662       6,506       5,938       4,927       4,570       1,175  
Cost of revenues
    3,322       3,408       3,463       2,990       2,727       701  
Selling and marketing expenses
    756       990       865       717       672       173  
General and administrative expenses
    641       685       629       570       463       119  
Other (income) expenses, net
    5       1       (4 )     (1 )     46       12  
Operating income
    1,938       1,422       985       651       662       170  
Financing expense, net
    230       293       259       246       198       51  
Income tax
    417       304       195       117       110       28  
Net income
    1,291       825       531       288       354       91  
Basic earnings per share
    13.04       8.28       5.34       2.89       3.51       0.90  
Diluted earnings per share
    12.98       8.28       5.33       2.86       3.48       0.89  
Weighted average ordinary shares used in calculation of basic earnings per share
    98,979,544       99,476,671       99,481,487       99,495,525       99,924,306          
Weighted average ordinary shares used in calculation of diluted earnings per share
    99,480,791       99,511,433       99,609,722       100,319,724       100,706,282          
Other Data:
                                               
EBITDA(2)
    2,667       2,167       1,753       1,335       1,282       330  
Capital expenditures
    735       520       537       384       487       125  
Dividends declared per share
    13.85       7.88       1.31       0.85       -       -  
Net cash from operating activities
    2,380       1,332       1,641       1,556       1,557       400  
Net cash used in investing activities
    (889 )     (1,656 )     (708 )     (344 )     (350 )     (90 )
Net cash from (used in) financing activities
    (1,861 )     715       (439 )     (1,569 )     (1,106 )     (284 )
Cellular Subscribers (in thousands)(3)
    3,394       3,349       3,199       3,092       2,967          
Churn rate of cellular subscribers(4)
    20.5 %     25.1 %     31.5 %     36.8 %     44 %        
Cellular ARPU (in NIS)(5)
    144       106       88       78       72       19  
Balance Sheet Data:                                                
Cash     533       920       1,414       1,057       1,158       298  
Working capital     924       679       1,232       1,082       837       215  
Total assets     5,996       8,557       8,787       7,579       7,240       1,862  
Total equity     341       187       500       710       1,092       281  

 
(1)
The consolidated financial results for the year ended December 31, 2011 include the results of Netvision, our wholly owned subsidiary, for the months September through December 2011. We consummated the acquisition of Netvision on August 31, 2011.
 
(2)
EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net (excluding one-time expense related to employee retirement plan); income tax; depreciation and amortization and share based payments.  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) and 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 IFRS 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,
 
   
2010
   
2011
   
2012
   
2013
   
2014
   
2014
 
   
(In NIS millions)
   
(In US$ millions)
 
                                     
Net income
    1,291       825       531       288       354       91  
Financing expense, net
    230       293       259       246       198       51  
Other expenses (income), net
    5       1       (4 )     (1 )     7       2  
Taxes on income
    417       304       195       117       110       28  
Depreciation and amortization
    724       738       765       676       610       157  
Share based payments
    -       6       7       9       3       1  
EBITDA
    2,667       2,167       1,753       1,335       1,282       330  

 
(3)
Cellular subscriber data refers to active subscribers.  We use a six-month method of calculating our cellular subscriber base, which means that we deduct subscribers from our subscriber base after six months of no revenue generation and activity on our network by or in relation to the post-paid subscribers, no revenue generating calls or SMS for pre-paid subscribers and no data usage or less than NIS 1 of accumulated revenues for M2M (machine to machine) subscribers. The six-month method is, to the best of our knowledge, consistent with the methodology used by other cellular providers in Israel. During the fourth quarter of 2011, we removed approximately 52,000 subscribers from our subscribers base, which included subscribers using our TDMA network who had not requested a transfer to our other networks following the shutdown of our TDMA network as of December 31, 2011, and subscribers who ceased using our services following a change to our policy which previously allowed subscribers to change from post to prepaid subscription as a result of the reduction of early termination fees in plans which include a commitment to a predefined period, or Early Termination Fees, in the cellular market in early 2011. These changes affected other key performance indicators. In the fourth quarter of 2012 we removed approximately 138,000 M2M subscribers from our subscriber base, following the addition of the above revenue generation criterion for M2M subscribers. This change had an immaterial effect on our ARPU for 2012. In the fourth quarter of 2013, we removed approximately 64,000 subscribers from our subscriber base, following a change to our prepaid subscribers counting mechanism. As a result of such change, we add a prepaid subscriber to our subscribers base only upon charging a prepaid card and remove them from our subscribers base after six months of no revenue generating calls or SMS. Following each of these changes, we have not restated prior subscriber data to conform with this change.
 
(4)
Churn rate is defined as the total number of voluntary and involuntary permanent deactivations of cellular subscribers in a given period expressed as a percentage of the number of cellular subscribers at the beginning of the period.  Involuntary permanent deactivations relate to cellular subscribers who have failed to pay their arrears for the period of six consecutive months.  Voluntary permanent deactivations relate to cellular subscribers who terminated their use of our cellular services. Churn rate data is excluding the above mentioned removals of subscribers.
 
(5)
Average monthly revenue per cellular subscriber (ARPU) is calculated by dividing revenues from cellular services for the period by the average number of cellular subscribers during the period and by dividing the result by the number of months in the period.  Revenues from inbound roaming services and hosting services are included even though the number of cellular subscribers in the equation does not include the users of those roaming and hosting services.  Inbound roaming services and hosting services are included because ARPU is meant to capture all service revenues generated by a cellular network.  Revenues from sales of extended warranties are included because they represent recurring revenues generated by cellular subscribers, but revenues from sales of handsets (which for purposes of this report may include other types of cellular end user equipment, such as tablets), repair services and other  services are not.  We and industry analysts treat ARPU as a key performance indicator of a cellular operator because it is the closest meaningful measure of the contribution to service revenues made by an average subscriber.
 
We have set out below the calculation of cellular ARPU for each of the periods presented:
 
   
Year Ended December 31,
 
   
2010
   
2011
   
2012
   
2013
   
2014
   
2014
 
   
 (In NIS millions, except number of subscribers and months)
   
(In US$ millions)
 
Revenues
    6,662       6,506       5,938       4,927       4,570       1,175  
less revenues from equipment sales 
    802       1,747       1,356       942       1,005       258  
less other revenues*
    124       484       1,125       1,034       941       242  
Revenues used in cellular ARPU calculation
    5,736       4,275       3,457       2,951       2,624       675  
Average number of cellular subscribers
    3,322,891       3,361,803       3,291,843       3,135,857       3,034,946       3,034,946  
Months during period
    12       12       12       12       12       12  
Cellular ARPU (in NIS, per month)
    144       106       88       78       72       19  
 
*
Other revenues include revenues from other communications services such as ISP, transmission services, local and international landline services and repair services.
 


 
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 2014
    3.695       3.578  
October 2014
    3.793       3.644  
November 2014
    3.889       3.782  
December 2014
    3.994       3.889  
January 2015
    3.998       3.889  
February 2015
    3.966       3.844  
 
On March 13, 2015 the daily representative rate of exchange between the NIS and U.S. dollar as published by the Bank of Israel was NIS 4.015 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 rates of exchange on the last day of each month during the relevant period as published by the Bank of Israel:
 
 
Year
 
Average (NIS)
 
2010
    3.732  
2011
    3.582  
2012
    3.844  
2013
    3.601  
2014
    3.593  
 
The effect of exchange rate fluctuations on our business and operations is discussed in “Item 11 - 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. In recent years, regulation in Israel has materially adversely affected our results.
 
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 licenses for the provision of different telecommunications services that we received from the Ministry of Communications in accordance with the Communications Law.  The interpretation and implementation of the Communications Law, Wireless Telegraph Ordinance and regulations and the provisions of our general licenses, as well as our other licenses, are not certain and subject to change, and disagreements have arisen and may arise in the future between the Ministry of Communications, or MOC, 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 or the applicable laws and regulations. Further, in the event that we materially violate the terms of our licenses, the Ministry of Communications has the authority to revoke them. Our operations are also subject to the regulatory and supervisory authority of other Israeli regulators which have the authority to impose criminal and administrative sanctions against us.
 
Our general cellular 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. Netvision's Internet Service Provider, or ISP, license and International Long Distance, or ILD, license, are valid until April 2017 and May 2025, respectively and may be extended for additional five and ten year periods, respectively, on terms similar to those provided in our cellular license. Our other licenses are also limited in time. 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 has modified and may modify our licenses without our consent and in a manner that could limit our freedom to conduct our business and harm our results of operations. Possible changes to our licenses and legislation which would require us to change our pricing plans and information systems frequently or on a timetable we cannot meet, can increase the risk of noncompliance with our licenses or violation of such legislation and our exposure to lawsuits and regulatory sanctions.
 
Further, our business and results of operations could be materially and adversely affected by new legislation and decisions by regulators or the courts that:
 
 
·
do not approve the network and site sharing agreements we entered with Pelephone communications Ltd., or Pelephone, and Golan Telecom Ltd., or Golan, our competitors, or approve them subject to conditions that are adverse to us,   more so if the regulators do approve a similar agreement between our other competitors, or provide such approval on an earlier date than for our agreements or under more lenient terms. For additional details, see "- We face intense competition in all aspects of our business" and "We may be adversely affected by the significant technological and other changes in the cellular communications industry; network sharing agreements, if approved, may have material adverse effects on our business" below and "Item 4. Information on The Company – B. Business Overview – Network and Technology - Network and Cell Sites Sharing Agreements" and "-Competition";
 


 
 
·
reduce tariffs, or otherwise intervene in the pricing policies for our products and services, including by: intervening in pricing of bundles of services or roaming services, or prohibiting subscription or other fees for certain services. For additional details regarding such steps already implemented and outstanding hearings see "Item 4. Information on the Company – B. Business Overview – Government Regulations – Tariff Supervision" and "Item 4. Information on The Company – B. Business Overview – Netvision`" for additional details;
 
 
·
set unfavorable national roaming tariffs or Mobile Virtual Network Operator, or MVNO, hosting tariffs, or require us to provide wholesale services on our landline infrastructure or provide and purchase such services at unfavorable tariffs, or set reduced interconnect tariffs so that they do not represent cost plus reasonable profit. See "Item 4. Information on the Company – B. Business Overview - "Government Regulations - Tariff Supervision", "-Additional MNOs", and "– Landline";
 
 
·
award new or smaller competitors certain benefits and leniencies not available to existing cellular operators, including through waiving, easing or not enforcing requirements set in the  licenses of mobile network operators, or MNOs, or by limiting our ability to compete, including by providing preference to new or smaller competitors in the allocation of frequencies or otherwise. See "Item 4. Information on the Company – B. Business Overview - Competition", "-Government Regulations – Mobile Virtual Network Operators" and "- Additional MNOs"  for additional details;
 
 
·
allow other operators to provide services previously provided only by us to our subscribers, including roaming services;
 
 
·
do not renew our licenses or the allocation of our frequencies or demand that we return frequencies allocated to us;
 
 
·
impose new safety or health-related requirements;
 
 
·
impose additional restrictions or requirements with respect to the construction and operation of cell sites or the networks, including in relation to site and network sharing;
 
 
·
impose restrictions on the provision of services or products we currently provide or regulate or otherwise intervene with the terms under which we advertise and market them and provide them to our subscribers, including in respect of existing agreements.;
 
 
·
limit or otherwise intervene with the services or products that we may sell;
 
 
·
set higher service standards or costly requirements relating to the service we provide our customers, both in relation to our network quality and coverage and our customer service;
 


 
 
·
impose the laws and regulations applicable to charge cards on the clearing services we provide to third party providers, including liability for misuse and liability imposed on internet online and telephonic transactions. The Israeli Attorney General has given such opinion to two separate tribunals (which have not yet ruled on the matter);
 
 
·
impose a stricter policy with respect to privacy protection, such as with regard to data protection, collection, amelioration or usage of data for marketing activities;
 
 
·
impose structural or operational separation between our and Netvision's operations (partial or full) or between the different services within each company or otherwise limit our ability to offer bundles of services;
 
 
·
set unfavorable regulation regarding international communications services and the landline wholesale market. See "Item 4. Information on The Company – B. Business Overview –Government Regulations – Landline".
 
 
·
impose regulation on our recently launched OTT TV services, including the requirement to finance original productions, whether as TV provider or infrastructure (MNO and ISP) provider or imposing unfavorable terms for the usage of the Digital   terrestrial television (DTT) broadcasting in Israel. See "- Item 4. Information on the Company – B. Business Overview – Government Regulations ― OTT TV".
 
See “ Item 4. Information on the Company – B. Business Overview – Government Regulations ― Our Principal License” and “ - Other Licenses”.
 
If we fail to compensate for lost revenues, increased expenses (objectively or in comparison to our competitors) or additional investments resulting from past or future legislative or regulatory changes with alternative sources of income or otherwise, our results of operations may be materially adversely affected.
 
We face intense competition in all aspects of our business.
 
The Israeli telecommunications market is highly competitive in many of its elements, including the cellular, internet access, or ISP, and international calling, or ILD, service markets. The competition level has increased substantially in recent years, following the entry of additional competitors and regulatory changes alleviating entry barriers and transfer barriers. The intensified competition led to price competition, the adverse effects of which includes an increased churn rate and increased subscriber acquisition costs, in addition to accelerated price erosion, specifically in the cellular market, all of which have ultimately led to a material decrease in revenues and profitability for us and other MNOs. The current level of competition and price erosion are expected to continue in the cellular, ISP and ILD markets and is expected to intensify in the multichannel television market following our recent entry to this market and in the landline market once the wholesale market, formally launched in February 2015, is effective. See also the "Competition" section under “Item 4. Information on the Company - B. Business Overview","-Netvision - ISP Business" and "-Netvision - Telephony Business". Should the current level of competition continue, it will continue to materially adversely affect our results of operations.  Any of the following developments materializing in our market, may result in a further  materially reduced profitability for us:
 

 
 
 
·
the approval and execution of a network sharing agreement between our competitors, more so if not coupled with an approval and execution of similar agreements by us, given the material savings in expenditures and investments that can be achieved by such sharing of networks, as well as from the exemption  from the requirement to build a 3rd generation network provided to our competitors Golan and Hot Mobile Ltd., or Hot Mobile, embedded in such network sharing approval. The approval of network sharing agreements would substantially decrease Golan and Hot's expenditures, specifically their variable cost per customer. Network sharing will also allow Hot Mobile and Golan to offer hosting services to MVNOs, whereas presently they do not. For details regarding the sharing agreements see "Item 4. Information on The Company – B. Business Overview – Network and Technology - Network and Cell Sites Sharing Agreements" and "-Government Regulation –Network Sharing".
 
 
·
tariffs maintained at their current level or decreasing even further, including as part of a bundle.
 
 
·
an ineffective landline wholesale market, including due to the pricing of the wholesale services in relation to the offering of services by the Bezeq and Hot groups at tariffs lower than prevailing market tariffs or lower than our costs for these services, as it may impede our ability to provide competitive bundles and adversely affect our services dependent on landline infrastructure currently purchased or to be purchased by us under the wholesale market, such as ISP, landline telephony, and OTT TV, more so when coupled with increasing demand for greater bandwidth, resulting in higher costs while revenues decrease.
 
 
·
increased competition in the hosting services market. If our sharing agreements are not approved, Golan may choose to purchase (subject to our national roaming agreement conditions) future national roaming services elsewhere or engage in a network sharing agreement with another operator, resulting in the loss of revenues from national roaming services to us. For details regarding the sharing agreements see "Item 4. Information on The Company –  B. Business Overview – Network and Technology - Network and Cell Sites Sharing Agreements".
 
 
·
annulment or further relaxation of the structural separation imposed on each of the Bezeq and Hot groups  as it will provide the Bezeq and Hot groups a competitive advantage, given their dominance in the landline telephony, TV and infrastructure markets. See "Item 4. Information on The Company –B. Business Overview –", "-Government Regulations – Landline" for additional details.
 
 
·
entrance of new competitors to any of the markets we operate in, or the entry of existing competitors to additional markets or segments where they are currently not or less active, or as a result of regulatory changes, allowing other operators to provide services currently provided only by us to our subscribers. See "Item 4. Information on The Company –B. Business Overview - Government Regulation – Our principal license", "Other Licenses –Unified License" and "-Additional MNOs".
 


 
 
·
the continued increased competition in the handsets market   , may result in decreased handset sales, and even an inability to meet our contractual obligations to purchase a minimal quantity of handsets from Apple,. See "Item 4. Information on The Company –B. Business Overview – Competition" for additional details.
 
 
·
inability to attract and retain subscribers to our recently launched OTT TV services or price erosion in the TV market due to increased competition.
 
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. 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.
 
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, 2014, we operated a small portion of our cell sites without building permits or applicable exemptions and approximately 33% of our cell sites without building permits in reliance on an exemption from the requirement to obtain a building permit, mainly for radio access devices. Our reliance on the exemption for radio access devices had been challenged and is currently awaiting ruling by the Israeli Supreme Court. Under an interim order issued by the Supreme Court in September 2010, we are unable to rely on the exemption in cellular networks, other than to replace existing radio access devices in certain conditions, until regulations limiting such reliance are enacted or a different decision by the court is made. Draft regulations submitted to the Economy Committee of the Israeli Parliament in March 2010 for approval, include significant limitations on the exemption which will render the construction of radio access devices based on the exemption practically impossible.
 
Additionally, District Court rulings adopted a narrower interpretation of 'rooftops', to which the exemption may be applied.
 
We also rely on the exemption for our rooftop microwave sites and signal amplifiers (known as 'repeaters'). It is unclear whether other types of repeaters require a building permit.
 
In addition, we may be operating a significant number of our cell sites in a manner that is not fully compatible with the building permits issued for these cell sites which may, in some cases, also constitute grounds for termination of our lease agreements for those sites or claims for breach of such agreements.
 
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. As of December 31, 2014, criminal and administrative proceedings were pending with respect to four sites and a demolition order has been granted with respect to two cell sites while the remaining two proceedings are pending further litigation.
 
 
 
 
Pursuant to the Israeli Non-Ionizing Radiation Law, 2006, the granting or renewal of an operating permit by the Commissioner of Environmental Radiation at the Ministry of Environmental Protection of Israel, or the Commissioner, for a cell site or other facility is subject to the receipt of a building permit or an exemption from such a 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 will not grant or renew our operating permits for those cell sites and other facilities. Since October 2007, the Commissioner will not grant 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. Operating a cell site or a facility without an operating permit or in conflict with the permit or in violation of the Non-Ionizing Radiation Law, could subject us and our officers and directors to criminal, administrative and civil liability, to eviction orders in respect of the cell sites in breach, revocation or suspension of the permit, as well as to withholding the grant of permits to additional cell sites. Should any of our officers or directors be found guilty of an offense, they may face monetary penalties and a term of imprisonment.  Our cell sites may be the subject of demolition orders and we may be required to relocate cell sites to less favorable locations or stop operation of cell sites
 
Certain proposed amendments to the Non-Ionizing Radiation Law and Regulations and the Planning and Building Law, propose setting additional restrictions in relation to the operation of cell sites and other facilities, such as setting larger distance requirements between cell sites locations and residences or certain institutions.
 
In June 2010, proposed changes to the Israeli National Zoning Plan 36, or the Plan, which regulates cell site construction and operation, were approved by the Israeli National Council for Planning and Building and submitted for the approval of the Government of Israel. The proposed changes, if approved, would place additional restrictions on the construction and operation of cell sites. Several local planning and building authorities are claiming that Israeli cellular operators may not receive building permits, in reliance on the current Plan, for cell sites operating in frequencies not specifically detailed in the frequencies charts attached to the Plan and have refused to provide a building permit in a number of cases. 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 also operate in frequencies not specifically detailed in the Plan. In July 2011, an inter-ministry team of the Ministries of Communications, Finance, Interior, Environmental Protection and the Anti-Trust Commissionaire, published its recommendations regarding compulsory cell site sharing in the construction of new cell sites or modification of existing cell sites which require a building permit. If we are unable to obtain or rely on exemptions from obtaining or to renew building or other consents and permits for our existing cell sites or other facilities, or if any of the proposed changes noted above are adopted, it could adversely affect our existing network and its build-out, delay the deployment of our 4G network, negatively affect the extent, quality and capacity of our network coverage and our ability to continue to market our products and services effectively, all of which may have a material adverse effect on our results of operations and financial condition.
 
For additional details see “Item 4.B – Business Overview - Government Regulations - Permits for Cell Site Construction”.
 


 
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 required to compensate for depreciation of properties included in or neighboring the approved plan.
 
As a precondition to obtaining a cell site construction permit from a planning and building committee, we are required to provide a letter to the committee indemnifying it for possible depreciation claims and  have provided hundreds of such 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 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.
 
As of December 31, 2014we have one demand from a local committee to indemnify it  based on such an indemnification letter, for an immaterial amount.
 
Alleged health risks relating to non-ionizing radiation generated from cell sites and cellular 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 and concern 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”. In July 2008, the Israeli Ministry of Health published recommendations to take precautionary measures when using cellular handsets, which has increased the concerns of the Israeli public. In May 2011, the International Agency for Research on Cancer, an agency of the World Health Organization, or WHO, issued a press release classifying radiofrequency electromagnetic fields as possibly carcinogenic to humans (Group 2B), based on an increased risk for glioma, a malignant type of brain cancer, associated with wireless phone use. In June 2011, the WHO publication noted that to date, no adverse health effects have been established as being caused by mobile phone use and while an increased risk of brain tumors is not established, the increasing use of mobile phones and the lack of data for mobile phone use over time periods longer than 15 years warrant further research of mobile phone use and brain cancer risk, particularly given recent popular use by younger people with potentially longer periods of exposure. However, in September 2014, the Israeli Ministry of Health updated the possibly carcinogenic to humans elements list in its site, according to the WHO classification. Several bills, aimed at increasing awareness of the possible risks of cellular phones usage, reducing usage thereof and introducing precautionary measures are awaiting deliberation by the Israeli Parliament. In January 2013, the Ministry of Science and Technology and the Ministry of Environmental Protection announced the establishment of a non-ionizing radiation information center that will provide information to the public, issue warnings and guidelines for reducing exposure to risks in general and specifically in regards to sensitive populations and perform and coordinate research in that regard.
 


 
Health concerns regarding cell sites have caused us difficulties in obtaining permits for cell site construction and obtaining or renewing leases for cell sites and even resulted in unlawful sabotage of a small number of cell sites and prompted proposed legislation aimed at increasing the minimum distance permitted between cell sites and certain institutions. Formal positions adopted by various Israeli Ministries with respect to radiation safety, include the position that cell sites constructed pursuant to a building permit are preferable to radio access devices, that 4G services involve some increase in the level of non-ionizing radiation the public will be exposed to and therefore should have limited permitted usage and that utilizing a cellular network to provide advanced services that can be provided through a landline network is not justified in light of the preventive care principle set forth in the Israeli Non-Ionizing Radiation Law.
 
If health concerns regarding non-ionizing radiation increase further, or if adverse findings in studies of non-ionizing radiation are published, non-ionizing radiation levels are found to be higher than the standards   set for handsets and cell sites or additional requirements or limitations are imposed on the marketing of cellular products or services, we may be subject to health-related claims for substantial sums. Consumers may also be discouraged from using cellular handsets and regulators may impose additional restrictions on the construction and operation of cell sites or handset and accessories marketing and usage. As a result, we may experience increased difficulty in constructing and operating cell sites and obtaining leases for new cell site locations or renewing leases for existing locations, or be exposed to property depreciation claims; and we may lose revenues due to decreasing usage of our services and be subject to increased regulatory costs. We have not obtained insurance for these potential claims. See "Item 8. Financial Information – A. Consolidated Statements and Other Financial Information – Legal Proceedings – Class Actions" for additional details on two class actions filed against us in that respect. An adverse outcome 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.
 
The unionizing of our employees may impede necessary organizational and personnel changes, result in increased costs or disruption to our operation.
 
In September 2013, we recognized the Histadrut, an Israeli labor union, as the union representing the Company's and Netvision's employees and in February 2015, we entered a collective employment agreement with the Company's employees' representatives and the Histadrut for a term of 3 years (2015-2017).   The agreement defines employment policy and terms in various aspects, including payments to the employees and procedures relating to manning a position, change of place of employment and dismissal, including management and employees' representative respective authority with regards to each. As a result, our day-to-day operations and our ability to execute organizational and personnel changes is more limited, cumbersome, costly and lengthy, as reflected in the voluntary retirement plan carried out in the second quarter of 2014, and may require more management attention,   that would otherwise be available for our ongoing business. Although to date, we have not suffered any work stoppages or other disruptions to our operation, future disagreements with the employees' representatives may trigger an adverse impact on our services or customer service, changes may fail to be executed or be executed in a materially different way than planned, resulting in substantially lower savings than expected or requiring materially increased employment costs. Inability or limited ability to make organizational and personnel changes, as well as work stoppages or other disruption to our operations and limitations on management's discretion, may damage the efficiency and quality of our operations, and may lead to damage to our reputation, increased customer churn, loss of market share and reduced profitability.
 


 
We could be subject to legal claims due to the inability of our information systems to fully support our pricing plans.
 
In order to attract and retain the maximum number of subscribers in our highly competitive market, we design various pricing plans for stand-alone services as well as bundles of services. We require sophisticated information systems to accurately record 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 pricing plans.  From time to time, we have detected some discrepancies between certain pricing 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 pricing 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, the frequent changes to our licenses and relevant legislation governing our pricing plans and the scope of the processing tasks. While we are in the process of creating one billing and Customer Relation Management, or CRM, systems for both Cellcom and Netvision, until such process is completed, the involvement of both companies systems and integration process itself, increases the  risk for such discrepancies to occur. 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 licenses or the terms of our pricing 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 licenses or the applicable laws and regulations that may materially adversely affect our results of operations. Further, frequent and multiple changes to our general license and relevant legislation require ongoing changes to our operations, pricing plans and supporting information systems. Such changes increase the risk that our employees, distributors and dealers and our information systems will not fully support such changes. As of January 1, 2013, each discrepancy from the customer's pricing plan, remedied after the customer complained, awards the customer with predefined damages in an insignificant amount, but may aggregate to substantial amounts if paid to numerous customers on multiple occasions. Several purported class actions were filed against us in that respect. In August  2014, the Ministry of Communications proposed a bill aiming to impose substantially increased predefined damages for any discrepancy from the customer's pricing plan, which may aggregate to substantial sums if paid to numerous customers on multiple occasions.
 
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 and consumer organizations, with respect to billing and other practices, such as customer care practices, marketing, including mass media marketing as well as sending commercial messages to customers, data collection and usage practices, offering practices of products and services, including third parties' products and services and practices related to the provision of such services to our customers, such as disclosure requirements. These actions are costly to defend and could result in significant judgments against us. Recent years were characterized by a substantial increase in the number of requests for certification of class actions filed and approved in Israel. In December 2011, a class action was decided against us (we appealed the decision and the Supreme Court annulled such judgment and approved a settlement). In November 2013, another request to certify a lawsuit filed against us as class action was approved. In addition, we have entered several settlement agreements, mostly for immaterial sums. The number of purported class actions filed against us in the last three years amounts to over one third of all purported class actions filed against us since our inception, thereby increasing our legal exposure and our legal costs in defending against such suits, which as a result may materially and adversely affect our financial results. This trend is expected to continue, encouraged also by amendments to the Consumer Protection Law, stricter policy by regulators, amendments to the Communications Law such as regulating "spam" as well as the growing tendency of adopting comprehensive and burdensome regulation for the telecommunications market. This trend is also expected to include higher involvement of consumer organizations (whether by filing such suits, opposing settlement agreements and advocating the filing of lawsuits) and the Advocate General (opposing settlement agreements). Currently, we are engaged in dozens of purported class action suits as a defendant, many of which are for substantial amounts. Should these requests to certify lawsuits against us as class actions are approved and succeed, this may have a material adverse effect on our financial results. 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 employ thousands of employees and are therefore subject to the risk of employee lawsuits, including class action suits by employees.
 
We are subject to the risk of intellectual property rights claims against us, including in relation to television content, photographs, music, music-related 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, which, if in substantial sums, could harm our results of operations.  If we cannot obtain all necessary licenses on commercially reasonable terms, we may be forced to stop using or selling the products and services. We may not have insurance coverage for these types of claims.
 
Our operations are dependent on complex technology and information systems.
 
Our operations are dependent on a number of complex technological systems. The offering of bundles of services by us and Netvision, following our merger, increased the number of complex technological systems involved in providing service to our customers and in the billing process of our customers, resulting in some cases in cumbersome procedures, inefficient usage of resources and lack of uniformity. The occurrence of malfunctions in such complex and ever changing and expanding systems is inevitable. In addition, we are in the process of implementing one billing system and one CRM system for both companies, which may result in larger expenditures than anticipated, require significant management attention that would otherwise be available for our ongoing business, or lead to unforeseen operating difficulties and malfunctions, which may lead to loss of revenues, legal claims and regulatory sanctions. We are substantially relying on outsourced services in respect of our critical information systems, which could result in an adverse effect on the quality of our customer service, loss of internal knowledge and capabilities and substantially higher dependency on the supplier of such outsourced services, and which may lead to diversion of management attention. For additional details regarding our information systems agreements, see "Item 4. Information on the Company - B. Business Overview - Network and Technology - Information technology". A malfunction in any of our systems which severely impacts our ability to provide products and services to our customers may result in loss of revenues to us, may adversely impact our brand and service perception, and expose us to legal claims, all of which may adversely affect our results of operations.
 


 
Our operations are dependent on various information systems. The unauthorized entry to or disruption of operation of these information systems, including due to cyber attacks, may result in damage to us and our customers. Such damages could include our inability to provide certain services without disruptions, if at all, our inability to bill for services rendered or loss of data to us and our customers, all of which may expose us to legal claims and liabilities. Further, any successful attacks on Netvision's customers' information systems, protected by Netvision's data security products, may also expose Netvision to legal claims and liability.
 
There are certain restrictions in our licenses relating to the ownership of our shares.
 
Our cellular 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.
 
As a result of a rights offering effected by IDB in February 2015, the ownership percentages in IDB of its controlling shareholders, and consequently indirectly in us, have changed and will require the approval of the Ministry of Communications, including due to the Israeli holding requirements included in our communications licenses. We have already approached the Ministry of Communications and intend to file a formal request with the MOC for its approval of such changes, which may include a request to amend our communications licenses, including with regards to the Israeli holdings requirement in us as preset forth in such licenses. As of the date of the filing of this annual report, such changes in the ownership percentages in IDB are being contested by one of the controlling shareholders. See "Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders."
 


 
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. Our other licenses and Netvision's licenses contain similar restrictions, with the Ministry of Communications' approval required for the transfer of shares representing 5% or more of our (or Netvision, as the case may be) outstanding share capital.  See also “Item 4. Information on the Company – B. Business Overview – Government Regulations ― Our Principal License” and “ -Other Licenses” and "Item 4. Information on The Company – B. Business Overview – Netvision".
 
We may be adversely affected by the significant technological and other changes in the cellular communications industry; network sharing agreements, if approved, may have material adverse effects on our business.
 
The telecommunications market is known for rapid and significant technological changes and requires ongoing investments in advanced technologies in order to remain competitive. In recent years we have witnessed a growing demand for Internet, content and data through advanced third and fourth generation cellular phones, smartphones, modems, tablets and other devices using cellular data that resulted in a rapid and immense growth of data traffic on cellular networks and required cellular operators to upgrade their networks to accord such demand. Transfer of subscribers to Unlimited Packages of services, MVNO hosting services and national roaming on our network, have contributed to the substantially growing demand for data traffic on our network, as well as to voice and text messages. We estimate that data traffic will continue to rapidly grow in the future. To meet the growing demand for cellular data traffic, we are required, among others, to continue our substantial investment in our 4G network (launched in 2014) and upgrading our transmission network, to allow larger capacity and higher data speed rates. In addition, as in order to provide optimal performance, our LTE network would require additional frequencies to those allocated to us under the LTE frequencies tender, as the Ministry of Communications expects us to evacuate 12 1800MHz which were allocated to us for our 2G network to be used by our LTE network, the frequencies available to our 2G network will be substantially fewer and may adversely affect our 2G network performance.
 


 
Under our network sharing agreement with Golan, the operation and maintenance of the shared 4G radio network will be carried out by a separate newly created entity, equally owned by us and  Golan. This means that should this agreement be approved and executed, decision making will no longer take only our interests and desires into consideration. Further, such unification of cell sites may results in local degradation of service to our customers due to relocation of cell sites which may lead to dissatisfaction among such customers and require us to invest in local solutions, such as repeaters. In addition, should Golan customers use solely our networks under the network sharing agreements, whereas presently they use both ours and Golan's cell sites, specifically if Golan's subscribers' data traffic would increase substantially, may result in adverse effect on our ability to continue to support the demand for cellular data traffic and market our products and services effectively, more so if we are unable to use Golan's cell sites. In addition, after termination of our network sharing agreement, Golan will be entitled to purchase usage rights in our passive infrastructure, which may limit our ability to use it to meet all our needs. For additional details regarding the network sharing agreements see "Item 4. Information on The Company – A. History And Development Of The Company- Our History - Strategic network sharing agreements in 2013" and "- B. Business Overview – Network and Technology - Network and Cell Sites Sharing Agreements".
 
If we cannot obtain or maintain favorable arrangements with foreign telecommunications operators, our services may be less attractive or less profitable.
 
We rely on agreements to provide roaming capabilities to our cellular subscribers in many areas outside Israel. As of December 31, 2014, we had roaming arrangements with 572 cellular providers in 179 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 can use more favorable agreements of their overseas affiliates.  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, more so if the proposed amendment to our license, allowing other operators to provide roaming services to our subscribers, will be adopted.  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.
 
Inbound roaming to our network is also influenced by our ability to maintain favorable roaming arrangements. The entry of additional UMTS providers has not only increased competition regarding outgoing roaming services but also increased competition on inbound roaming services. Additional operators or the abovementioned proposed amendment to our license, may increase such competition further.
 
In recent years, roaming tariffs for our subscribers have decreased. If roaming tariffs continue to decrease including as a result of the increasing competition or the changing regulation, this could adversely affect our profitability and results of operations.
 
We also rely on agreements with foreign carriers to provide ILD services by Netvision as well as its international voice hubbing (providing ILD services to foreign operators) services. The risks detailed above in relation to roaming services and possible effects of such risks, apply to Netvion's ILD and hubbing services as well. See "Item 4. Information on The Company – B. Business Overview – Netvision – Telephony Business".
 


 
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; regulatory change, market terms and our financial results may affect our possibilities to raise debt.
 
As of December 31, 2014, our total indebtedness was approximately NIS 4,640 million ($1,193 million), with our net debt at approximately NIS 2,962 million ($762 million) .   For additional details see "Item 5. Operating and Financial Review and Prospects.  – B. Liquidity and Capital Resources – General". The indentures governing our debentures currently permit us to incur additional indebtedness (subject in some cases to certain limitations). Given the significant decrease in our operating results in recent years, which we expect will continue and will adversely affect our cash flows going forward, 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, as  approximately NIS 3,222 million ($828 million) is CPI linked;
 
 
·
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, as well as for dividend distribution; and
 
 
·
limiting our ability to obtain, or resulting in less favorable terms and pricing for, additional financing to operate, develop and expand our business or for refinancing existing debt.
 
Following circulars of  the Commissioner of Capital Markets, Insurance and Savings in the Ministry of Finance published on October 2010 and August 2013,  instructing institutional investors to follow certain procedures and requirements before investing in non-governmental debentures our series F through I indentures include certain limitations and covenants, including a covenant not to issue additional debentures if it involves a rating downgrade, certain financial covenants, negative pledge, cross default, limitation on the distribution of dividends, obligation to pay additional interest in case of certain rating downgrades (which occurred under our series F and G debentures, in June 2013). For details regarding such limitations and covenants see "Item 5. Operating and Financial Review and Prospects.  – B. Liquidity and Capital Resources – Debt Service". These limitations are expected to apply to any additional debt incurred by us. These procedures, limitations and covenants limit our freedom to conduct our business, may impose additional costs on us and may limit our ability to borrow additional debt from Israeli institutional investors as well as adversely affect the terms and price of such debt raising.
 
 
 
 
Since 2011, we suffered a significant decrease in our operating results, following certain regulatory changes, intensified competition and price erosion (see "Item 4. Information on the Company – B. Business Overview –Competition" and "-Additional MNOs"). In May 2012 and in June 2013, the rating of our debentures was downgraded due to increased leverage and competitive pressure. This and any further downgrade in our rating, and any adverse change in our financial results, including any increase in our net leverage (defined in our series F through I indentures as the ratio of net debt to EBITDA during a period of 12 consecutive months, excluding onetime influences), may adversely affect the terms and price of debt raised, particularly through the issuance of debentures to institutional investors, which, given the limitation on the ability of Israeli banks to lend money to us pursuant to the “Guidelines for Sound Bank Administration” issued by the Israeli Supervisor of Banks (as we are a member of IDB’s group of borrowers), may limit our ability to obtain additional financing to operate, develop and expand our business or to refinance existing debt.
 
See also the law for the promotion of competition and the mitigation of concentration under "Risks Relating to Our Ordinary Shares - Recent Legislation in Israel affecting corporate conglomerates, could adversely affect us" below, which may adversely affect our possibilities of raising debt from Israeli institutional investors.
 
Our business results may be affected by currency fluctuations, by our currency hedging positions and by changes in the Israeli Consumer Price Index.
 
A portion of our cash payments are incurred in, or linked to, foreign currencies, mainly U.S. dollars.  In particular, in 2012, 2013   and 2014, payments denominated in, or linked to, foreign currencies, mainly U.S. dollars, represented approximately 36%, 24% and 20%, respectively, of our total cash outflow (including payments of principal and interest on our debentures). These payments included capital expenditures, some cell site rental fees, payments for roaming services and to equipment suppliers including handset suppliers and part of our dividend payments. In 2014, the U.S. dollar exchange rate to NIS has increased substantially. As almost all of our cash receipts are in NIS, any devaluation of the NIS against the foreign currencies in which we make payments, particularly the U.S. dollar, will increase the NIS cost of our foreign currency denominated or linked expenses and capital expenditures. In 2014, the U.S. dollar, in particular, strengthened against the NIS, resulting in increased costs for us.
 
Furthermore, since the principal amount of and interest that we pay on our Series B, D, F and H debentures, are linked to the Israeli CPI, any increase in the Israeli CPI will increase our financing expenses and could adversely affect our results of operations. See "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Debt Service" for details.
 
We purchase derivative financial instruments in order to hedge part of the foreign currency risks, CPI risks deriving from our operations and indebtedness. Derivatives are initially recognized at fair value. Changes in the fair value are accounted for such that: Changes in the fair value of derivative hedging instruments designated as a cash flow hedge are recognized directly as a component of our shareholders’ equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in our income statement as the hedged item affects earnings. The amount recognized in shareholders’ equity is transferred to our income statement in the same period that the hedged item affects our earnings. Notwithstanding the above, hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognized through our income statement upon occurrence. These differences in the derivative instruments' designation could result in fluctuations in our reported net income on a quarterly basis.
 


 
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 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. Our series F through I indentures contain a covenant not to distribute more than 95% of the profits available for distribution according to the Israeli Companies Law 1999, or Companies Law, or Profits.  Moreover, under such indentures, if our net leverage (defined as the ratio of net debt to EBITDA during a period of 12 consecutive months, excluding certain one-time effects) exceeds 3.5:1, we may not distribute more than 85% of our Profits and if our net leverage exceeds 4.0:1, we may not distribute more than 70% of our Profits. For additional details see "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Debt Service ". In addition, our license requires that we and our 10% or more shareholders maintain at least $200 million of combined shareholders’ equity. 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. Since 2012 our board of directors declared a dividend for the first quarter of 2012 and third quarter of 2013 only, constituting 75% of our net income and part of our retained earnings from earlier periods, respectively, whereas for the second, third and fourth quarters of 2012 and the first, second and fourth quarters of 2013 and 2014, our board of directors chose not to declare dividends, given the intensified competition and its adverse effect on our results of operations and in order to strengthen our balance sheet. See “Item 8. Financial Information - A. Consolidated Statements and Other Financial Information - Dividend Policy”.
 
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 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. Netvision does not own its own infrastructure and is dependent on its infrastructure providers
 
We depend upon a small number of suppliers to provide us with key equipment and services. For example, Nokia Solutions and Networks Israel, or NSN, provides our network system based on LTE technology and GSM/GPRS/EDGE technology, our UMTS/HSPA core system, part of our radio access network and related products and services, and our landline New Generation Network system, or NGN system; LM Ericsson Israel, or LM Ericsson, supplies part of our radio access network and related products and services based on UMTS/HSPA technology and our OTT TV services platform; Amdocs Israel provides us operating ,development and maintenance services to our billing and CRM systems; Alcatel Lucent provides our Carrier Ethernet network and SDH equipment for our transmission network; 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 small portion of our transmission capacity from Bezeq, the incumbent landline operator. Our OTT TV services are further dependent on the Israeli Second Radio and Television authority, the authority responsible for linear channels of the Digital terrestrial television (DTT) broadcasting in Israel. Any regulatory change which will prevent us from using the DTT or condition such usage on unfavorable terms, degradation of service quality, or labor disputes affecting the service, may adversely affect our services, which may harm our ability to compete and result in loss of customers and revenues.
 
 

 
We are further dependent on infrastructure providers for Netvision's ISP, ILD, landline telephony (using Voice over Broadband, or VOB technology) and our OTT TV services. Those providers include Mediterranean Nautilus Ltd. and Mediterranean Nautilus (Israel) Ltd., or collectively Med Nautilus, which connects the Israeli internet network to the "entry points" of the global internet network, as well Israeli telephony, via an underwater communications cable, and Bezeq and Hot, which provide broadband infrastructure in Israel.  Should we enter an agreement for the purchase of broadband infrastructure services with IBC, we may acquire broadband services from it as well. Should an effective landline wholesale market materialize, we may purchase services from Bezeq and Hot in order to provide internet infrastructure and landline telephony services to our customers, in which case we would be dependent on Bezeq and Hot for such services as well. Bezeq has experienced labor disputes, including stoppages, during the privatization process and liberalization of the landline market, Hot has experienced labor disruptions, during a unionization attempt in the last years and IBC's manpower (many of them are employees of the Israeli Electric Company, or IEC's (one of IBC owners) have been reported to delay IBC's operation until their demands were met. Additional disruptions, stoppages and slowdowns may be experienced in the future and adversely affect our operations. See also "Item 4. Information on The Company – B. Business Overview – Netvision".
 
If these suppliers fail to provide equipment or services to us that meet requisite quality standards or on a timely basis, or at unfavorable terms to us, we may be unable to provide services to our subscribers in an optimal manner until an alternative source, if one is available, can be found or the situation is rectified, which may harm our ability to compete and result in loss of customers and revenues or place our licenses at risk of revocation for failure to satisfy the required service standards. Further, in November 2011 the Ministry of Communications published in a hearing about proposed regulation of the underwater international telecommunications connection from Israel that would impose certain limitations on agreements with Med Nautilus, which would limit the discounts and capacity Med Nautilus may provide.
 
In addition, our cellular end-user equipment sales have been dominated in recent years by Apple and Samsung products, representing over half of our handset sales. See "Item 4. Information on the Company - B. Business Overview - Handsets" for additional details. Advanced Digital Broadcast S.A., or ADB, provides our set-top boxes for our OTT TV services. Vubiquity Management Ltd., or VU, provides us international content and content operation services and RGE Group Ltd., or RGE, provides our sports application and content operation services, both for our OTT TV services. Should any of these suppliers  refuse to sell equipment or content, as applicable, to us, condition such sales on unfavorable terms and conditions or provide our competitors more favorable terms and conditions, or if these suppliers fail to produce successful and desirable products or content when no equivalent alternatives are available, this could have a material adverse effect on our handset sales or OTT TV services revenues, as applicable, and results of operations.
 


 
     Our investment in new businesses involves many risks.
 
We have invested and expect to continue to invest in exploration and development of new business opportunities in order to extend and complete our capabilities and offerings,  such as our OTT TV solution, which we recently launched. Such endeavors may involve significant risks and uncertainties, including shift of management attention from our ongoing business, loss of focus of our sales and marketing efforts on our main businesses due to attention given to new businesses, insufficient revenues to offset liabilities assumed and expenses associated with these new investments, adversely affecting our cash flow, especially in businesses that require long term and fixed cost such as for the purchase of content in favor of our OTT TV services, inadequate return of capital on our investments, regulatory changes which may impose additional burdens than planned, inability to effectively compete with incumbent providers or new competitors entering the market,  and unidentified issues not discovered in our due diligence of such strategies and offerings, such as unforeseen operating difficulties and large expenditures. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and will not materially adversely affect our reputation, financial condition, and operating results. Moreover, entry into such new ventures may trigger increased competitive pressure by the incumbent providers of competing services on our core business, aiming at preventing our efforts to compete with them at the relevant market, as triggered in December 2014 by Hot after the launch of our OTT TV services.
 
We are a member of the IDB group of companies, a large and highly regulated Israeli business group, which may limit our ability to expand our business, to acquire other businesses or raise debt. The effects on us of IDB's financial condition are unclear.
 
We are an indirect subsidiary of IDB Development Corporation Ltd., or IDB, large and highly regulated Israeli business group. In May 2014, a creditors' arrangement (approved by the Israeli court in January 2014) for IDB Holding Corporation Ltd., or IDB Holding, was consummated, under which the control over IDB, (which was at the time IDB Holding's wholly owned subsidiary) was transferred to two companies, one controlled by Mr. Eduardo Elzstain and one by Mr. Mordechai Ben Moshe, in equal parts. As a result, the indirect control in the Company was transferred to such entities. IDB's financial statements for the third quarter of 2014 included a note regarding the existence of significant doubts as to its ability to continue as a going concern due to its liquidity condition. IDB's financial condition could have an adverse effect on our debentures rating, or on the terms of any new debt raised. 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 its six largest borrowers 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.
 
Under the Law for the Promotion of Competition and the Mitigation of Concentration, or the Concentration Law, competitive and control concentration factors, both of a certain market and generally, are to be taken into consideration prior to allocation of rights in public assets (including in the communications field) by the relevant governmental authorities to entities considered to be 'concentrated entities'. Being a subsidiary of IDB, we were included in the list of concentrated entities published in December 2014 to which such requirements apply. This may adversely affect the renewal of our licenses and allocation of additional frequencies to us, which may have an adverse effect on our business. See also " Risks Relating to Our Ordinary Shares Recent Legislation in Israel affecting corporate conglomerates, could adversely affect us" below.
 


 
Due to the limited size and high level of regulation of the Israeli market, and the communications market in particular, our being a member of the IDB group of companies may limit our ability to expand our business in the future, form joint ventures and strategic alliances and conduct other strategic transactions with other participants in the Israeli communications market.
 
We are controlled by a single shareholder who can significantly influence matters requiring shareholders’ approval.
 
As of December 31, 2014, Discount Investment Company, or DIC held, directly and indirectly, approximately 41.78% of our outstanding share capital. Pursuant to shareholders agreements among DIC and certain of our minority shareholders, who in the aggregate own approximately 3.39% 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 (as the term "control" is defined in the Israeli Securities Law; namely the ability to direct a company's activities) over all matters requiring shareholder approval, including the election and removal of our directors (other than external 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.
 
Recent legislation in Israel affecting corporate conglomerates, could adversely affect us.
 
In December 2013, the Concentration Law was enacted by the Israeli parliament. The law, in material part: (1) imposes limitations on the holdings by a significant corporation that is not in the financial sector in a significant corporation in the financial sector or the holdings of both kinds of corporations under common control and on the possibility of serving as a director in both a significant non-financial corporation and a significant financial corporation; (2) imposes a two layer limitation on the total number of  reporting corporations (layers) in pyramidal structure (for existing pyramidal structures of three layers - after a transition period of six years and of four layers – after a transition period of four years); (3) strengthens the corporate governance rules applicable to public companies in Israel, and sets additional limitations on certain transactions in which a controlling shareholder has a personal interest, strengthens the independence requirements of external directors and requires that as of September 2014 and during the said transition period in companies that are third layer and up in a pyramidal structure -  the majority of the board of directors be independent, as defined in the Israeli Companies Law, and that the number of external directors be half the number of the company's directors less one (rounded upward) but not less than two; (4) authorizes the Israeli Minister of Finance or bodies authorized by it to set limitations regarding the aggregate credit that may be provided by financial institutions to a corporation or a business group (defined as a controlling shareholder and the corporations under its control); and (5) sets additional procedures including involving the committee of mitigation of concentration designated to take into consideration competitive and control concentration factors prior to any allocation of rights in public assets (including in the communications field) by the relevant governmental authorities. We are a third layer company in the pyramidal structure of the IDB group and were included in the list of concentrated entities published in December 2014 to whom such requirements apply. Accordingly, in September 2014 we changed the composition of our board of directors to accord with the requirements of the Concentration Law, and IDB and DIC have until December 2019 to cause us to cease being a third layer company. IDB and DIC have announced their intention to review possible ways to achieve this goal without having to forfeit control of us, such as by merging with each other or by taking IDB or DIC private. There can be no assurance how or when this would occur, if at all. In addition, the new procedures set in the law in relation to allocation of rights in public assets, could have an adverse effect on our ability to renew our cellular license and receive additional frequencies. The law may also adversely affect our ability to raise debt or other aspects of our business.
 
 


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, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). 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. A substantial part of our network and information systems is located within range of missile strikes from the Gaza Strip and Lebanon. Any damage to our network or information systems would damage our ability to provide service, in whole or in part, in the southern or northern part of Israel or otherwise damage our operation and could have an adverse effect on our business, financial condition or results of operations.
 
More generally, 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. Such adverse effects may also occur due to the increasing criticism of Israel in the international community. Since the end of 2010 several countries in the region, including Egypt and Syria, have been experiencing increased political instability, which led to changes in government in some of these countries, the effects of which are currently difficult to assess. In addition, Iran has threatened to attack Israel and is widely suspected to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in areas that neighbor Israel, such as Hamas in Gaza and Hezbollah in Lebanon. This situation may potentially escalate in the future to violent events which may affect Israel and us.
 
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 telecommunications 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. Our other licenses and Netvision's licenses (excluding our ISP licenses) contain similar restrictions. See also “Item 4. Information on the Company – B. Business Overview – Government Regulations ― Our Principal License ”, “Other Licenses” and "– Netvision".
 
Provisions of Israeli law and our license may delay, prevent or impede an acquisition of us, which could prevent a change of control.
 
The Israeli Companies 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 licenses 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 approximately 41.78% of our outstanding ordinary shares, as of December 31, 2014. The market price of our ordinary shares could decline as a result of future sales by DIC or other existing shareholders or the perception that these sales could occur. DIC sold approximately 5% of our outstanding shares outside the United States in 2011 and approximately 1.7% of our outstanding shares in 2013. Sales may be made pursuant to a registration statement, filed with the U.S. Securities and Exchange Commission, or 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, under our 2006 option plan, options are subject to vesting schedules but vesting will be accelerated upon certain events including any sale or other disposition, of all or substantially all, of the outstanding shares of us. As of December 31, 2014 we had 573,841 shares reserved for issuance upon the exercise of options and in March 2015, additional 2,795,000 shares were reserved for issuance upon the exercise of options, under our 2015 option plan. 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 4250708, 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 five general licenses to provide cellular telephone services in Israel. To date, eleven MVNO licenses have been awarded, of which five MVNOs commenced operation. Our cellular license was granted by the Ministry of Communications in 1994 and is valid until 2022.
 
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.
 
DIC, a subsidiary of IDB, currently directly and indirectly holds approximately 41.78% of our share capital and the voting rights in respect of an additional approximately 3.39% of our share capital.


 
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, in respect to our ordinary shares, or by us, with respect to another company’s shares.
 
On August 31, 2011, we completed the acquisition of 100% of the share capital of Netvision, a leading Israeli ISP and ILD services, for a total consideration of approximately NIS 1.57 billion ($404 million).
 
Since prior to the merger transaction, the IDB Group controlled both Netvision and us, the merger transaction was approved as a related party transaction under Israeli law. For further details, see Item 7. B "Related Party Transactions".
 
For further details on Netvision, see "Item 4.B -Business Overview - Netvision".
 
           Since 2012 we have suffered radical adverse changes to our results of operations, following regulatory changes, which also facilitated the entry of additional competitors, a dramatically increased competition and continued price erosion, resulting in a decrease in our EBITDA for 2012, 2013 and 2014 by 19.1%, 23.8% and 4.0% respectively, in comparison to the previous year, despite continued implementation of aggressive efficiency measures in order to mitigate those adverse effects, which led to an annual saving run rate of approximately NIS 850 million, based on comparison of fourth quarter 2014 with fourth quarter 2011 expenses. We intend to continue to implement organizational and personnel changes in our continued effort to mitigate the adverse effects of the increased competition in all areas in which operate. In 2013 and 2014 we entered a strategic network sharing agreement with Pelehpone, which if approved and executed, is expected to result, in a few years during which additional investments will be required, in material operating expense and capital expenditure savings. We cannot guarantee the success of these measures. . See Item 3. Key Information – D. Risk Factors – Risks Related to our Business - We face intense competition in all aspects of our business" and "Item 4. Information on the Company - B. Business Overview – Competition" for additional details.
 
Principal Capital Expenditures
 
Our accrual capital expenditure in 2012, 2013 and 2014 amounted to NIS 537 million, NIS 384 million and NIS 487 million, respectively. Accrual capital expenditure is defined as investment in fixed assets and intangible assets, such as spectrum licenses, rights of use of communications lines, UMTS networks' enhancement and expansion and development of new products and services during a given period.
 
B. 
BUSINESS OVERVIEW
 
General
 
We are the largest provider of cellular communications services in Israel based upon number of subscribers and estimated market share as of December 31, 2014. 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 additional competitors, we have continued since then to have the highest number of subscribers. As of December 31, 2014, we provided services to approximately 2.967 million subscribers in Israel with an estimated market share of 29%. Our closest competitors – Partner and Pelephone - had estimated market shares of 28% and 25.5%, respectively. Hot Mobile was estimated to have a market share of 9.3%, Golan was estimated to have a market share of 6.1% and the MVNOs together, were estimated to have a market share of 2.1%. In the year ended December 31, 2014, we generated revenues of NIS 4,570 million ($1,175 million), EBITDA of NIS 1,282 million ($330 million), and operating income of NIS 662 million ($170 million). See note 2 to the table in “Item 3. Key Information – A. Selected Financial Data” for a definition of EBITDA. Since 2012 our results of operations were adversely affected by the increasing competition which led to accelerated price erosion and increased churn rate. We estimate that the intensified competition will continue to adversely affect our results in the future. See "Item 5. Operating and Financial Review and Prospects. – A. Operating Results – Overview –General ". We sell our various services on a stand-alone basis or bundled with certain other services offered by Netvision and us.
 


 
We offer a broad range of cellular services through our 2G and 3G cellular networks covering substantially all of the populated territory of Israel and our recently launched 4G network. 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 179 countries as of December 31, 2014. We offer our subscribers a wide selection of handsets from various leading global manufacturers, as well as extended warranty and repair services on most handsets we offer. We also offer landline transmission and data services to business customers and telecommunications operators and, since July 2006, we offer landline telephony services. Since December 2014 we also offer OTT TV services.
 
Through our wholly owned subsidiary Netvision, we offer ISP, ILD, landline telephony and teleconferencing services. Additional services include cloud services and data protection products solutions based on products and services offered by us and by third party vendors. For further details on Netvision's business and operations, see "- Netvision" below. The following table presents our number of cellular subscribers and revenues for each of the last five years:
 
   
Year Ended December 31,
 
   
2010
   
2011
   
2012
   
2013
   
2014
 
Cellular subscribers (end of period) (in thousands)(1)
    3,394       3,349       3,199       3,092       2,967  
Revenues (in NIS millions)
    6,662       6,506       5,938       4,927       4,570  

(1)
Subscriber data refers to active cellular subscribers.  We use a six-month method of calculating our cellular subscriber base, which means that we deduct subscribers from our cellular subscriber base after six months of no revenue generation and activity on our network by or in relation to the post-paid subscriber, no revenue generating calls or SMS for pre-paid subscriber and no data usage or less than NIS 1 of accumulated revenues for M2M (machine to machine) subscribers. The six-month method is, to the best of our knowledge, consistent with the methodology used by other cellular providers in Israel. During the fourth quarter of 2011, we removed approximately 52,000 subscribers from our subscribers base, which included subscribers using our TDMA network who had not requested a transfer to our other networks following the shutdown of our TDMA network as of December 31, 2011, and subscribers who ceased using our services following a change to our policy which previously allowed subscribers to change from post to prepaid subscription as a result of the reduction of Early Termination Fees in the cellular market in early 2011. These changes affected other key performance indicators. In the fourth quarter of 2012, we removed approximately 138,000 M2M subscribers from our subscriber base, following the addition of the above revenue generation criterion for M2M subscribers. This change had an immaterial effect on our ARPU for 2012. In the fourth quarter of 2013 we removed approximately 64,000 subscribers from our subscribers base, following a change to our prepaid subscribers counting mechanism. As a result of such change, we add a prepaid subscriber to our subscribers base only upon charging a prepaid card and remove them from our subscribers base after six months of no revenue generating calls or SMS.   Following each of these changes, we have not restated prior subscriber data to conform to such changes.
 


 
Business Strategy
 
Our goal is to strengthen our position as a leading Israeli telecommunications group. The principal elements of our business strategy are as follows:
 
·
Offering our customers comprehensive telecommunications solutions . We offer our customers a wide range of mobile and wireline telecommunications services. We focus our offerings on bundles of services, as they enhance customer loyalty to us and once the wholesale market, which was formally launched in February 2015, is effective, we intend to make a triple (internet infrastructure, landline telephony and TV services) offering as well. We also offer a one stop shop for the group's portfolio of services, in both customer service and sales. In addition, we intend to continue to leverage our leading position and large market share in those businesses for cross-sales and the offering of new services which are found to be synergetic to those businesses, such as our recently launched OTT TV services, in order to increase our overall revenues and market share.

·
Growing in wireline services. We intend to continue to expand our landline business with both private and business customers. For private customers, we provide ISP, home telephony services (via Bezeq's and Hot's infrastructure), OTT TV services as well as ILD services. An effective wholesale landline services, will enhance our ability to offer additional services and compete with the incumbents, Bezeq and Hot, as well as other competitors in these markets. For details of the wholesale market see also "Item 4. Information on the Company – Government Regulations – Landline". For business customers, we provide a wide range of telecommunications services, including ISP, ILD, landline telephony services, as well as hosting and data security services.  These, combined with approximately 1,750 kilometer inland fiber-optic network, our microwave infrastructure, and Netvision's high penetration in business parks and industrial centers, provide us with the ability to selectively offer cost-efficient landline telecommunications solutions to business customers and integrated offerings of landline and cellular services.

·
Offer new services that will complete our offering as a telecommunications group and are synergetic to our core businesses . We continue to develop new complementary businesses that will leverage our varied capacities and that are synergetic to our core business. Our recently launched OTT TV solution allows us to offer a low cost attractive alternative to the traditional cable and satellite television services offered in Israel by Hot and D.B.S Satellite Services (1998) Ltd., or Yes (a subsidiary of Bezeq).

·
Optimization of cost structure . We continue our efforts to reduce costs and improve our efficiency. In 2014 we continued taking other aggressive efficiency measures, through adjustments to the existing head count, a reduction in overhead expenses and improvement of work processes. We plan to continue streamlining our costs in 2015, including organizational and personnel changes, and also through the network sharing agreement we entered with Pelephone, should it receive the necessary regulatory approvals.

Cellular Services and Products
 
As of December 31, 2014, we provided cellular communications services to approximately 2.967 million subscribers, including basic cellular telephony services, text and multimedia messaging, data and other value-added services as well as handset sales. Not all services are supported by all handsets or by all of our networks.
 


 
We offer our cellular subscribers a variety of usage and sector pricing plans and bundles combining cellular services with other communications services our group offers, such as ISP, landline, ILD and OTT TV services for home and IP switchboard, ISP, landline and ILD services for the office. 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. Price erosion and the marketing of unlimited packages, has resulted in a constant decline in our pre-paid subscriber base. In line with regulation, our pricing plans do not include a commitment to purchase our services for a predefined period, other than in large business agreements.
 
Basic cellular services
 
Our principal cellular service is basic cellular telephony and data transfer, upload and download (in supporting handsets). Both are included in our "Unlimited Packages". In addition, we offer many other services with enhancements and additional features to our basic cellular telephony service, including voice mail, cellular fax, call waiting, call forwarding, caller identification and conference calling.
 
Data services can be used with handsets (in supporting models), cellular modems, laptops and tablets. We provide our customers with a variety of "internet surfing packages" for that purpose.
 
We also offer both an outbound roaming service to our subscribers when traveling outside of Israel and an inbound roaming service to visitors to Israel who can “roam” into our network. As of December 31, 2014, we had commercial roaming relationships with 572 operators in 179 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).  In addition, as of December 31, 2014, we had 3G roaming arrangements with 340 of these operators, in 114 countries, (some of them for 4G as well) enabling our 3G and 4G roamers to use data services in the respective countries and visiting roamers in Israel of these operators, to use our 3G and 4G services, respectively.
 
Value-added services
 
In addition to basic cellular telephony and data services, we offer many value-added services, such as SMS and MMS, cloud backup   content services such as music downloads   and "Cellcom TV" application. SMS is included in our Unlimited Packages. 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 and some are offered only to business subscribers.
 
To our business subscribers we also offer IP Centrex services, multi SMS, M2M, work force management and vehicles management applications.
 
 
 
 
Handsets
 
 
We sell a wide selection of handsets (which for purposes of this report may include other types of communicationsend-user equipment, such as tablets) designed to meet individual preferences. Prices of handsets vary based on handset features and special promotions. We offer a variety of installment plans for handsets and discounts for short term installment plans, however in most cases, handsets are to be paid in 36 monthly installments. We offer a variety of handsets from world-leading brands such as Apple, LG, Nokia, Samsung, Sony, HTC, ZTE and Alcatel. The vast majority of our handset sales in 2014 have been by Apple and Samsung. The handset models we sell offer Hebrew language displays in addition to English, Arabic and Russian (in most of the models). We are also required to provide cellular services to subscribers who did not purchase their handsets from us, provided that the handset model complies with the standards set by the Ministry of Communications. We offer our subscribers an extended handset warranty as well as repair services for most handsets, in approximately 30 locations, including through our wholly owned dealer, as well as by dispatch service. See also "Customer Care" below.
 
We also sell modems, tablets and laptops to promote our data services.
 
Samsung International Co. Ltd. provides us Samsung products and maintenance and repair services for such products, under terms, including price of products, agreed between us and Samsung from time to time.
 
In March 2012 and May 2013, we entered into agreements with Apple Sales International for the purchase and distribution of iPad and iPhone products, respectively, in Israel. Under the terms of the agreements, we have committed to purchase a minimum quantity of iPad and iPhone products, respectively, over a period of three years, which have and is expected to continue to represent a significant portion of our expected total tablets and cellular handsets purchase amounts, respectively, over that period. The total amount of the iPad and iPhone products' purchases will depend on their respective purchase price at the time of purchase.
 
Landline services
 
In addition to our cellular services, we provide landline telephony, transmission and data services, using our approximately 1,750 kilometers of inland fiber-optic infrastructure and complementary microwave links. We have offered transmission and data services since 2001, landline telephone service since July 2006, and advanced, voice and data landline services since 2008, both to selected business customers. In addition, Netvision also offers landline services to both private and business customers, focusing on the private sector. For further details, please see "-Netvision" below.
 
For possible effects an effective wireline wholesale market and the provision of broadband infrastructure services by IBC may have on our landline business, see "Item 4. Information on the Company –Competition - Wireline".
 
As of December 2014, we are also offering OTT-TV services, branded 'Cellcom tv' to private customers and using Netvision's systems. Cellcom tv is an hybrid OTT-DTT TV service provided to the Israeli market. The service includes a set-top box that enables linear channels based on the Israeli Digital terrestrial television (DTT) broadcasting, Video on Demand library subscription (SVoD) that can be also accessed by smartphones and tablets (TV anywhere), live and catch up sports application, access to internet video content from selected internet sites, music streaming service and additional advanced features such as personal video recorder, VoD playlist channels and connection to social networks, for a highly competitive price. Our VoD services offer international and local content from top content suppliers.
 


 
In 2012, Netvision entered an agreement with ADB, for the purchase and distribution of set-top boxes and ancillary products and services for our OTT TV services.
 
In 2013, Netvision entered an agreement with VU, a leading international supplier of multiplatform video services and solutions, for the supply of international video content and content operation and management services. Under its agreement with VU, Netvision has committed to pay minimum amounts for such content and services. The Agreement is valid until the end of 2017, and may be terminated by Netvision at the end of 2016 subject to a termination payment; and thereafter is renewable for additional periods of one year each, unless terminated by either party, subject to prior notice.
 
In 2014, Netvision entered an agreement with RGE, for the provision of sports application. In 2015, Netvision entered an agreement with its subsidiary - Sports Channel Ltd.  for content operation services. Under these agreements, Netvision has committed to pay minimum amounts for such content and services.
 
Network and Technology
 
General
 
Our cellular network has developed over the years since we commenced our operations in 1994 and we now have dual cellular and wireline capabilities.
 
Our “four generation” LTE, or Long Term Evolution technology, was launched in August 2014, offers a high speed internet surfing with current data rates of up to 37.5 Mbps on the downlink path and up to 12.5 Mbps on the uplink path and supports LTE advanced (4.5G) capabilities, such as carrier aggregation which will be available subject to regulatory approval and once additional frequencies (other than the currently used 1800MHz frequencies) are available. Our LTE network is already operating in wide areas of Israel with hundreds of operational sites and in 2015 we intend to continue the deployment of this network, although at a slower deployment pace than in 2014, and use more spectrum in the 1800 band to expand the high speed internet surfing rate.
 
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 42 Mbps on the downlink path and up to 4 Mbps on the uplink path. In 2015 we intend to continue to support the increasing demand for data traffic, while maintaining its quality of services. This network, considered to be a “3.9” technology,  uses the same core as our GSM/GPRS/EDGE network and covers substantially all of the populated territory in Israel. Moreover, our UMTS/HSPA+ network supports new types of services that require higher throughput and lower delay, such as video conferencing and provides an adequate fallback for our LTE network by means of smart features and network load sharing.
 
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 LTE and UMTS/HSPA+ networks. 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 voice services supported by our GSM/GPRS/EDGE technology, the network provides an adequate fallback and capacity relief for our LTE and UMTS/HSPA+ networks. Most of our traffic uses the UMTS/HSPA+ network.
 


 
Our transmission network is comprised of approximately 1,750 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 NGN system by NSNallows the provision of advanced voice and data services to our landline customers.
 
Netvision's platform by LM Ericsson, allows the provision of our OTT TV services, together with the Israeli DTT infrastructure.
 
Network and cell sites sharing agreements
 
In December 2013, we entered into an Indefeasible Right of Use ("IRU") agreement with Golan regarding our 2G and 3G radio networks, which will replace Golan's current national roaming agreement with us. Golan will continue to operate its own core network.  In May 2014, subsequent to the publication of a network sharing policy by the Ministry of Communications, we entered into a network sharing agreement with Golan, for the construction and operation of a shared 4G radio network.  Both Golan and we will provide the required frequencies for the operation of the 4G radio network   and each of us will purchase and operate its own core network.
 
Both agreements were updated in September 2014, following the publication of additional requirements regarding network sharing by the Ministry of communications, and are generally for a period of at least 10 years. The 4G agreement includes stipulations as to ownership and mutual IRU in the 4G radio equipment as well as the establishment of a Joint Venture for the joint operation of the 4G radio network. Upon termination of the 4G sharing agreement, each party may purchase IRU rights in the passive infrastructure of the other party .
 
Effectiveness of the agreements is subject to the approval of the Ministry of Communications and the Israeli Antitrust Commissioner to all the agreements. We can provide no assurance that such approvals will be granted. We expect - if these agreements will be approved - our revenues from Golan to be at annual levels similar to those in 2013 and 2014, for the duration of the agreements term.
 
Further in September 2014, we entered into a co-operation agreement regarding maintenance services for passive elements of cell sites with Pelephone, including unifying passive elements and streamlining costs, through a common contractor. The contractor to be selected by an RFP process, will enter a separate agreement with each of us and Pelephone, generally for a period of at least 5 years. We expect, if this agreement is approved and if we and Pelephone enter agreements with such contractor, that the co-operation will gradually produce substantial savings in our expenses for rental and maintenance of cell sites, for the duration of the agreements' term, following an increase in our investments for the unification of cell sites. The agreement is subject to regulatory approvals. We can provide no assurance that such approval will be granted.
 


 
For risks relating to these agreements see “Item 3. Key Information – D. Risk Factors – Risks Related to our Business – We operate in a heavily regulated industry, which can harm our results of operations. In recent years, regulation in Israel has materially adversely affected our results ”, “ - We face intense competition in all aspects of our business” and “We may be adversely affected by the significant technological and other changes in the cellular communications industry; network sharing agreements, if approved, may have material adverse effects on our business.” For additional details regarding network sharing regulation see "Government Regulations – Network Sharing" below.
 
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. 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. Therefore, we have made substantial capital expenditures and expect to continue to make substantial capital expenditures on our network system, specifically in the construction of our LTE network.
 
Our LTE network is already operating in wide areas of Israel and we cover substantially all of the populated areas of Israel with both our UMTS/HSPA+ network and our GSM/GPRS/EDGE network. Our LTE and UMTS/HSPA+ networks are mostly co-located with our GSM/GPRS/EDGE network. The supplier of our LTE network is NSN. The suppliers of our UMTS/HSPA+ network are Ericsson Israel (for part of our 3G radio access network) and NSN (for our core network and part of our radio access network). The supplier of our GSM/GPRS/EDGE network is NSN. Ericsson and NSN, each with respect to the network supplied by it to us, provide us with maintenance services.
 
In recent years we have enhanced and expanded both our UMTS/HSPA+ network and our GSM/GPRS/EDGE network, primarily in urban areas, by adding infrastructure to improve outdoor and indoor coverage including through UMTS/HSPA 850 MHz sites deployed through substantially all of the populated areas of Israel. In 2015 we intend to continue to expand our LTE network coverage.
 
We launched our SDH transmission network in 1999. It is based on Alcatel Lucent and ECI Telecom technology and covers substantially all of the populated areas in Israel, and is maintained by Alcatel Lucent and ECI Telecom. We launched our Carrier Ethernet network in 2010, based on Alcatel Lucent technology.  It covers substantially all of the populated areas in Israel and is maintained by Alcatel Lucent. In 2015 we intend to launch an MBH network, by Cisco Systems, Inc., or Cisco.
 
Pursuant to the requirements of our license (as well as the licenses of the other telephony service providers in Israel), our cellular 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 partial duplicate back up centers in Kiryat Gat and Ramle, located approximately 80 and 40 kilometers, respectively, south of Netanya and a disaster recovery plan, or DRP, for all our engineering systems.
 


 
In 2011, Netvision entered an agreement with LM Ericsson, for the purchase of our OTT TV services system and ancillary products and services. Netvision has an option to purchase maintenance services on an annual basis until 2018. Our OTT TV service also uses the Israeli DTT infrastructure. The DTT infrastructure may be used freely by our customers.
 
Cellular Network design
 
We have designed our GSM/GPRS/EDGE, UMTS/HSPA+ and LTE 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.
 
We have a DRP for  our engineering systems, aimed at increasing our network's survivability in case of damage to any of its elements. The DRP also provides our network with additional advantages including increased capacity and advanced qualities.
 
Our primary objective going forward is to continue deploying our LTE network while allocating a smaller amount of our 1800MGz frequencies to our 2G network, through advanced and modern equipment and software features, and to continue to support the increasing demand for data traffic of our high speed UMTS/HSPA+ network. 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. See "Item 3. Risk Factors – We may be adversely affected by significant technological and other changes in the cellular communications industry; network sharing agreements, if approved, may have material adverse effects on our business".
 
Cellular 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.
 
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 previously used by our TDMA network and currently by our UMTS/HSPA 850 MHz base stations, 2x17 MHz in the 1800 MHz frequency band 5 MHz of which are used by our LTE network (according to an approval provided to us by the Ministry of Communications, under certain conditions, even before the completion of the 4G frequencies tender mentioned below) and the remaining band is used by our GSM/GPRS/EDGE network and 2 x 10 MHz 1900 - 2200 MHz frequency band used by our UMTS system.  We believe that our available spectrum is sufficient for our current needs.
 


 
In January 2015, we were awarded additional 1800 3MHz by the Israeli Ministry of Communications, in an 1800MHz frequencies tender, for 4G technologies (such as LTE, LTE Advanced), out of the 8 5MHz bands available in the tender (excluding our band which was limited to3MHz given our previous possession of 1800MHz frequencies, a portion of which we would have to redirect for our 4G network), for NIS 6.5 million per 1MHz. Unlike our other frequencies, allocated to us for the duration of our license, these frequencies were awarded to us for a period of 10 years only.
 
Participation in the tender was open for all current MNOs, MVNOs and other entities meeting certain condition and bands were awarded to the highest bidders with new and small operators (Marathon – a new operator, Hot Telecom and Golan) eligible for up to 50% discount, 10% discount for each 1% addition to their market share, obtained over the next 5 years. Pelephone was awarded 15MHz and each of Partner, Golan, Hot Mobile and Marathon was awarded 5MHZ, for NIS 6.4 – 6.9 million per 1MHz. Should our 4G network sharing agreement with Golan be approved, the shared  4G network will make use of the 5MHz Golan was awarded.
 
Cell site constructionand 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
 
In April 2014 we entered a framework agreement with NSN Israel, of Nokia Solutions and Networks group, a worldwide leading network manufacturer, for the purchase of an LTE network, which also supports LTE Advanced technology (4.5 generation) and related services. This agreement will also govern the purchase and services provided under our previous agreement with NSN, in relation to our GSM/GPRS and EDGE networks, UMTS core system and a UMTS/HSPA radio access network and related   products and services. We have an option to purchase maintenance services on an annual basis for 15 years from final acceptance of the initial phase of  our LTE network.
 
We entered into an agreement with LM Ericsson in September 2005 for the purchase of UMTS radio access network and ancillary products and services and in December 2011 for the purchase of upgraded UMTS /HSPA products and related services. We have an option to purchase additional maintenance services on an annual basis until 2026.
 


 
We use   Telcordia’s (which was acquired by Ericsson) intelligent platform,   or “IN,” to provide services to our GSM/GPRS/EDGE, UMTS and LTE networks, allowing us, at minimal cost, to internally develop sophisticated services with a short time-to-market that are customized to local market requirements. 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 wireline 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 cellular 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 approximately 1,750 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 substantially 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, 2014, we had approximately 2,830 microwave links to both our cell sites and subscribers.
 
In 2014 we continued to expand our Carrier Ethernet network and our ISP network backbone in Israel and abroad in order to support growing demand for capacity, upgraded the capabilities and capacity of our customer Quality of Experience systems and upgraded and improved the capabilities of our central system for the protection of our network against cyber attacks.
 
Under our agreement with Alcatel Lucent Israel Ltd., or Alcatel Lucent, we purchased an SDH transmission network. We purchase maintenance services for the network on an annual basis.
 
In November 2009, we entered into an agreement with Alcatel Lucent for the purchase of our Carrier Ethernet network. We also agreed to purchase from Alcatel Lucent at least 51% of the equipment and services that we purchase for such network until the lapse of 7 years from final acceptance (until February 2017). We have an option to purchase maintenance services until 2022.
 
In February 2015 we entered an agreement with Bynat Communications Computers Ltd., or Bynat, for the purchase and maintenance of an MBH transmission network by Cisco. In the agreement we agreed to purchase maintenance services for a term of 5 years from final acceptance (until 2019), and we may stop purchasing such services subject to a termination fee. Thereafter we have an option to purchase maintenance services for a term of 8 years (until 2027).
 


 
To supplement our transmission network, we lease a limited amount of transmission capacity from Bezeq, the incumbent landline operator. Netvision owns a small transmission network and leases most of the transmission capacity it requires from us, Bezeq, Hot and Partner.
 
Information technology
 
We maintain a variety of information systems that enable us to deliver superior customer service while enhancing our internal processes.
 
In July 2010, we entered into an agreement with Amdocs (Israel) Limited, or Amdocs, for the provision of operation, maintenance, management and development services for our billing and customer care system until December 2014. In December 2013, we entered an additional agreement with Amdocs for the provision of such services in relation to all our and Netvision's existing billing and customer care systems (and any replacement to such systems, if supplied by Amdocs), effective February 2014 (for systems not included in the previous agreement) and January 2015 (for systems included in the previous agreement) until February 2024. We may terminate the agreement after August 2016, subject to a termination payment (decreasing over time) until February 2020. In December 2013, we entered into an additional agreement with Amdocs for the development of a new version for our billing system, which will serve Netvision as well. In March 2014, we entered into an additional agreement with Amdocs for the provision of a new CRM system that shall replace our and Netvision's current CRM systems and will serve both companies. Under the agreement, we are obligated to purchase maintenance services for one year from the launch of the system and have an option to purchase maintenance services for seven   years thereafter.
 
Netvision currently uses a billing system supported internally and by Intec and a customer care system provided by PeopleSoft and supported by Amdocs under the agreement described above.
 
We use Nortel’s CTI system for the management of incoming calls to our telephonic call centers.
 
Our current 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 also use a knowledge management system relating to our various services and products by Aman, branded "Cellcopedia".
 
We (and Netvision as of July 2013) use ERP solutions provided by SAP, supported by Rimini Street Inc, or Rimini.  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’ usage and allows for various analytical segmentation of the data.
 
Cisco provides us and Netvision maintenance proactive malfunction detection and consultant services for both our IP networks equipment. The agreement is effective until the end of 2019.
 


 
Sales and Marketing
 
Sales
 
As part of our strategy to fully penetrate every part of the Israeli market, we try to make the purchase of our services as easy and as accessible as possible, while making our sales lineup more cost efficient. Our efforts to adjust our sales operations to meet current market conditions include closing and uniting points of sale and eliminating duplicate points of sale or transferring to more cost effective channels. We offer pricing plans, value-added services, handsets, accessories and related services through a broad network of direct and indirect sales personnel. We design pricing plans and promotional campaigns aimed at attracting new subscribers and enhancing our ability to retain our existing subscribers. We pay our independent dealers commissions on sales, while our direct, employee sales personnel receive base salaries plus performance-based incentives. All of our, and our dealers', sales and other customer-facing staff go through extensive training prior to commencing their work.   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, at approximately 30 physical points of sale and service (having closed another point of sale and service in 2014), located in central and other frequently visited locations to provide our subscribers with easy and convenient access to our products and services. In 2014, we reduced the space of several additional points of sale, and we may continue to do so in 2015.
 
We also distribute our products and services indirectly through a chain of dozens of dealers (including our own wholly owned dealer, Dynamica) who operate at approximately 150 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. Our sales representatives (both in-house and outsourced) offer our customers a variety of products and services, both in proactive and reactive interactions.
 
Account managers.   Our direct sales force for our business customers maintains regular contact with our mid-sized and large accounts, focusing on sales of cellular and wireline services, customer retention and tailor-made solutions for the specific needs of such customers. We provide small and mid-sized business customers one focal point to both sales and services by phone. Our account managers are aided by our various back office experts in determining customers' needs and making suitable offers. Sales to larger business customers or governmental and local authorities sometimes involve participation in the customer's tender process.
 
On line sales. We offer our customers the ability to purchase our products and services through our internet site and our smartphone application and invest efforts in directing our customers toward self-service channels. We have recently established a new internet site for the marketing and sales our OTT TV service.
 


 
Marketing
 
Our marketing strategy emphasizes our position as a market leader, our value for money to families and small businesses and our provision of a comprehensive solution for our customers' communication needs, by offering  services bundles, which combine a package of voice and SMS usage, cellular data, ISP, landline and ILD services for families and following our OTT TV service a package of voice and SMS usage, cellular data, ILD services and OTT TV service, and bundles offerings for businesses which combine a package of voice and SMS usage, cellular data, extended repair services, IP switchboard, ISP, landline and ILD services for the office for small and mid-sized businesses. We believe the provision of bundles of our services  strengthen loyalty and increase customer satisfaction. We aim to provide our customers with a comprehensive quality experience through the various means of communications that they use, including their mobile handset, tablet and laptop. Alongside our focus on packages for a fixed sum, we have substantially reduced the number of calling plans available to our customers, thus reducing our back office operation.
 
 From surveys that we conduct from time to time, we learn that subscribers base their choice of communications provider primarily on the following parameters: the services included in the bundle; perceived price of services and handsets; level of customer service; perceived quality of the network; general brand perception; and with regards to the cellular provider - 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 and attract new subscribers.
 
We leverage our extensive interactions with our customers to provide the requested services and also to cross- and up-sell cellular and wireline products and services according to customer needs, usage trends and profitability, mostly by using advanced CRM models, to increase customer satisfaction, loyalty and revenues.
 
We regularly advertise in all forms of media, including in promotional campaigns. We also use "one to one" promotional campaigns such as advertisements in our subscribers' monthly bill and in incoming IVR. We believe our marketing and branding campaign has been very successful and acclaimed among the Israeli public.   In 2014, we also sponsored a memorial concert for one Israel's most popular and beloved singers. We believe that the success and public response that the campaigns and concert have generated is the result of the relevance of their messages to our customers, indicating the success of our focus and differentiation from our competitors.
 
Cellcom was ranked by Globes as the leading and strongest brand of Israel’s cellular market in 2014 for the fourth year in a row. 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. In addition, subscribers are encouraged to subscribe to additional value-added services, mobile data and content services as well other communications services such as ISP, landline and ILD services and our private customers – OTT TV services as well, in order to enhance customer satisfaction and increase ARPU, with a specific focus on bundles of services. We invest large resources in the quality of our service to our customers. Our customer care representatives receive extensive training before they begin providing service and thereafter regularly undergo training and review of their performance. 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 and closely monitor the service provided by them, in order to assure its quality. We constantly review our performance by reviewing customers applications and conducting surveys among our subscribers in order to ensure their satisfaction with our services and to improve them as necessary. In addition, we constantly apply preventive and preemptive measures aimed at reducing churn.
 
In our efforts to adjust our costs to new market conditions, we have closed or unified walk-in centers in neighboring locations and reduced or relocated call centers, operating them in a more cost effective fashion, while placing greater focus on self-service channels.
 
 In order to respond to subscribers’ needs in the most efficient manner, our customer support and service operation 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; technical services; billing; sales; international roaming; and data and internet. We are constantly reviewing the effectiveness of our service and in 2014, we commenced operating a multi-function call center providing all our services. If found to facilitate both effectiveness and cost efficiency, we may establish additional such call centers in the future.  The call center services are provided in four languages: Hebrew, Arabic, English and Russian. We regularly monitor the performance of our call centers. We currently operate call centers in nine locations throughout Israel, four of which are outsourced. In 2013 we witnessed a decrease in calls to our calls centers. During peak hours our call centers have the capability to respond to 600 customer calls simultaneously. We are making efforts to reduce the number of calls to our call centers by offering simple price plans and promoting our self-service channels.
 
Walk-in centers . As of December 31, 2014, we independently operated approximately 30 service and sales centers, having closed another point of sale and service in 2014, with approximately 150 additional sale and service points operated by our dealers (including our wholly owned dealer, Dynamica), covering almost all the populated areas of Israel. These centers provide a walk-in contact channel and offer the entire spectrum of products and services that we provide to our subscribers and potential subscribers (the majority of which are provided in our dealers' sale and service points as well), including handset sales,  accessories sales (by our wholly owned dealer Dynamica), upgrades and other services, such as bill payment, pricing plan changes and subscriptions to new services. Our independently operated walk-in centers also provide customer service for our OTT TV services. These stores are mostly located in central locations, such as popular shopping malls. Our walk-in centers also serve as a contact point for our subscribers who need repair services. Our subscribers deposit their handsets for repair in our walk-in centers and receive the repaired handset after two business days in the same center or at a location of their choice by a courier. The repair services are conducted in a central lab.
 


 
Self-services .  We provide our subscribers and potential subscribers with various self-service channels, such as interactive voice response, or IVR, web-based services, automatic and live chat and mobile phone application, where they can receive general and specific information, including pricing plans, account balance, information regarding our various services and products and trouble shooting and handset-operation.  We invest efforts in directing our customers to use self-service channels.
 
Our business sales force and back office personnel also provide customer care to our business customers. We provide small and mid-sized business customers one focal point to both sales and services by phone. We offer our business customers repair services by a dispatch service collecting the handset within 48 hours and returning the repaired handset within 48 hours, during which time, the customer is provided with a substitute handset, free of charge.
 
Customer service for our OTT TV services and Netvision services is provided in our independently operated service centers and through technicians providing services at the customers' homes.
 
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.
 
We constantly invest time and efforts making our services compatible to persons with disabilities. We provide customers with disabilities convenient accessibility to our premises and adapted products and services, including sign language customer care at our walk-in services, free dispatch services, and the option to receive sales in the customer's home. We work closely with Accessibility Israel, a leading Israeli non-profit organization advancing accessibility for persons with disabilities in Israel, and train our representatives to provide accessible service to all our customers.
 
We entered into an agreement with Be’eri Printers for 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 2003. The agreement is valid until June 2017 and either party may terminate it previously, by advanced written notice to the other party.
 
Competition
 
Communications groups and structural separation
 
The Israeli telecommunications market is currently dominated by four communications groups: Bezeq, Hot, Partner-012 Smile and Cellcom–Netvision. Each of the Bezeq and Hot groups are subject to certain structural separation requirements in relation to sale of bundles of services by Hot and Bezeq and their respective subsidiaries, as a result of being the incumbent and monopoly in their respective core business – landline and multichannel television services. In addition to certain relaxation of the structural separation imposed on the Bezeq group as of 2010, allowing it to offer bundles of services with its subsidiaries,  in March 2014, the Israeli Antitrust Commissionaire published the terms under which it is willing to approve a merger between Bezeq and Yes Bezeq's subsidiary providing multichannel pay-TV. Although the Hot group is also subject to structural separation limitations between its multi-channel television, ISP, cellular and landline services, it was allowed to offer a bundle of landline, multichannel television and internet infrastructure services and under certain conditions ISP services as well, and as of 2011, Hot and Hot Mobile are also allowed to sell and market each other's services and exchange information. Bundle offerings have accelerated and are expected to accelerate competition and price erosion in each of the services included, especially in those services which are not the core services of the Bezeq and Hot groups. For possible annulment of the structural limitations following the execution of a wholesale market of landline services or a proposed change to the ILD services regulation, or approval of mergers in the Bezeq and Hot groups, see "- Wireline" below, "-Government Regulations – Landline" and "Netvision - ISP Business - Competition", "Netvision - Telephony Business - Competition".
 


 
Cellular
 
There is intense competition in all aspects of the cellular communications market in Israel, which has been intensifying further since 2012, with a penetration rate  (the ratio of cellular subscribers to the Israeli population) of approximately 124%, representing approximately 10.2 million cellular subscribers at December 31, 2014, and an average annual churn rate in Israel in 2014 is estimated to be 44%, higher than the churn rates in other developed economies.  We expect this intensified competition to continue in the future. We currently compete for market and revenue share with nine other cellular communications operators: four MNOs (Partner, Pelephone, Hot Mobile and Golan) and five MVNOs (Rami Levy Hashikma Communications Marketing Ltd., or Rami Levy, Home Cellular Ltd., or Home Cellular, Alon Cellular Ltd., or Alon Cellular, Azi Communications Ltd., or Azi and Cellact Communications Ltd., or Cellact). Marathon 018 Ltd., or Marathon, is expected to be awarded the 6 th MNO license, after winning frequencies in the recent 4G frequencies tender.  
 
Our estimated market share based on number of subscribers was approximately 29% as of December 31, 2014. Estimated market shares at such time of Partner, Pelephone, Hot Mobile and Golan were estimated to be approximately 28%, 25.5%, 9.3% and 6.1%, respectively and the MVNOs' collective market share was estimated to be 2.1%.
 
Hot Mobile and Golan commenced their UMTS operation in May 2012. Rami Levy, Home Cellular, Alon Cellular Azi and Cellact, all mobile virtual network operators, commenced operations in December 2011, April 2012 , May 2012, July 2013 and December 2013, respectively. An additional seven entities previously received MVNO licenses but to date have not commenced operating. We do not know if and when the other MVNO licensees will commence operations.
 
Partner started operations in 1998 and is controlled by Scailex, an Israeli company listed on the TASE, and by its affiliate Suny, the official importer of Samsung cellular phones to Israel (both indirectly controlled by Israeli businessman Mr. Ilan Ben-Dov) and S.B. Israel Telecom Ltd. (indirectly controlled by the media entrepreneur Haim Saban). In March 2011, Partner purchased the outstanding shares of 012 Smile Telecom Ltd., or Smile Telelcom, an ISP and ILD operator, now also serving as Partner's cellular low cost brand dealer.
 
Pelephone is a wholly-owned subsidiary of Bezeq, the incumbent landline operator and started operations in 1986. As of January 2015, its low cost brand services are sold by another subsidiary of Bezeq – Walla Communications Ltd., an internet portal. Bezeq is controlled by B Communications Ltd., or B Communications,. B Communications is an Israeli company traded on the NASDAQ and the TASE and controlled by Internet Gold Golden Lines Ltd., or Internet Gold. Both B Communications and Internet Gold form part of the Eurocom Communications Group, or Eurocom, controlled by the Israeli businessman Shaul Alovich.
 


 
Hot Mobile (previously named Mirs Communications Ltd.) had its license upgraded from push-to-talk to a cellular license in February 2001. In mid-2012 it began its UMTS operation. Hot Mobile is owned by Hot Telecom, or Hot, which is owned by the French businessman Mr. Patrick Derhy. Hot provides multichannel pay-TV services and Internet, data and landline telephony services.
 
Golan is owned by Xavier Niel, founder and controlling shareholder of the French telecom company Iliad - Free, Patrick and Gerard Pariente, founders and former owners of Naf Naf, a European fashion brand and Michael Golan, the CEO of Golan and former CEO of the French telecom company Iliad – Free. Golan began to operate in mid-2012.
 
Rami Levy is a subsidiary of a major Israeli discount supermarket chain. Home Cellular is a subsidiary of a leading 'do it yourself' stores chain. Alon Cellular is owned by Alon Holdings which also controls a leading retail and gas station chain. Azi is owned by Telzar, an ILD operator. Cellact is owned by Cellact Ltd., a content provider.
 
The competition in the cellular communications market intensified following the entry of additional cellular operators to the market, specifically the launch of two new UMTS operations by Hot Mobile and Golan, without having to first invest in building their own network with significantly lower tariffs than market level at that time for private customers . . This has   led to a material increase in churn rate and accelerated and continuous price erosion and a material decrease in revenues and profitability for us. In 2015, Hot Telecom and Golan, respectively, began targeting the business sector, offering lower tariffs than market level, leading to increased competition and price erosion in that sector as well.
 
Handsets
 
In the handsets market, we compete with numerous vendors, chain stores and importers' stores. Recent regulatory decisions alleviating the regulatory requirements on the import to and sale of handsets in Israel, coupled with regulatory decisions preventing cellular operators from linking handsets sale and cellular services, led to the entry of additional competitors into the market, significantly increased competition and decreased sales for us. See "Item 4. Information on The Company - Government Regulations – Tariff Supervision" for additional details. That, coupled with the growing change in the business market where corporations no longer purchase cellular services for their employees from a designated operator but rather allow each employee to purchase his or her own device and obtain cellular services from their operator of choice, known as the "bring your own device" phenomenon, and the recently announced cooperation of Golan (that doesn't sell handsets) with Suny for the sale of discounted Samsung handsets for Golan's business customers may further increase the competition in this market.
 
Wireline
 
Local landline telephony services are currently provided by two major providers. Bezeq, the incumbent, with approximately 2.2  million lines and Hot, with approximately 681 thousand subscribers (both at the end of September 2014). Bezeq and Hot groups are the only groups owning full landline infrastructure in Israel and offering internet infrastructure services to both ISPs and end-users. Other players include us, Netvision, Partner, Smile Telecom and Bezeq International.
 


 
Transmission and landline data services are provided by Bezeq, Hot, Partner (who acquired Med-1's operation) and us. These services are provided to business customers and to telecommunications operators.
 
Multichannel pay-TV services are dominated by Hot (the incumbent TV provider and monopoly in this filed) and YES, (a subsidiary of Bezeq). The multichannel pay-TV market is also highly penetrated with levels above those of most developed economies. We have recently entered this market, using an hybrid OTT-DTT television service. DTT broadcasting may be used by additional players as well, to be bundled with additional IPTV or Over the Top (OTT) channels, as we do. Partner, Rami Levy and Golan also announced they are developing such a solution and are planning to enter this market. In March and September 2014, the Israeli Antitrust Commissioner, aiming to facilitate the entry of new competitors to the TV market by reducing entry barriers, published the following requirements: (1) Bezeq to generally not bill ISPs for TV related internet infrastructure services, annul and not engage in any non-original production exclusivity arrangements; and (2) both Bezeq/ Yes and Hot to allow new TV service providers to purchase certain original production of Bezeq for two years from the approval of the merger. Those requirements will apply to Bezeq/Yes as preconditions for the completion of their merger.For details of the ISP and ILD markets, see "Netvision - ISP Business" and "Netvision - Telephony Business" below.
 
The landline wholesale market was formally launched in Israel in February 2015. The increased offerings of bundles of services increase our dependence on the formation of an effective landline wholesale market, to allow us to include broadband internet infrastructure and landline telephony to the private sector in our offer and be competitive. For the formation of a wholesale landline market in Israel see "-Government Regulations – Landline" below".
 
While an effective wholesale wireline market will enhance our ability (including through Netvision) to compete and extend our service offering, the recommendations regarding the structural separation and Bezeq's tariffs supervision, which were liaised together by the Ministry of Communications' policy, may have a material adverse effect on our competitive capabilities and results of operation. In addition, setting low prices for landline wholesale market services may increase the competition in the landline market as it will facilitate the entrance of new competitors to the landline market and may trigger further escalation in the competition in other markets in which we operate. The effectiveness of the wholesale landline services and our ability to offer these services is dependent on the manner of implementation of the wholesale services, which require the cooperation of the infrastructure owners in the execution of the regulator's decisions and in relation to issues and processes not regulated.
 
For further details see below in this Item 4. B. under "- Netvision". See also "Item 3. Key Information – D. Risk Factors – Risks Related to our Business – We face intense competition in all aspects of our business".
 
Competition – general
 
The principal competitive factors in the telecommunications market include the services included in the bundle, perceived price, general brand perception and customer service.
 
In response to the enhanced competition in the Israeli telecommunications market, we have implemented various steps and strategies, including:
 


 
 
·
acquiring Netvision to create a competitive communications group and offering comprehensive bundles of mobile and wireline solutions and future triple offerings, once a wholesale market is effectively available;
 
 
·
investing in our network to ensure our ability to offer quality and advanced cellular and wireline services, including in our 4G network which is also supporting LTE advanced technology and providing our customers with the most advanced services;
 
 
·
entering into network and cell site sharing agreements with Pelephone and Golan, which, if approved and executed, will result in substantial operating expense and capital expenditure savings to us;
 
 
·
identifying new opportunities to maximize our advantages as a cellular operator  and as a communications group, such as our recently launched television services over the internet and the wider offering of landline infrastructure and telephony services to the private sector if an effective wholesale market is established;
 
 
·
investing significant resources in customer service and retention, as well as supporting information technology systems;
 
 
·
taking aggressive efficiency measures through adjustments to our existing head count, reducing overhead expenses and improving work processes, in order to reduce costs and improve our agility; and
 
 
·
offering attractive pricing plans to subscribers, including bundles of services and cross-sale and up-sale of our and Netvision's services.
 
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.
 
Competition may intensify further as a result of the occurrence of any of the events described under “Item 3. Key Information – D. Risk Factors – Risks Related to our Business – We face intense competition in all aspects of our business.”
 
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 40 domain names and approximately 100 trademarks and trademarks applications, the most important of which are the star design, “Cellcom”, “Talkman”, “Cellcom Volume” and "Cellcom tv". Netvision has registered approximately 120 domain names and approximately 30 trademarks, the most important of which are "Netvision" and "013 Netvision".  We are also the proprietor of a few registered patents.
 
Government Regulations
 

 
 
The following is a description of various regulatory matters that are material to our operations, including certain future legislative initiatives that are in the process of being enacted.  There can be no certainty that the future legislation described here will be enacted or that it will not 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, the regulations and our licenses. For a description of the principal licenses held by Netvision see below in this Item 4.B under the caption "- Netvision".
 
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 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 (with “means of control” defined for these purposes 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); 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.;
 


 
 
·
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 by way of creating a pledge which if foreclosed, will result in the transfer of shares), 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 and our 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;
 
 
·
prior to operating a network, we are required to have agreements with a manufacturer of cellular network equipment for the duration of its intended operating period, 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, and are also required to provide national roaming services to new UMTS operators;
 
 
·
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;
 

 
 
 
·
there are certain general types of payments that we may collect from our subscribers, general mechanisms for setting and raising tariffs, including the basic airtime charging units, and providing cellular services related benefits, reports that we must submit to the Ministry of Communications and an obligation to provide notice to our customers and the Ministry of Communications prior to increasing tariffs and the Ministry of Communications is authorized to intervene in setting tariffs in certain instances;
 
 
·
we must maintain a minimum standard of customer service, including, among other things, establishing call centers, maintaining a certain service level of our network, collecting payments pursuant to a certain procedure, protecting the privacy of subscribers; use a specific format for our agreement with our customers; obtain an explicit request from our subscribers to purchase services, whether by us or by third parties, as a precondition to providing and charging for such services, including specific requirements as to format and a default blockage of the customer's ability to purchase certain services; maintain a specific form of evidence of customers' request to purchase our services as a precondition to charging our customers for those services; and provide certain notifications to customers regarding the services ordered and the procedures for handling subscribers' objections as to billing and repayment of overcharged sums;
 
 
·
we may not be transfer, pledge or encumber the license or any part thereof without the prior approval of the Ministry of Communications, and face restrictions on the sale, lease or pledge of any assets used for implementing the license; and
 
 
·
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 the event that we violate the terms of our license, we may be subject to substantial penalties, including monetary sanctions. In August 2012, the Communications Law was amended so as to set gradual financial sanctions on communication operators, for breach of their licenses, the sum of which shall be calculated as a percentage of the operator's income and based on the gravity of the breach. The maximum amount per violation that may be imposed is approximately NIS 1.6 million plus 0.225% of our annual revenue for the preceding year. The Ministry of Communications published criteria to be used for determining the sum of the imposed sanctions, including the impact on the competition, the duration of the violation, the number of subscribers affected, the benefit to the operator from the violation and prior violations. Following the publication of the guidelines, the MOC has substantially increased its supervision activities and imposed monetary sanctions, including on us (in immaterial sums). Substantial sanctions will harm our results of operations. In the event that we materially violate the terms of our licenses, the Ministry of Communications has the authority to revoke them.
 


 
In July 2014, the Israeli Ministry of Communications published a hearing regarding 2G and 3G networks' coverage and quality requirements. The requirements proposed are more severe than the existing requirements and if adopted may adversely affect our result of operations.
 
In August 2014, the Ministry of Communications published a hearing regarding roaming services provided to subscribers. The hearing proposes, in order to increase competition and reduce roaming payments by subscribers, among others, to allow other Israeli telecommunication operators, including other cellular operators, mobile virtual network operators, international calls operators and landline operators to offer roaming services to a cellular subscriber of another cellular operator, while abroad, using the subscriber's usual cellular number as well as change the way payments for roaming services are calculated. See additional details under "-Tariff Supervision" below. The effects of the changes proposed vary significantly depending on the alternative adopted. The adoption of some alternatives may have a material adverse effect on our results of operations.
 
In August 2014, the Ministry of Communications proposed to amend the Israeli Communications Law and set fixed compensation in case of failure to meet response times the Minister of communications proposes to set for telecommunications operators' call centers, as well as a fixed compensation in case a subscriber was wrongfully overcharged (more severe than the existing provision to that effect in the Israeli Consumer Protection Law). We estimate that the proposed changes, if adopted as proposed, would have a material adverse effect on our results of operations.
 
  Other licenses
 
Special general license for the provision of landline communications 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 communications 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.
 
Data and transmission license
 
In 2000, we were granted a non-exclusive special license for the provision of local data communications services and high-speed transmission services, which is effective until December 2017. Following the grant of a special general license for the provision of landline telephone communications 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 their extension, generally apply to this license, subject to certain modifications.
 


 
Services in Judea and Samaria
 
The Israeli Civil Administration in Judea and Samaria granted us non-exclusive licenses for the provision of cellular and landline services to the Israeli-populated areas in Judea and Samaria.  Those licenses are effective until December 31, 2017. We expect we will be able to renew this license without undue burden. The provisions of the cellular and landline licenses described above, including as to its extension, generally apply to those licenses, subject to certain modifications.
 
ISP license
 
In December 2001, we were granted a non-exclusive special internet services provider, or ISP, license for the provision of internet access services. The license is effective until December 2018 but may be extended by the Ministry of Communications for successive periods of five years. The provisions regarding the transfer of our shares that are included in the special license for the provision of data and transmission services described above, generally apply to this license.
 
Unified license
 
In November 2014, the Ministry of Communications published the unified license that will replace the current special general license for the provision of landline communications services, the general license for the provision of international telecommunication services and the MVNO license. The unified license will be in effect for the term of the general license it replaces and allow its holder to provide any of these services as well as ISP services (currently provided under an internet service provider license)   and installation and maintenance of telecommunication equipment at a customer's or the licensee's premises (currently provided under a "network end point" license). The purpose of the unified license is to alleviate the requirements on license holders that are not required to have a nationwide infrastructure, in order to decrease entry barriers for additional competitors to enter those markets. Consequently our and our subsidiaries (including Netvision's) licenses, other than our cellular license, will be replaced in the future with the unified license. This replacement would occur in two phases: (1) replacement of each such license to a separate unified license format by August 2015, followed by (2) unification into one license encompassing all those services.
 
The unification process and timing is yet to be determined in coordination between the Ministry of communications and the operator and it may have various legal, financial, tax and accounting implications on our operations to the extent it would require the transfer of assets, goodwill, rights and obligations among the companies in our group or require an operational unification. The provision of several services by one entity would also circumvent the limitations on discrimination between operators.
 


 
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. In September 2010, the regulations were amended to dramatically reduce maximum interconnect tariffs payable to cellular operators, leading to a material decrease in our revenues.
 
As of 2013, we are prohibited, under the Communications Law, from making any linkage between a cellular services transaction and a handset purchase transaction, including by way of offering airtime rebates or refunds for handsets . This has resulted in decreased sales of handsets by us and increased churn .  In November 2013, the MOC instructed the discontinuance of any specific rebates and refunds to customers transferring from other cellular operators.
 
The Communication Law has prevented the collection of Early Termination Fees in the cellular market (as of 2012) and the other communication markets (as of 2011) (excluding from customers with more than a certain amount of cellular lines or over a certain amount of monthly invoice for bundles or other services) in existing as well as new pricing plans. An additional amendment to the Law prohibits the collection of the handset's remaining installments in one payment pursuant to early termination. This has led to materially increased churn rate and subscriber acquisition and retention costs and subsequently to accelerated price erosion.
 
Under the Communications Law, if a new operator or Hot Mobile and the hosting operator for national roaming have not reached an agreement as to the terms of the service (including the consideration), for any reason, until the service is to commence (after certain criteria is met) the service will be provided for the then prevailing interconnect tariff (in case of a call and for data services - 65% of the interconnect tariff per 1 mega) and subsequently (but no later than February 1, 2012) shall be determined by the Ministry of Communications with the consent of the Minster of Finance and applied retroactively. Unfavorable terms and consideration for the service, may result in material adverse effect on our results of operations. In October 2011, we entered a national roaming agreement with Golan (to be replaced by network sharing agreements, subject to regulatory approvals) and in September 2011, Hot Mobile entered a national roaming agreement with Pelephone and later with Partner.
 
Under the Communications Law, in the event that a MVNO and the cellular operator, will not have reached an agreement as to the provision of service by way of MVNO within six months from the date the MVNO has approached the cellular operator, and if the Ministry of Communications together with the Ministry of Finance determine that the failure to reach an agreement is due to unreasonable conditions imposed by the cellular operator, the Ministry of Communications may intervene in the terms of the agreement, including by setting the price of the service. Unfavorable terms and consideration for the service, may result in material adverse effect on our results of operations. For additional details see "Mobile Virtual Network Operators" below. To date, five MVNOs commenced operations after entering hosting agreements,  one of them (Home Cellular) is hosted by us. In November 2014 the Ministry of Communications published the principles for reviewing the reasonability of MVNO hosting
 


 
agreements, including existing agreements which the MVNO request to update if the existing agreement hinders its ability to compete and the parties fail to reach an agreement as to its update, to be carried out in light of the best offer made by the cellular operator to a business customer.
 
As of January 2013, we are obligated to pay our customers predetermined damages for each discrepancy from the customer's pricing plan, remedied after the customer complained, under the Consumer Protection Law. The damages are in an insignificant amount, but may aggregate to substantial amounts if paid to numerous customers on multiple occasions . In August 2014, the Ministry of Communications proposed a bill aiming to impose substantially increased predefined damages for any discrepancy from the customer's pricing plan, which may aggregate to substantial sums if paid to numerous customers on multiple occasions.
 
In August 2013, the Communication law was amended so as to authorize the Minister of Communications to give instructions and to set interconnect tariffs and usage of another operator's network rates and supervised services prices, based not only on previous method of cost (according to a calculation method determined by the Minister of Communications) plus reasonable profit, but also on the basis of one of the following: (1) payment for services provided by a licensee; (2) payment for a comparable service; or (3) comparison to such services or interconnect tariffs in other countries. In addition, the Minister of Communications was authorized to give instructions in relation to structural separation for the provision of different services, including between services provided to a licensee and services provided to a subscriber.
 
In August 2014, the Ministry of Communications published a hearing regarding roaming services provided to subscribers. The hearing proposes, in order to increase competition and reduce roaming payments by subscribers, among others, to change the way payments for roaming services are calculated, such as by requiring a 1 second unit or 1 KB unit (as applicable) for billing of roaming services while abroad and not charging for certain intervals of the call. The adoption of such proposed changes may have a material adverse effect on our results of operations.
 
Network Sharing
 
In May 2014, the Ministry of Communications published a network sharing policy and later in July 2014, as part of the 4G frequencies tender documents, a draft license amendment which sets certain specific requirements for the approval of such sharing (some of which were amended during the tender process). The policy, as complemented by the draft license includes the following principles: (1) sharing of passive elements of cell sites and active sharing of antennas among all cellular operators are encouraged; (2) active sharing of radio networks using shared equipment and frequencies will be allowed only between an operator with a partial 3G network deployment and an operator with a full 3G network deployment, whereas such sharing will not be allowed for two operators with full 3G network deployment. Active sharing of radio networks in which the operators will use separate frequencies is possible in particular circumstances; (3) sharing of transmission from cell sites among operators sharing frequencies is generally allowed; (4) Investing in a 4G network will be considered as meeting an operator's undertaking to deploy a 3G network under certain conditions; (5) active sharing of radio networks using shared equipment and frequencies and certain other sharing agreements require the prior approval of the Ministry of Communications. Approval of active sharing of radio networks using shared equipment and frequencies is conditioned upon the following:
 


 
·
There will be at least 3 independent cellular radio networks in Israel;
 
·
The sharing operators must allow other operators to join at equal terms to those awarded to the operator with the smallest market share;
 
·
Each sharing operator may host a Mobile Virtual Network Operator without the other operator's consent;
 
·
Each sharing operator will be responsible for the provision of cellular services under its license. An indefeasible right of use for the duration of the sharing may be considered as meeting this principle;
 
·
Approvals will be granted for a limited period and may be extended;
 
·
The shared radio network will be operated through a joint entity held equally by the sharing operators but structurally separated from each of them, which will be required to obtain a license from the MOC but will not be allocated frequencies and each of the sharing operators shall enter into a usage agreement with it. The shared network shall use the frequencies allocated to the sharing operators;
 
·
The radio elements of the shared network will be held in equal parts by the sharing operators; each of the sharing partners will have a right of use in the other partner's passive infrastructure following termination of the agreement; and
 
·
Additional principles relating to the execution of such sharing and its termination.
 
We entered network sharing agreements with Golan which includes a 4G active sharing agreement and a sharing agreement of passive elements only, with Pelephone, subject to regulatory approvals.  Hot and Partner entered a network sharing agreement which was approved by the Anti Trust Commissionaire and awaits the approval of the Minister of communications. For details of our sharing agreements see "– Network and Technology - Network and Cell Sites Sharing Agreements" above.
 
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 Israeli 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.
 
In March 2010, a new Planning and Building bill, intended to replace the existing Planning and Building law passed the first stage of enactment at the Israeli parliament. If the bill is enacted, it may have an effect on, among other things, current permits for our cell sites, the procedures to receive building permits for our cell sites, the exemption for radio access devices set out in the Communications Law (which the bill proposed to annul),  the scope of our indemnification obligations and the obligation to pay amelioration charge. In this preliminary stage of enactment, we cannot estimate the chances of its enactment or its effects, if so enacted, on our network and network build-out.
 
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. Many local authorities have argued that a building permit issued in reliance on the Plan requires the payment of amelioration charge. In 2013 this position was adopted in principle by an appeal zoning committee. Should the matter be decided against us in appeal zoning committees or by a court of law, the costs of constructing a site will substantially increase.
 
However, National Zoning Plan 36 is in the process of being revised. Currently proposed changes would impose additional restrictions and requirements on the construction and operation of cell sites. In June 2010, the proposed changes were approved by the National Council for Planning and Building and submitted for the approval of the Government of Israel. If the proposed changes are approved by the Israeli Government, they will harm 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 could  adversely affect our existing network and 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. 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 and/or used without the relevant permits or not in accordance with the permits. 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, 2014, we were subject to  four criminal and administrative legal proceedings alleging that some of our cell sites were built and have been used without the relevant permits or not in accordance with the permits. As of the same date, a small portion of our cell sites operated without building permits or applicable exemptions. Although we are in the process of seeking to obtain building permits  of these sites, we may not be able to obtain them and in several instances we may be required to relocate these sites to alternative locations or to demolish them without any suitable alternative. In addition, we may be operating a significant number of our 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 Court rulings on the matter and the Israeli Attorney General opinion on the matter (given in May 2008) that the exemption from obtaining a building permit applies to cellular radio access devices, we have not requested building permits under the Planning and Building Law for rooftop radio access devices.
 
Notwithstanding the Attorney General's opinion, in May 2008 the District Court of Tel-Aviv-Jaffa, in its capacity as court of appeals, ruled that our and other cellular operators’ devices do not meet the exemption’s requirements and therefore cannot be relied upon by us and other cellular operators. We and other cellular operators appealed against this ruling to the Supreme Court and the State notified the Supreme Court it concurs with our and another cellular operator’s appeals against the District Court ruling. The State requested that a third operator’s appeal be returned to the District Court for further deliberation on specific questions regarding the interpretation of "rooftop" and the requirement to obtain an extraordinary usage permit in the circumstances of that case in the context of the exemption. The Supreme Court decided to hear our appeal together with two appeals filed in 2008 and 2009, including by the Union of Local Authorities in Israel and certain local planning and building authorities, requesting to argue against the position of the State.
 
In July 2009, the inter-ministry committee established to examine the appropriateness of future application of the exemption according to the Attorney General opinion, published its recommendations for future application of the exemption. While the Ministry of Communications recommended that, given the difficulties in obtaining permits for the construction of cell sites, the exemption should be reviewed after the lapse of one to two years from the approval of the new National Zoning Plan 36, to verify that it provides an adequate solution that allows the cellular operators to provide required communications services, the Ministries of Interior Affairs and Environmental Protection recommended that the exemption be annulled within 6 months from the date of the recommendations, based, among others, on the following arguments: (1) current cellular infrastructure is sufficient, given it is currently used to provide advanced services such as internet, radio and television broadcasting, while such services may be provided by a landline network; and (2) with respect to radiation safety, cell sites constructed pursuant to a building permit are preferable to radio access devices, and utilizing a cellular network to provide advanced services which can be provided through a landline network, is unjustified in light of the preventive care principle set in the Israeli Non-Ionizing Radiation Law.
 


 
In September 2009, following publication of such recommendations, the Attorney General concluded that the application of the exemption does not balance properly the different interests involved and therefore cannot continue. In  March 2010 the Israeli Ministry of Interior Affairs submitted draft regulations setting conditions for the application of the exemption for the approval of the Economy Committee of the Israeli Parliament. The regulations draft includes significant limitations on the ability to construct radio access devices based on such exemption, including a limitation of the number of such radio access devices to 5% of the total number of cell sites constructed or to be constructed with a building permit in a certain area during a certain period (which will render the construction of radio access devices based on the exemption practically impossible), and circumstances in which a request for a building permit for the radio access device was filed and no resolution has been granted within the timeframe set in the regulations.
 
In September 2010, the Israeli Supreme Court issued an interim order prohibiting further construction of radio access devices in cellular networks in reliance on the exemption. The interim order, that was issued pursuant to the Israeli Attorney General's request, will be in effect until the enactment of the proposed regulations or other decision by the court. A further decision of the Supreme Court in February 2011, states that the order will not apply to the replacement of existing radio access devices under certain conditions. As of September 2011, the order was relaxed to allow Hot Mobile and Golan to construct radio access devices in reliance on the exemption, under certain limitations. Our application to relax the interim order against us was denied. The Attorney General's opinion submitted in December 2013 to the court supports a permanent order to prevent us from constructing radio access devices in cellular networks in reliance on the exemption, until regulations limiting our reliance on the exemption are enacted but allowing us to replace radio access devices under certain conditions and allowing Hot mobile and Golan to continue to construct radio access devices in reliance on the exemption,  until July 2014. We are awaiting the Court's decision. In September 2014 the court suggested the parties shall come to an agreement, based on the 2010 draft  regulation and the parties are discussing such an arrangement.
 
  Additionally, in November 2008 and again in October 2014, the District Court, in its capacity as court of appeals, ruled that the exemption does not apply to radio access devices, if the rooftop on which those devices are located is at the same level as a place of residence or other building that is regularly frequented by people. Other appeals relating to the exemption, including as to the requirement to obtain an extraordinary usage permit, are still under consideration, as well as other claims asserting that those cell sites and other facilities do not meet other legal requirements continue.
 
 An annulment of, or inability to rely on, or substantial limitation of, the exemption could adversely affect our existing network and network build-out, particularly given the rapidly growing demand for data traffic on our network (including as a result of our 2G and 3G sharing agreement, if approved), specifically in urban areas and the objection of some local planning and building authorities to grant due permits where required, could have a negative impact on our ability to obtain environmental permits for these sites, could negatively affect the extent, quality, capacity and coverage of our network, and our ability to continue to market our products and services effectively and may have a material adverse effect on our results of operations and financial condition.
 


 
Radio access devices do receive the required permits from the Ministry of Environmental Protection. Since October 2007, 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.
 
Several local planning and building authorities argue that Israeli cellular operators may not receive building permits in reliance on the current National Zoning Plan 36, or the Plan, 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 issue 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 an extraordinary usage or under existing local specific zoning plans. Since 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, also operate in frequencies not specifically detailed in the Plan. The frequencies allocated in the 2011 UMTS tender to Hot Mobile and Golan as well as the frequencies awarded under the January 2015 4G frequencies tender, are also not detailed in the Plan. We believe that the Plan applies to all cell sites, whether or not they operate in specific frequencies.
 
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) and femto-cells 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 and femto-cells require building permits.  Some repeaters and femto-cells require specific permits and others require a general permit from the Ministry of Environmental Protection in respect of their radiation level, and we ensure that each repeater functions within the parameters of the applicable general permit. Should it be established that the installation of repeaters and femto-cells (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 or femto-cells.
 
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. If the courts determine that building permits are necessary for the installation of these sites, it could have a negative impact on our ability to obtain environmental permits for these sites and to deploy additional microwave 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.
 


 
In August 2014, additional regulations that include a new exemption from obtaining a building permit came into effect. The exemption is afforded to the addition of an antenna to an existing cell site and is subject to receiving the Commissioner of Environmental Radiation approval that such addition does not change the radiation safety range set in relation to such cell site prior to the addition.
 
Operating a cell site or a facility without the requisite permits or not in accordance with permits granted 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. In addition, our sites or other facilities may be the subject of demolition orders and claims of breach of contract and we may be required to relocate cell sites to less favorable locations or stop operation of cell sites. This could negatively affect the extent, quality and capacity of our network coverage and adversely affect our results of operations.
 
In July 2011, an inter ministry team of the Ministries of Communications, Finance, Interior, Environmental Protection and the Anti-Trust Commissionaire, published its recommendations regarding cell site sharing. The recommendations include compulsory cell sites sharing in the construction of new cell sites or modification to existing cell sites which require a building permit (the Ministry of Communications may exempt from the obligation to share cell sites where such obligation poses technological and engineering difficulties), while providing preference and leniencies to the new UMTS operators, as well as the reduction of existing non shared cell sites quantity. Unlike the site sharing we wish to implement in the framework of our agreements with Pelephone and Golan, where site sharing will be carried out where it is beneficial for us, these recommendations or similar recommendations, if enacted, would further burden the construction of new cell sites and modifications to existing cell sites, and may adversely affect our existing cellular network, network build-out and results of operations.
 
In May 2012, the positions of the Ministries of Communications, Health and Environmental Protection in relation to the various aspects of the provision of 4G services in Israel were published, in response to a petition to hold a public debate regarding 4G service in Israel and prevent 4G spectrum allocation until such debate is held. The Ministries held the position that 4G services would involve some increase in the level of non-ionizing radiation the public will be exposed to and that in order to minimize such increase 4G deployment should be based on current cell sites, additional outdoor and indoor small cell sites and, whenever possible, use wireline infrastructure so that data traffic shall be carried mostly through wirelines and not cellular infrastructure. The adoption of the inter-ministry team's recommendations regarding cell site sharing is to be a precondition for the deployment of 4G infrastructure. Under such guidelines, the public's exposure to non-ionizing radiation level should not increase substantially. The Ministry of Health further opined that in light of the preventive precaution principle and, in order to reduce as much as possible the alleged health risks, 4G fields of usage and specific usage should be predefined and additional usage, where a landline alternative is available, should be conditioned on further discussion. The Ministry of Environmental Protection stated that full deployment of 4G infrastructure, under the guidelines set by the ministries shall decrease the level of exposure from handsets and create a more balanced level of exposure from cell sites, lower than current level in some areas where cellular infrastructure is insufficient and somewhat higher in areas where cellular
 


infrastructure is sufficient and in any case much lower than the maximum exposure levels recommended by the international health organization and required under the environmental permits for cell sites in Israel. In August 2014, the Ministry of Communications allowed the provision of 4G services and in January 2015, 4G frequencies were awarded to the cellular operators. The abovementioned recommendations were not included in the approval or tender documents. See "Construction and operating permits from the commissioner of environmental radiation" below for additional details. For details regarding network and cell sites sharing agreements see "– A. History And Development Of The Company- Our History - Strategic network sharing agreements " and "- B. Business Overview – Network and Technology - Network and Cell Sites Sharing Agreements" above.
 
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 Council for Planning and Building.  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 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 approximately 380 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, and as of December 31, 2014,  we are a party to one depreciation claim. 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 and operate 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 and/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. Some repeaters require specific permits and others require general permits from the Commissioner in respect of their radiation level, and we ensure that each repeater functions within the parameters of its applicable general permit.
 
Pursuant to the Non-Ionizing Radiation Law, 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 and other facilities  by third parties that were authorized to conduct such surveys by the Commissioner. 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 and means taken (including technological means) to limit exposure levels from each cell site or facility (relevant also for the receipt of a construction permit). In April 2010, the Commissioner amended all existing operating permits to include an obligation to provide the Commissioner with online, ongoing data regarding the radiation level on each of the cell sites and other facilities operated by each cellular operator, satisfied by a monitoring system supplied by the Commissioner and installed at the operator's premises. We provide the Commissioner with the requested data. See "Site licensing" above for additional details in regards to obtaining a building permit 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.
 
In December 2008, the Minister of Environmental Protection signed the Non-Ionizing Radiation Regulations, which did not include a section setting additional restrictions in relation to the operation of cell sites and other facilities, which was included in a previous draft of the regulations. This section is pending approval by the Internal Affairs Committee of the Israeli Parliament.
 
 
 
 
In March 2013, a bill amending the Non-Ionizing Radiation Law so as to prohibit the grant of permits under such law for the construction and operation of cell sites situated within 75 meters from certain institutions, passed a preliminary phase of enactment in the Israeli Parliament. According to the bill, such permits granted prior to the enactment of the bill shall expire within 6 months from its effective date. In March 2013, another bill amending the Planning and Building Law was published, so as to broaden the public's right to submit objections to all requests for the construction of cell sites and to allow a wider discretion to the planning authorities in relation to such requests that are submitted in certain circumstances including similar to those described in the previous bill. If restrictions similar to those included in the previous draft of the Non-Ionizing Radiation Regulations (which included additional restrictions on the operation of cell sites and other facilities) or the proposed change to the Non Ionizing Radiation Law or the Planning and Building Law are subsequently adopted, they will, among other things, limit our ability to construct new sites (and if applied to existing cell sites, they will also limit our ability to renew operating permits for many of our existing sites), will adversely affect our existing networks and networks build out, specifically in urban areas, and could adversely affect our results of operations.
 
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 handset that emit non-ionizing radiation, according to the European standard, for testing GSM devices, and the American standard, for testing TDMA and CDMA devices. They also require cellular operators to attach an information leaflet to each handset 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.
 
We obtained type-approval from the Ministry of Communications for each handset model we started to import prior to November 2012. As of November 2012, we inform the MOC of new models that we start to import and receive the MOC's approval. SAR levels are a measurement of non-ionizing radiation that is emitted by a hand-held cellular handset at its specific rate of absorption by living tissue. SAR tests are performed by the manufacturers on prototypes of each model of handset, not for each and every item. We include the information published by the manufacturer regarding SAR levels as 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 each specific item and throughout its lifecycle, including in the case of equipment repair. We inform our customers that there may be changes in the SAR levels in the event of equipment repair.  See "Item 8. Financial Information – A. Consolidated Statements and Other Financial Information – Legal Proceedings – Class Actions" for details regarding two class actions against us, in respect of handsets and accessories.
 
We are required to provide a warranty for certain end user equipment purchased from us, for certain malfunctions during the first year, and are required to provide repair services for two years and in certain cases, for three years. We are also required to annul equipment sale in certain circumstances, at the request of the customer.
 
Royalties
 
Under the Communications Law, the Israeli Communications Regulations (Royalties), 2001, and the terms of our general license, we are required to pay the State of Israel royalties equal to a certain percentage of our revenues generated from telecommunications services, less payments transferred to other license holders for interconnect fees or roaming services and losses from bad debt. No royalties were due for sale of handsets. As of 2013, that percentage was 0%.
 


 
  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.
 
Mobile virtual network operators
 
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 radio network infrastructure.  Instead, MVNOs have business arrangements with existing cellular operators to use their infrastructure and network for the MVNO’s own customers. The operation of MVNOs in the Israeli cellular market has contributed to the increased competition. If our service to a MVNO is to be provided under unfavorable terms and consideration for us, it may adversely affect our revenues.
 
Although the regulations that regulate the operation of an MVNO deal with an agreement based MVNO, the Communications Law, instructs that 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, and if the Ministry of Communications together with the Ministry of Commerce determine that the failure to reach an agreement is due to unreasonable conditions imposed by the cellular operator, the Ministry of Communications will 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. Furthermore, in November 2014 the Ministry of Communications announced it may review the reasonability of  MVNO hosting agreements, including existing agreements which the MVNO request to update if the existing agreement hinders its ability to compete and the parties fail to reach an agreement.  For the Minister of Communications' authority to give instructions and to set prices see "Item 4. Information on the Company – B. Business Overview - Government Regulations - Tariff Supervision". Unfavorable terms and consideration for the service may result in material adverse effect on our results of operations.
 
To date the Ministry of Communications has granted eleven MVNO licenses and five MVNOs have entered hosting agreements with cellular operators, without the Ministry of Communications's intervention Five MVNOs - Rami Levy, Home Cellular Alon Cellular Ltd., Azi and Cellact entered hosting agreements and commenced operations in December 2011 through December 2013. It is unknown if and when the others will commence operations. For additional details see "Item 4. B. – Business Overview – The Telecommunications Industry in Israel – Cellular services".
 
Additional MNOs
 
Hot Mobile (in September 2011) and Golan (In January 2012) were awarded new UMTS frequencies, following a spectrum tender held by the Ministry of Communications.  Under the UMTS tender terms, both Golan's and Hot Mobile's commitment to pay license fees was reduced to NIS 10 million, after reaching 7% market share each, in the private sector .  Hot Mobile and Golan were awarded certain additional benefits and leniencies, such as a prolonged timetable for network coverage completion and the right to use national roaming through cellular operators' networks.
 


 
Under the Communications Law existing operators (other than Hot Mobile) are required to provide new UMTS operators and Hot Mobile national roaming services, for a period of seven to ten years (subject to certain conditions). If the new operator or Hot Mobile and the hosting operator have not reached an agreement, as to the terms of this service (including the consideration), for any reason, by the time that the service is to commence (after certain criteria are met) the service will be provided for the then prevailing interconnect tariff and subsequently (but no later than February 1, 2012) shall be determined by the Ministry of Communications with the consent of the Minster of Finance and applied retroactively.
 
In October 2011, we entered a national roaming agreement with Golan, under which we will provide Golan national roaming services and cell site sharing privileges (which will be later replaced by our network sharing agreements with Golan, subject to regulatory approvals), and Hot Mobile entered a national roaming agreement with Pelephone (and later with Partner). As a result, the Ministry of Communications did not determine the terms for the service.
 
In May 2012, Golan and Hot Mobile launched their UMTS services, which materially increased competition in the market, increased churn and accelerated price erosion, and  have materially adversely affected our results of operations. Investing in a 4G Network will, under certain conditions, replace Golan and Hot Mobile's obligation to deploy a UMTS network. For additional details see "Network Sharing" above. For the Minister of Communications' authority to give instructions and to set prices in regards to national roaming agreements see "Item 4. Information on the Company – B. Business Overview - Government Regulations - Tariff Supervision".
 
In January 2014, the Israeli Ministry of Communications completed an 1800MHz frequencies tender, for 4G technologies (such as LTE, LTE Advanced). Participation in the tender was open for all current MNOs, MVNOs and other entities meeting certain condition and bands were awarded to the highest bidders. All existing MNOs and Marathon won bands in the tender and Marathon is expected to be awarded an MNO license. Under the tender terms, Marathon, Golan and Hot Mobile are eligible for up to 50% discount, 10% discount for each 1% addition to their market share, obtained over the next 5 years.
 
Landline
 
In May 2012, the Israeli Minister of Communications published a policy document regarding wireline wholesale services, which mainly provides for: (1) the creation of an effective wholesale telecommunications access market in Israel, as Bezeq and Hot will allow other operators that do not own an infrastructure, to use their infrastructure in order to provide services to end users; (2) the wholesale market's tariffs and terms of agreement shall be agreed through negotiations between the owners of the wireline infrastructure (Bezeq and Hot) and the other operators and once agreed will be offered on the same terms, to all other operators, including the owner's affiliates (3) the annulment of the structural separation between an owner of wireline infrastructure and its international landline operator and internet service provider affiliates and replacement thereof with an accounting separation within nine months from the date of execution of an agreement between the owner and another operator with a significant market share, unless the Minister of Communications finds that such annulment may considerably harm competition or the public.
 

 
 
The Minister of Communications shall consider providing leniencies in relation to or annulment of the structural separation between an owner of wireline infrastructure and its cellular operator affiliate according to the pace of development of a wholesale market and the state of competition in the market. In case an effective wholesale market does not develop within twenty four months from the date of the policy document, the Ministry of Communications shall act to impose a structural separation in the owners of the wireline infrastructure between the infrastructure and the services provided through this infrastructure; (4) the annulment by the Minister of Communications of the structural separation in relation to television broadcasting services if there is a reasonable possibility of providing a basic package of television services through the internet by providers without a national landline infrastructure. The Minister of Communications shall consider imposing a requirement to provide television broadcasting services for the same price within a package of telecommunications services and separately; and (5) a change of the supervision on Bezeq retail tariffs to maximum tariffs rather than the current setting of fixed tariffs within six months from the date of execution of an agreement between Bezeq and another operator.
 
For changes to the Israeli Communication law, extending the Minister of Communications' authority to give instructions and set interconnect tariffs,  usage of another operator's network rates and supervised services prices, and give instructions in relation to structural separation, see "-Tariff supervision" above.
 
As negotiations of such wholesale agreement failed, in January and February 2014, the MOC published hearings regarding terms for the provision of certain wholesale landline services by Bezeq and Hot to other operators (as well as an IRU of passive infrastructure elements by Bezeq and Hot of each other's networks) and the maximum prices it intends to set for certain wholesale services to be provided by Bezeq to other operators (excluding Hot). The MOC noted it is reviewing applying certain wholesale obligations on all landline operators, including us. The MOC further published its decision regarding the types of landline services that shall be offered through the wholesale landline market.
 
In November 2014, the Minister of Communications amended Bezeq's and Hot's Communications' licenses so as to include certain wholesale landline services, such as internet infrastructure services and wholesale landline telephony services, and the terms for the provision of such services (within 3-6 months from the date of that decision) as well as promulgated regulations setting the maximum tariffs of the wholesale landline services to be provided by Bezeq. In December 2014, Bezeq filed a petition with the Israeli Supreme Court seeking to annual such amendment to its license and the said regulations as well as an interim injunction. The court will hear Bezeq's petition and request for interim relief in March 2015, after the date in which it is required to commence provision of one of the services (Internet Infrastructure). In January 2015, the Ministry of Communications further amended Bezeq and Hot's licenses to include additional landline services, such as the use of certain of their physical infrastructure by operators who do not own such infrastructure, and the terms for their provision, as of August 2015. In February 2015, the wholesale landline market was formally launched in Israel.
 
Further, the Ministry of Communications published a hearing proposing a method of inspecting whether Bezeq and Hot reduce their retail tariffs and thereby reduce the difference between the wholesale and retail tariffs ("margin squeeze") for certain landline services, aiming at reducing the operators who do not own landline infrastructure's profit and preventing their operation in the market.
 


 
In August 2013, IBC (a company owned by the Israeli Electric Company, or IEC, and an international group led by Via Europa) received licenses for the provision of broadband infrastructure services on the IEC's optic fibers infrastructure to other licenses holders as well as directly to large business customers. IBC has commenced deployment of its infrastructure in 2014 and recently commenced the provision of such services in selected areas. Some of the smaller ISP providers have reportedly entered an agreement with IBC. See also "- Competition – Wireline" above.
 
OTT TV
 
Television services over the Internet are currently not regulated in Israel. In August 2014 , a committee nominated by the Ministry of Communications in order to examine, among other things, the regulatory principles and rules that should apply to both  television broadcasting over the internet and the incumbents' TV service over cables and via satellite, submitted its interim recommendations for public comments, including (1) audio-visual service suppliers (which include the OTT TV service we supply) will not be required to receive a license as a precondition to their operation but will be required to register with the regulator and will be subject to regulation to be applied gradually, depending on such suppliers reaching certain market share or certain revenues; (2) regulation to include the obligation to provide service to anyone wishing to subscribe in Israel; (3) original Israeli content financing to be divided among infrastructure providers (MNOs, ISPs and landline operators) and content providers (broadcasting entities) and (4) the requirement to carry certain channels. The implementation of such recommendations is subject to the publication of final recommendations and the adoption thereof by legislation. If the legislation adopted require us to make additional investments or impose unfavorable regulation on our OTT TV service, or usage of the DTT infrastructure,  it may adversely affect our OTT TV business.
 
See also "- Competition – Wireline" above.
 
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, which may increase our liability, including taking control of our cellular or landline 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 report to the Ministry of Communications the transfer of means of control from certain thresholds and changes of office holders, as well as to provide reports relating to our ongoing operation and services. 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, pricing, specific costs and revenues, network problems and the development of the network. We are required to provide the Commissioner of Environmental Radiation under the Non-Ionizing Radiation Law and regulations with periodic and online, ongoing data of all cell sites operated by us.
 


 
Securities administrative enforcement
 
Under Israeli securities laws, certain violations of certain securities and securities-related laws supervised by the Israeli Securities Authority, or ISA, may be enforced through administrative measures. The ISA may impose various civil enforcement measures, including financial sanctions, payment to the injured party, prohibition of the violator from serving as an executive officer for a specified period of time, annulment or suspension of licenses, approvals and permits granted under such laws and agreed settlement mechanism as an alternative to a criminal or administrative proceeding. In case of a violation by a corporation, additional responsibility is attributed to the chief executive officer in some cases, unless certain conditions have been met, including the existence and implementation of procedures for the prevention of the violation. We adopted such procedures for the prevention of violations. Since the commencement of operations by the Israeli Securities Law Administrative Enforcement Committee, significant monetary sanctions, ranging up to several million shekels in individual cases, have been imposed on several publicly traded companies and their affiliates for breach of the provisions of the Israeli Securities Law.
 
Contributing to the Community and Protecting the Environment
 
We and our employees have been contributing to the community since our inception. We consider contribution to the community in Israel an important component of our business vision and believe we have a responsibility toward the Israeli community, as we acknowledge that business leadership goes hand in hand with social leadership.
 
In 2014 we continued to contribute to the community with a specific focus on our "Cellcom Volume" youth centers initiative. In addition to promoting Israeli music and artists and providing our customers with Israeli music through a variety of musical content, we have contributed to the creation of "Cellcom Volume" youth centers in various locations throughout Israel, in which we provide young people resources related to music, including music classes, facilities to bands and choirs for rehearsals and recording studios. We believe music is a language that connects and bonds different people together. As of December 31, 2014, we had 7 "Volume Centers" active throughout the country.
 
Throughout the year, our employees volunteer in various activities in the community.
 
In addition to our contribution to the building up and strengthening of the community, through activities such as our "Cellcom Volume" youth centers, we make financial donations to other worthy causes and entities. In 2014 we donated a total sum of approximately NIS 1.5  million, including our contribution to the community.
 
We are aware of the importance of environmental protection. Accordingly, while providing quality products and services to our subscribers, we seek to operate responsibly to continuously reduce negative impacts on the environment and the landscape, aiming at a better environmental performance than required by local law. We dedicate personnel, funds and technologies to improve our performance, strive to achieve an efficient deployment of infrastructure subject to the applicable standards, and cooperate with the local authorities. We constantly monitor our environmental performance and aim to reduce our ecological footprint, through activities such as recycling of electronic components and packages, reduction of paper usage by managed printing, reduction of pollutants' emissions and energy usage as well as activities aimed at allowing our subscribers to better protect the environment, such as collecting used batteries, sending subscribers their monthly bill for our services and other correspondence from us via e-mail and as of 2014, also by SMS, in lieu of regular mail, transfer to usage of environment friendly raw materials and separation between different types of waste in our repair services. In 2010, we entered into an agreement for the future purchase of electricity to be produced by a private natural gas based power station.


 
Netvision
 
General
 
On August 31, 2011, we completed the acquisition of 100% of the share capital of Netvision through a merger transaction. Netvision was founded as an Israeli company in 1994 and became a public company following its initial public offering on the TASE in 2005. In our description of Netvision's business, the term "Netvision" refers to Netvision and its subsidiaries.
 
 Netvision is a leading company in the Israeli communications market and is engaged in two primary businesses through its wholly-owned subsidiary 013 Netvision Ltd., or 013 Netvision: provision of internet connectivity and related services (ISP); and provision of telephony services consisting mainly of international calling services, operator services, teleconferencing services and landline telephony services. In addition, Netvision is engaged in additional activities such as internet applications, cloud services   and data security products.
 
ISP Business
 
General
 
The provision of internet connectivity services is one of Netvision's primary businesses. Netvision is a leading provider of internet connectivity services. The Israeli internet market is characterized by a separation between the internet infrastructure providers and the internet connectivity service providers. Consequently, the internet customer is required to enter into a contractual arrangement with both of these providers. The infrastructure provider is responsible for the connection of the customer from his computer or other device to the infrastructure provider's operator. The internet service provider (such as Netvision) is responsible for providing access to the customer from the infrastructure provider's operator, through its own operator, to the local and global internet network. Currently, there are two main internet infrastructure providers having landline infrastructure for the private sector in Israel: Bezeq and Hot. Netvision's internet infrastructure is currently comprised of connectivity sites in two locations in Israel (Haifa and Petah-Tikvah), which provide Netvision's customers, through overseas connectivity points in London and Frankfurt, with connectivity to the global internet network. This internet infrastructure contains backup capability in order to ensure continuity of service.
 
Services and Products
 
Netvision's main service provided to its internet subscribers is internet connectivity service and related services and products, as well as bundles of its services, including  bundling with our services and other companies' products or services.
 
In addition, Netvision offers its internet subscribers value added services, such as data protection services to its private subscribers and connectivity integration solutions and global communications solutions to its business customers, including firewalls, anti-virus and anti-spam software, overseas internet connectivity services and server hosting services. In addition, Netvision provides ISP services that offer the ability to filter the content viewed by the internet users.
 


 
Netvision is constantly considering and evaluating the possibility of introducing additional products and services to its customers.
 
The Israeli ISP market is characterized by rapid technological changes, both in terms of the bandwidth offered to customers, as well as in terms of expansion of the list of products and services offered.
 
Suppliers
 
In the course of engaging in its ISP business, Netvision has entered into agreements with various suppliers, of which the principal agreements are the following:
 
Netvision has entered into a number of agreements with Mediterranean Nautilus Ltd. and Mediterranean Nautilus (Israel) Ltd., or collectively Med Nautilus, between 2003 and 2013. Med Nautilus is the owner of  communications infrastructure which connects the Israeli internet network to the "entry points" of the global internet network via an underwater communications cable (out of three existing cables, one of them is owned by one of Netvision's competitor, Bezeq International). Pursuant to its agreements with Med Nautilus, Netvision purchased rights of use, of certain telecommunications capacities on Med Nautilus' communications cables, as well as maintenance and operation services relating to these cables. Over the last few years Netvision has increased the capacity purchased for significantly lower prices. The 2013 agreement includes an option pursuant to which Netvision may expand the purchased capacity. The term of the agreement with respect to capacity purchased from Med Nautilus is in effect until May 2032. Netvision has the option to terminate agreements with respect to parts of the capacity in 2022 and 2027.   The terms of these agreements may be subject to regulatory intervention – see "- Regulation and Licenses" below.
 
Netvision has also entered into agreements with Bezeq and Hot, the primary internet infrastructure providers in the Israeli market. Netvision is dependent upon these suppliers since without their infrastructure Netvision would be unable to provide its ISP services to its customers. Due to the increase in customer demand for broadband width in recent years, Netvision is required from time to time to increase the capacity it purchases from Bezeq and Hot.  Until December 2014, Netvision was required to purchase minimum bandwidth capacities from Bezeq. In June 2012, following our application to the Ministry of Communications to intervene with respect to these prices, the Ministry has published a hearing in relation to these connectivity services, and in 2013, both Bezeq and Hot reduced the price they demand for connectivity services to their infrastructure.
 
In 2015, we entered into an agreement with Bynat, for the provision of maintenance and proactive malfunction detection and consultant services for Netvision's IP network equipment by Cisco, effective until the end of 2019. In addition, Netvision sells various Cisco products to its customers.
 
Netvision uses several supporting systems for the provision of service to its customers, including communications infrastructure by Nortel (see additional details under "Telephony Business – Suppliers" below), customer relations management system by PeopleSoft supported by Amdocs, inventory and suppliers management system by Priority/Eshbel, billing system by CBP supported  internally and by Intec, financial system by Coda and infrastructure integrations system by Microsoft BizTalk. In July 2013, we transferred Netvision's inventory and suppliers management operation to our ERP solutions provided by SAP, supported by Rimini. We are in the process of developing a new version for our billing system, so as to include Netvision's billing operation, and intend to replace both our and Netvision's CRM system with one system that shall serve both companies. For details see "Item 4. Information on The Company –B. Business Overview – Network and Technology - Information technology".
 


 
Sales and Marketing and Customer Care
 
Netvision conducts its sales and marketing activities in the ISP business through various channels, including media advertising in internet and television, concentrated sales campaigns, telemarketing to potential customers, as well as targeting existing customers by offering them upgrades to existing subscription programs and value added products and services. In addition, Netvision regularly collaborates with other telecommunications providers (including Bezeq and Hot) in order to offer service packages to existing and potential customers and its services are also marketed by Cellcom, including in bundles of services.
 
Netvision's sales and customer care center is located in Haifa, with additional teams located in our headquarters in Netanya, providing sales services, technical and support services, billing and general information, by specializing representatives as well as installation services provided by technicians teams at the landline customers' premises. In addition, Netvision provides its subscribers and potential subscribers with various self-service channels, such as IVR, web-based services, automatic and live chat and mobile phone application where they can receive general and specific information.
 
Competition
 
Internet access is currently provided by three major Internet service providers, or ISPs: Netvision, Bezeq International, Smile Telecom (a subsidiary of Partner), and some other smaller players including Hotnet (a subsidiary of Hot).As of December 31, 2014, Netvision provides ISP services to approximately 600,000 households and we estimate Netvision's market share to be 32%. Based on Bezeq and Hot reports, at the end of September 2014, the household penetration rate was approximately 88%.
 
The Israeli ISP market is highly competitive and saturated and is characterized by relatively low entry barriers. Competition among the various players concentrates mainly on the ability to offer high-speeds of internet connection and on pricing. Although the provision of ISP services requires obtaining a license from the Ministry of Communications, the Ministry's policy is liberal in granting ISP licenses. As a result, as of the date of this report, there are a few dozen holders of ISP licenses in Israel, though most of them do not hold significant market shares. Entry into the ISP market requires, however, incurring substantial penetration costs associated with the formation of ISP infrastructure, support systems, customer care systems and marketing channels. Due to such penetration and the other ongoing costs of operating ISP service, profitability in the ISP market usually requires creation of a broad customer base and the ability to sell added value products and high speed packages to the customers.
 
The key success factors in the ISP market are the services included in the bundle, competitive pricing, brand recognition and reputation, advanced and updated technological capabilities, available bandwidth, high levels of customer care service, the ability to constantly develop innovative products and services and complementary products and services, and achieving and maintaining customer loyalty.
 


 
Although both Bezeq and Hot are under structural limitations, they are allowed to offer bundles of services, under certain limitations, including that some of the services in the Bezeq bundle would be available for sale separately under the same terms as in the bundle, and the requirement that Bezeq allows its competitors to participate in a similar bundle (if it includes ISP, VOB or ILD services) under the same terms and equally markets such bundles as its own bundle (though the second requirement does not apply to the sale of the bundle by a subsidiary of Bezeq). The same limitations apply to Hot in the case of bundles that include ISP services, with respect to the ISP service component of the bundle. The entry of Hot (through its subsidiary Hotnet) into the ISP market at tariffs significantly lower than market prices in 2012, the subsequent entry of cellular operators into that market in 2013, the offering of bundles of services and the aggressive campaigns of both Bezeq and Hot offering substantially higher bandwidth for lower tariffs to end-users, resulted in substantial decrease in ISP service prices and led to increased demand for greater bandwidth, which required Netvision to increase the capacity it purchases from Bezeq and Hot. If future prices of internet connectivity service remain at current levels and the regulatory environment remains unchanged, this trend is expected to continue to have a material adverse effect on Netvision's results of operations.  
 
In 2011 and 2012, two additional underwater cables that serve as an alternative to Med Nautilus were deployed. In addition, proposed regulation published for public comments by the Ministry of Communications in 2011, proposed certain limitations on the terms of agreements with Med Nautilus, which would, among other things, limit the discounts and capacity Med Nautilus may provide. The deployment of additional underwater cables improved the competition in the ISP market, as ISP providers were able to find alternatives to Med Nautilus, which led to a substantial decrease in the pricing of the global internet connectivity services provided to Israeli ISP providers. In addition, should we enter an agreement for the purchase of broadband infrastructure services with IBC, this would improve Netvision's competitiveness in the ISP and landline markets as this is likely to reduce its dependency on Bezeq and Hot as internet infrastructure providers, but may also increase competition, given that IBC's license allows it to offer ISP services to large business corporations and that IBC plans to create a portal for all ISPs using its infrastructure, where customers will be able to compare license holders offers (such offers are to be reported in advance to IBC for that purpose) and transfer between them through such internet portal.
 
For additional details see “Item 3. Key Information – D. Risk Factors –   - Risks Related to our Business – We face intense competition in all aspects of our business" and " Business Overview – Competition" above.
 
Regulation and Licenses
 
A major part of Netvision's ISP operations is subject to regulation by the Israeli Ministry of Communications pursuant to the Communications Law, including through its ISP license.
 
The provision of ISP and related services requires a license. Netvision was granted three ISP licenses, one to its wholly-owned subsidiary 013 Netvision, one to its controlled subsidiary Internet Rimon, and third was granted to 013 Netvision by the Israeli Civil Administration in Judea and Samaria in respect of this territory. The licenses are valid through April 2017, November 2017 and July 2016, respectively.
 


 
Under its ISP licenses, Netvision is required to maintain a minimum standard of customer service and is prohibited from conditioning the use of its services by the customer on the customers being connected to a portal designated by it. Netvision is also required to inform its customers regarding the main features of the service provided, including commencement date of service, the consideration paid by the customer, the minimal surfing speed it is solely responsible for (if it publishes the maximum speed), quality standards, and maintenance details, and details about the possibility of email address portability, and is required to use a specific format for Netvision's agreement with its customers; to obtain an explicit request from its subscribers to purchase services as a precondition to providing and charging for such services; to maintain a specific form of evidence of customers' request to purchase its services as a precondition to charging its customers   for those services, provide notifications regarding the services ordered and the procedures for handling subscribers' objections as to billing and repayment of overcharged sums.
 
Under its ISP licenses, Netvision may not transfer any means of control or any of its licenses-related assets without the prior written approval of the Ministry of Communications. The license may be terminated in case that Netvision fails to provide information or provides false information or in case it is engaged in anticompetitive practices in the communications market, subject to certain terms. The licensee is required to provide the Ministry of Communications with certain reports and is required to cooperate with the supervisory bodies of the Ministry of Communications.
 
For a change to the license formation, which may facilitate the entry of additional players into the ISP market, see "-Government Regulations -  Unified license" above.
 
The annulment of Early Termination Fees in the ISP market in 2011, led to an increase in competition, churn rates, rate of gross recruitment of subscribers and price erosion. Further intervention by the Ministry of Communications in the ISP market, including by means of granting additional ISP licenses and setting their terms and conditions, change or annulment of the structural separation currently in place for the Bezeq and Hot groups, permitting the bundling of certain services without restrictions and intervening in the purchasing of global internet connectivity, could have a material adverse effect on Netvision's ISP business.
 
Telephony Business
 
General
 
The provision of telephony services is one of Netvision's primary businesses. Netvision's services in its telephony business consist mainly of the following:
 
 
·
provision of international calling services, or ILD services;
 
 
·
provision of landline telephony services, including teleconferencing services; and
 
 
·
sales of IP switchboard services and operation and management of business telecommunications systems.
 
ILD services enable an end user (whether in Israel or overseas) to conduct a telephone conversation with an end user located elsewhere in the world. These include calls (including cellular calls) from Israel to various destinations abroad as well as call (including cellular call) completion services to overseas operators transferring a call to Israel; transferring international calls between operators and signaling services to local and foreign cellular operators to allow roaming.
 


 
Netvision is one of the leading players in the Israeli ILD market.  In recent years, the ILD market has witnessed the development and an increase in use of technologies that can serve as substitute to the traditional ILD services, including voice over IP technologies offered by companies such as Skype. This trend has resulted in a continual decline in revenues from traditional ILD services. Further developments and penetration of such technologies into the Israeli ILD market could have a material adverse effect on the financial results of Netvision's ILD business.
 
The entry of Hot Mobile and Golan into the ILD market in the second half of 2012 and beginning of 2013, respectively and the inclusion of ILD services in unlimited bundles of services provided by both landline and cellular operators,  had an adverse effect on Netvision's results of operations, as customers chose to instead obtain their ILD services from their cellular or landline's ILD. This trend is expected to continue to adversely affect Netvision's results of operations, particularly if the proposed regulatory change annulling structural limitation on Bezeq and Hot in relation to ILD is adopted. See " -Regulation and Licenses" below.
 
Landline telephony service enables an end user to conduct a telephone conversation with another end user who uses either another landline or a cellular telephone or computer, either in Israel or overseas.
 
Services and Products
 
Netvision's principal service in the ILD market is the provision of outgoing and incoming telephone calls to and from substantially worldwide coverage. Netvision provides these services mostly to post-paid customers, but also to pre-paid customers mainly through the sale of calling cards. Most of the customers of the pre-paid services are foreign workers who work in Israel. In addition, Netvision provides "Hubbing" services to non-Israeli international operators. Hubbing services are bridging services between two non-Israeli international operators. Such services are provided by Netvision where there is no direct connection between two non-Israeli international operators or where pricing differences in different locations make such bridging service desirable. The hubbing service market has been growing in the past few years because of the development of the international dialing market and because of the development of the corresponding arbitrage market on which various international operators trade international dialing capacities. In addition, Netvision provides "signaling" services to cellular operators who use roaming services. A cellular handset located out of its home network needs to "signal" its location to the hosting network in order to enable the cellular subscriber to have roaming services. Netvision provides these services to certain cellular operators in Israel (including us), as well as to foreign cellular operators with respect to their customers when they visit Israel.
 
Netvision's principal service in the wireline market is the provision of basic landline telephony services (to private customers by VOB technology). Netvision offers these services to both business and private customers. In addition, Netvision offers IP switchboard services and operation and management of   business telecommunications systems. Netvision's  ILD and landline services are also bundled with cellular services offered by Cellcom. For additional details see “Business Overview - Competition”.
 


 
Suppliers
 
Netvision's principal suppliers in the telephony market are the following: Bezeq, Hot and cellular operators. Under the Communications Law and licenses, all operators are required to interconnect their network to other public communications networks in Israel, on equal terms and without discrimination in respect of other operators. Netvision has entered into interconnect agreements with Bezeq, Hot and the cellular operators, for facilitating international traffic between Netvision's network and the other networks, as well as for billing and collection services for Netvision services, for certain customers. Netvision's traffic requires interconnections with these operators and is dependent on their availability and quality.
 
Most of the international dialing traffic between Israel and the rest of the world is conducted through the underwater communications cable of Med Nautilus. For further details on the agreements between Netvision and Med Nautilus, see "Netvision - ISP Business - Suppliers" above.
 
Netvision has also entered into agreements with more than 100 foreign carriers. These agreements regulate and facilitate the ILD services of Netvision, as well as its international voice hubbing services.
 
Netvision entered into an agreement with Nortel Networks Israel (Sales and Marketing) Ltd., or Nortel, in June 2004, for the provision of Netvision's international communications switch, on which Netvision bases its ability to provide international calling service, as well as related equipment and services. From 2010, Geneband Inc. (which acquired Nortel's relevant business) provides Netvision with support and maintenance services for the equipment provided under this agreement.
 
Netvision has entered into an agreement with ECI Telecom Ltd. for the provision of transmission switches by ECI Telecom among the various location sites of Netvision in Israel and overseas, used for its ISP and ILD operations.
 
Sales and Marketing and Customer Care
 
The sale and marketing of Netvision's telephony products and services is conducted mainly through direct means such as telemarketing, mail and email campaigns. In addition, Netvision offers its telephony products and services on a non-exclusive basis through our bundles, various retailers, through outsourced telemarketing centers and through distributors.
 
Netvision's customer care centers and self-service channels provide its telephony services customers the same range of services provided to its ISP customers.
 
Competition
 
The Israeli ILD market is highly competitive, and the competition in the market is based mainly on the operator's ability to offer attractive pricing. The price of an international call is also influenced by the call completion tariff paid to the operator in the call's destination country and increased competition in the destination country leads to a decrease in tariffs for calls to those destinations and thus an increase in the quantity of minutes made to those destinations.
 


 
The Israeli landline market has been dominated for many years by Bezeq, the incumbent landline monopoly which held as of March 31, 2014 (according to the Ministry of Communications report) a market share of 65.8% in the private landline sector and a market share of 73.9% in the business landline sector. Hot, the incumbent TV monopoly, entered this market in recent years and was allowed to bundle its landline service together with its internet infrastructure service and its multi-channel television service. Bezeq and Hot are currently the only landline carriers having full scale landline infrastructure. Recent technological and regulatory developments have enabled landline carriers which do not have a landline infrastructure, including Netvision, to enter the landline market. Netvision commenced its landline telephony services in 2008 using Voice Over Broadband, or VOB, technology, and since then expanded this business. We believe that in the long run, Netvisions' landline business will contribute to our results of operations, to our brand recognition and to enhancing customers' loyalty. Netvision's penetration into the landline business is an important element in our ability to offer comprehensive service packages to its and our subscribers. In case the landline wholesale market formally launched in February 2015, is effective, Netvision may also offer wholesale landline home telephony services to private customers.
 
Regulatory changes in the telephony market such as the inclusion of ILD services in unlimited bundles offered by cellular and landline operators, have increased competition further.   The adoption of proposed changes to ILD regulation, which includes the provision of ILD services by landline operators and cellular operators themselves and not through a separate company, as required today would increase the competition in the ILD market and may adversely affect Netvision's results of operations. See "-Regulation and Licenses" below.
 
The key success factors in the telephony market are the services included in the bundle, competitive pricing, which are updated constantly, brand recognition and reputation, advanced and updated technological capabilities, reliable network and high levels of maintenance, quality of human resources including customer care services, and the ability to develop comprehensive products and services packages, to build a substantial customer base, to enhance customers' loyalty and the ability to face competition. In addition, the ability to develop strong strategic relations with foreign international dialing carriers and continuous agreements with them are also key elements in the ILD market.
 
In recent years, the use of alternative telecommunications technologies such as voice-over-IP has resulted in downsizing of the telephony market, especially the ILD services revenues. This trend is expected to continue in the future.
 
Netvision is one of the leading  service providers in the Israeli ILD market. As of the date of this report, there are several ILD operators in the Israeli market. Netvision's main competitors in this market are Bezeq (through its wholly-owned subsidiary Bezeq International) and Partner (through its wholly-owned subsidiary Smile Telecom). Additional competitors include Xfone Communications Ltd., Telzar International Communications Services Ltd., Rami Levy, Golan and Hot, through wholly-owned subsidiaries or affiliates. The market share of the three major players is similar, with each having approximately 29-33% market share, at the end of September 2014.
 
Netvision estimates that its current market share in the Israeli landline market is not material   with approximately 156,000 subscribers, as of December, 31, 2014. Netvision's main competitors in the landline market are Bezeq and Hot, as well as Partner (through Smile Telecom) and Bezeq International. To our knowledge, Bezeq remains a monopoly in the landline market. The cancellation of  the 'ADSL only' service in March 2012, which required Bezeq to set a unified tariff for ADSL services, whether the customer purchases another service from Bezeq or not, such tariff to include the relative cost of the access service, facilitated Netvision's competitive standing in the landline market as it reduced access service costs.
 


 
A wholesale wireline services market and the IBC's infrastructure, when made effectively available, will enhance Netvision's ability to compete and allow us and Netvision (as well as our competitors) to provide a wider selection of services at competitive prices, specifically in relation to residential landline services which is currently non-material. Any changes to the structural separation limitations in the Bezeq and Hot groups and the supervision on Bezeq tariffs, or anti-competitive behavior if not prevented by the regulators, however, could adversely affect Netvision's ability to compete with Bezeq and Hot in general, and in the landline market in particular and may have a material adverse effect on Netvision's results of operation. Competition may intensify if additional competitors enter the market following the establishment of an efficient landline wholesale services market. See also “Item 3. Key Information – D. Risk Factors - Risks Related to our Business – We face intense competition in all aspects of our business” and "Item 4. Information on the Company –Competition" and "-Government Regulations – Landline".
 
Regulation and Licenses
 
Netvision's operations in the telephony business are subject to regulation, mostly pursuant to the provisions of the Communications Law and the regulations promulgated thereafter, the Communications Regulations (Telecommunications and Broadcasting) (Procedures and Conditions for the Receipt of General License for the Provision of the International Telecommunications Services) – 2004, or the ILD Regulations, with respect to its ILD  business, and to the provisions of its ILD licenses, and the Communications Regulations (Telecommunications and Broadcasting) (Procedures and Conditions for the Receipt of General unique License) – 2004 with respect to its VOB services and the provisions its landline licenses and its 'network end point' license.
 
Netvision's main ILD license is held by its wholly-owned subsidiary 013 Netvision and expires on May 2025, and its main landline license is held by another wholly-owned limited partnership Veidan Teleconferencing Solutions LP, or Veidan, and expires on March 2026 (and under the unified license – May 2025 as well). Each of the licenses may be extended by the Ministry of Communications for successive periods of ten years, provided that Netvision has complied with each such license and applicable law, respectively, has continually invested in the improvement of its services and network pursuant to such license and has demonstrated the ability to continue to do so in the future.
 
The main provisions of Netvision's principal ILD and landline licenses are the following:
 
 
·
the license holder is required to interconnect its 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;
 
 
·
the license holder may not take any action or be party to any arrangement which might adversely affect competition in the market;
 
 
·
the license holder is required to, among other things, maintain a minimum standard of customer service, including, among other things, establishing call centers, maintaining a certain service level of its network, tariffs setting and updating and protecting the privacy of subscribers;
 


 
 
·
the licenses or any part thereof may not be transferred, pledged or encumbered without the prior approval of the Ministry of Communications. The licenses also set forth restrictions on the sale, lease or pledge of any assets used for implementing the licenses;
 
 
·
pursuant to these licenses and the Israeli Communications Regulations (Royalties), 2001, the license holders are required to pay the State of Israel royalties equal to a percentage of their eligible revenues. As of 2013, that percentage is 0;
 
 
·
the license holders are required to obtain insurance coverage for their activities pursuant to these licenses. In addition, the licenses impose statutory liability for any loss or damage caused to a third party as a result of establishing, sustaining, maintaining or operating the license holder's network. The license holders 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 its obligations under theses license, Netvision deposited bank guarantees for this liability under the ILD and landline licenses in the amounts of $9 million and $11 million, respectively, with the Ministry of Communications, which may be forfeited in the event that the license holder violates the terms of its license; and
 
 
·
the transfer or pledge of means of control in the license holder is prohibited without the prior written consent of the Ministry of Communications, if, as a result of such transfer, a person (1) becomes a 5% holder or more in the license holder; or (2) acquires 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); or (3) becomes a controlling shareholder.
 
In addition, the ILD Regulations impose certain restrictions on cross-ownership in ILD operators, such as the prohibition on landline and cellular operators or holders of material international transmission infrastructure or on persons in which an ILD operator holds 5% or more from holding an ILD license. There are additional restrictions on cross-ownership in ILD operators under the ILD Regulations, which may be waived by the Ministry of Communications on grounds of public welfare or encouragement of competition in the communications market.
 
For a change to the license formation see "-Government Regulations -  Unified license", which may facilitate the entry of additional players into the ILD and landline telephony markets, above.
 
In October 2013, the Ministry of Communications published a hearing regarding a change to the ILD services regulation, which proposes, among other things: to annul the current limitation preventing landline and cellular operators from providing ILD services themselves (rather than through a separate corporation), which if adopted and applied to the Bezeq and Hot groups as well, would result in the annulment of the structural limitations currently imposed on them, in relation to the ILD services, even before an effective landline wholesale market is created; that holders of a special license for the provision of ILD services will not be obligated to provide service to anyone so requesting nor to all the countries in the world; and to annul the restrictions on the cooperation between cellular and ILD operators in relation to prepaid calling cards. In February 2015, a second hearing proposing certain alternatives to the abovementioned proposed changes, to be applied to the Bezeq and Hot groups during an interim period ending upon annulment of structural separation, was published. The adoption of such changes would increase the competition in the ILD market even further and may adversely affect Netvision's results of operations.
 


 
In addition to its principal landline and ILD telephony licenses, Netvision (through its wholly-owned limited partnership Veidan and wholly-owned subsidiary 013 Netvision) received from the Israeli Civil Administration in Judea and Samaria a license for the provision of landline and ILD services to the Israeli-populated areas in Judea and Samaria,  effective until October 2017 and August 2018, respectively. The provisions of the principal licenses described above, generally also apply to those licenses, subject to certain modifications.
 
In addition to its ISP, ILD and landline licenses, Netvision holds (through its wholly-owned subsidiary 013 Netvision) a 'network end point' license to mainly install and maintain telecommunications equipment at a customer's premises or the licensee's premises, which include telephones, switchboards, telephony cables and related equipment as well as enables Netvision to connect a customer premises ,through other license holders, to the public landline network. The license is valid until July 2017 and can be renewed subject to certain conditions, including the license holder's compliance with the terms of the license. A second 'network end point' license was received from the Israeli Civil Administration in Judea and Samaria and is effective until July 2017. For a change to the license formation see "-Government Regulations -Unified license" above.
 
In addition, as a service provider, Netvision is subject, like us, to the general legislation governing relations between vendors and consumers, including the Consumer Protection Law, 1981.
 
In August 2011, the Communications Law was amended pursuant to which the Early Termination Fees in the ILD and in the landline telephony market were annulled, which led to an increase in competition, churn rates and rate of gross recruitment of subscribers and price erosion.
 
In March 2012, the 'ADSL only' service was cancelled and Bezeq was required to set a unified tariff for ADSL services, whether the customer purchases another service form Bezeq or not, such tariff to include the relative cost of the access service. This change has facilitated Netvision's competitive standing in the landline market as it reduced of the access service costs.
 
For details of the landline wholesale market and its possible effects see "Competition" above and "Item 4. Information on the Company –Competition - Wireline" and "-Government Regulations – Landline".
 
C. 
ORGANIZATIONAL STRUCTURE
 
The IDB Group
 
Our largest shareholder, DIC, is a majority-owned subsidiary of IDB Development Corporation Ltd., or IDB, one of Israel’s largest business groups.  IDB and DIC are public Israeli companies traded on the Tel Aviv Stock Exchange. For details regarding a creditors agreement in regards to IDB and IDB Holding Corporation Ltd. (which prior to the execution of the creditors agreement held all the shares of IDB), see "Item 3. Key Information – D. Risk Factors - We are a member of the IDB group of companies, a large and highly regulated Israeli business groups, which may limit our ability to expand our business, to acquire other businesses or raise debt. The effects on us of IDB's financial condition are unclear". See the footnote to the table under “Item 7.A – Major Shareholders” for information on the holdings in IDB.
 


 
Netvision and 013 Netvision, our wholly-owned subsidiary and wholly-owned indirect company, respectively, incorporated in Israel, are our only 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 is in effect until December, 2022 and is renewable for two additional periods of five years each, upon our notice. In January 2015, we sublet a portion of our headquarters for a period of three years, following the reduction in headcount in our headquarters. The lessees have options to renew the lease for additional periods.
 
Central Laboratory
 
In October 2010, we entered into a long-term agreement for the enlargement of our techno-logistic center, including our new central laboratory, in Netanya, Israel, and the lease thereof.  The leased property covers approximately 11,000 square meters.  The lease is for a term of ten years from August 2011 and is renewable for an additional period of 5 years, at our option. In case we do not exercise the option we shall be required to pay approximately NIS 11 million. In January 2015, we sublet approximately 1,100 square meters of the leased property, for a period of five years. The lessee has an option to renew the lease for an additional period subject to the renewal of our lease.
 
Netvision Properties
 
Netvision leases two main properties in Israel: one in Haifa and the other in Rosh-Ha'ayin. Netvision uses these properties for its offices, for its call centers, and for its network servers, as well as for equipment storage and until December 2011, has used them as headquarters as well. The Haifa lease covers approximately 8,900 square meters, is in effect until December 2019, may be terminated by Netvision in December 2018 subject to prior notice, and is renewable for three additional periods of two years each, upon Netvision's notice. The Rosh-Ha'ayin lease covers approximately 3,300 square meters, is in effect until December 2015 and is renewable for six additional periods of two years each, upon Netvision's notice. Netvision sublets part of the property in Rosh-Ha'ayin to our wholly-owned dealer and another subsidiary.
 
Electricity
 
In December 2010, we entered into an agreement with Ashdod Energy Ltd. (subsequently assigned to Ramat Negev Energy Ltd.), which constructed a private power plant fueled by natural gas in Israel and commenced purchasing a portion of our electricity from it in 2014. Under the agreement as amended in July 2012, we committed to purchase electricity for the earlier of a period of 15 years from commencement of operations of the power plant or until January 2028, subject to our right to terminate the agreement after six years from the commencement of operations of the power plant under certain conditions.
 


 
Service Centers, Points of Sale and Cell Sites
 
As of December 31, 2014, we leased approximately 80 service centers, points of sale and other facilities (including those operated by our wholly-owned dealer), 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 Israeli Land Authority, or 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 five 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 7% 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.
 
In addition, Netvision leases a number of points of presence in Israel that are used for equipment and servers storage and storage of operators and other communications equipment for the provision of landline services, and leases storage space for its servers and equipment in New York City, London and Frankfurt.
 
Authorization Agreement with Land Regulatory Authorities
 
In June 2013, we renewed 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 until 2019.
 
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 International Financial Reporting Standards, or IFRS, which differ in certain respects from U.S. Generally Accepted Accounting Principles, or U.S. GAAP.  Following our adoption of IFRS, as issued by the IASB, we are no longer required to reconcile our financial statements prepared in accordance with IFRS to U.S. GAAP.
 
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 largest provider of cellular communications services in Israel with approximately 2.967 million cellular subscribers as of December 31, 2014, with an estimated market share of 29%, as well a leading ISP and ILD services supplier, through our wholly owned subsidiary - Netvision.
 
Since 2012, our results of operations have been materially adversely affected by regulatory changes, which have also facilitated the entry of additional competitors, a dramatically increased competition (as a result of which our churn rate reached 44% in 2014) and continued price erosion, resulting in a decrease in our EBITDA for 2012, 2013 and 2014 by 19.1%, 23.8% and 4.0% respectively, in comparison to the previous year. These trends are expected to continue to further adversely affect our results of operations. Competition may increase further if current trends continue, if our competitors network sharing agreements are approved and ours are not approved, if the landline wholesale market, formally launched in February 2015, is ineffective, if the structural separation imposed on the Bezeq and Hot groups is annulled or further relaxed, or if new competitors enter the communications markets. During that period, we have continually implemented aggressive efficiency measures in order to mitigate those adverse effects, which, in 2014, included a voluntary retirement plan for employees, in which approximately 380 employees have retired and we have recorded a one-time expense in the amount of NIS 39 million for the cost of this plan. Those measures led to an annual saving run rate of approximately NIS 850 million based on comparison of fourth quarter 2014 with fourth quarter 2011 expenses. We intend to continue to implement changes in order to continue our efforts to mitigate the adverse effects of the increased competition in all areas in which we operate. We cannot guarantee the success of these measures. Moreover, unionization of our employees may impede the execution of such measures.  See "Item 3. Key Information – D. Risk Factors – Risks Related to our Business - We face intense competition in all aspects of our business" and "Item 4. Information on the Company - B. Business Overview – Competition" for additional details.

 
 
We earn revenues and generate our primary sources of cash by offering a broad range of communications services, including cellular, ISP, ILD , landline services and most recently OTT TV services. Our cellular services include basic cellular telephone services and data transfer, download and upload, as well as text and multimedia messaging services and advanced cellular content services, which we provide through our 2G and 3G network covering substantially all of the populated territory of Israel and our recently launched 4G network. We also provide international roaming services to our subscribers in 179 countries as of December 31, 2014 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 on most handsets we offer. We have an advanced fiber-optic transmission infrastructure of approximately 1,750 kilometers. 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. We provide advanced landline services, to selected landline business customers. Since December 2014 we also offer OTT TV services. Entering a new and penetrated market will require substantial investment and additional operating expenses. In addition, following the acquisition of Netvision in 2011, we provide internet connectivity and related services (ISP) and landline telephony services consisting mainly of international calling services (ILD), operator services, teleconferencing services and landline telephony services.  We sell our various services on a stand-alone basis or bundled with certain other services offered by Netvision and us.
 
Our management evaluates our performance through focusing on our key performance indicators, which include among others: Net Promoter Score, or NPS, (indicating our subscribers’ satisfaction with our services), number of cellular, landline and ISP subscribers, ILD minutes of usage, subscriber churn rate, average revenue per cellular, landline and ISP subscribers, or ARPU, EBITDA (as defined in “Results of Operations”), EBITDA as percentage of revenues, operating income, net income and cash flow. 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.
 
In 2013 and 2014, we entered strategic network sharing agreements with Pelephone and Golan. Our agreements are subject to regulatory approvals. We can provide no assurance that such approvals will be granted, and if so, under what conditions. We expect that, if our agreements with Golan are approved, our revenues from Golan to be at annual levels similar to those in 2013 and 2014, for the duration of the agreements term. Our sharing agreements with Pelephone, if approved and executed, are expected to result in a few years during which additional investments will be required, in material operating expense and capital expenditure savings For additional details see “Item 3. Key Information – D. Risk Factors – Risks related to our Business – We face intense competition in all aspects of our business” and "Item 4. Information on the Company – B. Business Overview – Network and Technology - Network and Cell Sites Sharing Agreements".



In February 2015, we entered a collective employment agreement with the Company's employees' representatives and the Histadrut for a term of 3 years (2015-2017). The estimated cost of the agreement over the next three years is expected to be approximately NIS 200 million, before tax (including one time payments, of which approximately NIS 30 million are one time payments in Q1 2015), based on our forecasts.

 The Israeli telecommunications market is currently dominated by four communications groups: Bezeq, Hot, Partner-012 Smile and Cellcom–Netvision, with the first two having a full landline infrastructure. While an effective wholesale wireline market (formally launched in February 2015) will enhance our ability to compete and extend our service offering, the possible annulment of structural separation and Bezeq's tariffs supervision, following the execution of a wholesale market of landline services or other changes relating to the Bezeq and Hot groups, may have a material adverse effect on our competitive capabilities and results of operation.
 
We intend to drive revenue primarily by: maximizing the benefits of our position as a leading Israeli telecommunications group, offering our customers full and comprehensive mobile and wireline solutions and bundles of services and enhancing our competitive capabilities;   retaining our existing subscribers; offering new services that are synergetic to our core businesses; growing wireline service revenues; and attracting new subscribers. We intend to continue our efforts to optimize our costs by implementing further efficiency measures, reducing our expenses and adjusting our operations to the changing market conditions, but cannot guarantee the success of these measures.
 
The communications market and specifically the cellular industry are primarily regulated by the Ministry of Communications. Regulatory changes have had material adverse effects on our results of operations in recent years. See “Item 4. Information on the Company – B. Business Overview - Government Regulations.”  While our pricing is not generally regulated, certain of our rates and pricing mechanisms are subject to regulation. See "Item 4. Information on the Company – B. Business Overview – Government Regulations – Tariff Supervision."
 
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 and our ability to rely on an exemption from obtaining a building permit was severely limited. Also, we may be operating a significant number of our cell sites in a manner not fully compatible with the building permits issued for them. However, we do not expect that the demolition of these facilities would have a material impact on our results of operations and financial condition. Additional restrictions on the construction and operation of cell sites and other facilities may be enacted or we may be required to demolish or relocate these cell sites and facilities, which may adversely affect our existing networks and networks build out, specifically in urban areas, may prevent us from meeting our license requirements and could adversely affect our results of operations. Our profitability is also affected by other factors, including changes in our cost of revenues and selling, marketing, general and administrative expenses, including depreciation and financing expenses, which are also affected by changes in the CPI.
 
 
 
 
Our results are also impacted by currency fluctuations. While substantially all of our revenues are denominated in NIS, for 2014, approximately 20% of cash outflow was  denominated in, or linked to, other currencies, mainly U.S. dollars.  Changes to the Israeli CPI, may also impact our results as our debentures (excluding Series E, G and I) and some of our expenses are linked to the Israeli CPI.  Any devaluation of the NIS against the U.S. dollar or other foreign 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 have incurred significant debt by issuing debentures, the aggregate outstanding principal amount of which as of December 31, 2014 was NIS 4,629 million.  See “- Liquidity and Capital Resources-  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. 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. In respect of 2014, our board of directors chose not to declare dividends given the intensified competition and its adverse effect on our  results of operations and in order to strengthen our balance sheet. We undertook limitations on our dividend distributions in connection to the issuance of our F through I debentures. See “Item 8. Financial Information – A. Statements and Other Financial Information - Dividend Policy” and “— B. Liquidity and Capital Resources—Dividend payments” and "- Debt Service".
 
Revenues
 
We derive our revenues primarily from the sale of cellular network services (such as airtime and data surfing), 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 cellular subscribers originating calls on our network and from interconnect revenues from other operators for calls terminating on our network.  Since the second quarter of 2012 we also derive our revenues from hosting services. 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 as outbound roaming, and charges that we bill to our roaming partners whose subscribers use our network, to which we refer as inbound roaming.
 
Since the acquisition of Netvision, we also derive our revenues from the provision of internet connectivity and related services (ISP); and provision of telephony services consisting mainly of international calling services (ILD), operator services, teleconferencing services and landline telephony services.
 
Our revenues from cellular services are usually affected by seasonality with the third quarter of the year characterized by higher roaming revenues due to increased incoming and outgoing tourism.
 
Cost of revenues
 
The principal components of our cost of revenues are the purchase of handsets, accessories, equipment and spare parts, interconnect fees, content cost, cell site leasing costs, transmission services cost, internet connectivity services cost, the purchase of call minutes related mainly to international calling services, outbound roaming services fees, royalty payments to the government of Israel (until the end of 2012), 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, rights of use of communications lines. 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. Our selling and marketing expenses also include depreciation, mainly of leasehold improvements and equipment in our service centers and points of sales and amortization of capitalized sales commissions, as well as amortization of intangible assets related to the acquisition of Netvision.
 
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 and doubtful accounts allowance, and other administrative expenses. Our general and administrative expenses also include depreciation and maintenance fees, mainly for our billing and information systems.
 
Other income and expenses
 
Other income and expenses consist primarily of one-time expense related to employee retirement plan andcapital gains or losses from sale and disposal of capital assets   and from sales of subsidiaries.
 
Financing income and expenses
 
Financing 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 IFRS. Financing income and expenses also include interest income on deposits, premium amortization associated with our debentures, and gains and losses from our current investment in tradable securities.
 
Income Tax
 
Generally, Israeli companies were subject to corporate tax on their taxable income at the rate of 24% for the 2011 tax year and 25% for the 2012 and 2013 tax years and onwards. In July 2013, the Israeli Parliament passed the Law for Changes in National Priorities (Legislative Amendments for Achieving Budget Objectives in the Years 2013 and 2014), 2013. As part of the legislation, the corporate tax rate was increased to 26.5% as of January 1, 2014. The corporate tax rate is scheduled to remain at the rate of 26.5% for future tax years. Following the enactment of this legislation, in the third quarter of 2013 we incurred a one-time deferred tax expense, net, in the amount of approximately NIS 7 million, as a result of an increase in deferred tax assets and liabilities.
 
Israeli companies are subject to capital gains tax at the corporate tax rate. A deferred tax asset or liability is created for temporary differences between the carrying amounts of  assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
 
 
 
 
Results of Operations - Comparison of 2012, 2013 and 2014
 
The following table sets forth key performance indicators for the periods indicated:
 
   
Year Ended December 31,
   
Change*
 
   
2012
   
2013
   
2014
   
2013 vs. 2012
   
2014 vs. 2013
 
Subscribers at end of period(1) (in thousands)
    3,199       3,092       2,967       (3.3 %)     4.0  
Churn rate of cellular subscribers(1)(2)
    31.5 %     36.8 %     44 %  
5.3
pp  
7.2
pp
Average monthly revenue per subscriber (ARPU) (1)(3) (in NIS)
    88       78       72       (10.3 %)     (7.7 %)
Operating income (in NIS millions)
    985       651       662       (33.9 %)     1.7 %
Net income (in NIS millions)
    531       288       354       (45.8 %)     22.9 %
EBITDA(4) (in NIS millions)
    1,753       1,335       1,282       (23.8 %)     (4 %)
Operating income margin(5)
    16.6 %     13.2 %     14.5 %  
(3.4
)pp  
1.3
pp
EBITDA margin(6)
    29.5 %     27.1 %     28.1 %  
(2.4
)pp  
0.9
pp


*
pp denotes percentage points and this measure of change is calculated by subtracting the 2012 measure from the 2013 measure and the 2013 measure from the 2014 measure, respectively.
 
(1)
Cellular subscriber data refers to active subscribers. We use a six-month method of calculating our cellular subscriber base, which means that we deduct subscribers from our subscriber base after six months of no revenue generation and activity on our network by or in relation to the post-paid subscriber, no revenue generating calls or SMS for pre-paid subscriber and no data usage or less than NIS 1 of accumulated revenues from M2M (machine to machine) subscribers.  The six-month method is, to the best of our knowledge, consistent with the methodology used by other cellular providers in Israel. In the fourth quarter of 2012 we removed approximately 138,000 M2M  subscribers from our subscriber base, following the addition of the above revenue generation criterion for M2M subscribers. This change had an immaterial effect on our ARPU for 2012. In the fourth quarter of 2013 we removed approximately 64,000 subscribers from our subscribers base, following a change to our prepaid subscribers counting mechanism  As a result of such change, we add a prepaid subscriber to our subscribers base only upon charging a prepaid card and remove them from our subscribers base after six months of no revenue generating calls or SMS. Following each of these changes, we have not restated prior subscriber data to conform with this change.
 
(2)
Churn rate is defined as the total number of voluntary and involuntary permanent deactivations of cellular subscribers in a given period expressed as a percentage of the number of cellular subscribers at the beginning of such period.  Involuntary permanent deactivations relate to cellular subscribers who have failed to pay their arrears for the period of six consecutive months.  Voluntary permanent  deactivations relate to cellular subscribers who terminated their use of our services. Churn rate data is excluding the above mentioned removals of subscribers.
 
(3)
Average monthly revenue per cellular subscriber (ARPU) is calculated by dividing revenues from cellular services for the period by the average number of cellular subscribers during the period and by dividing the result by the number of months in the period.  Revenues from inbound roaming services and hosting services are included even though the number of subscribers in the equation does not include the users of those roaming and hosting services. Inbound roaming services and hosting services are included because ARPU is meant to capture all service revenues generated by a cellular network. Revenues from sales of extended warranties are included because they represent recurring revenues generated by subscribers, but revenues from sales of handsets (which for purposes of this report may include other types of cellular end user equipment, such as tablets), repair services, and other services are not. We and industry analysts, treat ARPU as a key performance indicator of a cellular operator because it is the closest meaningful measure of the contribution to service revenues made by an average subscriber.
 
We have set out below the calculation of cellular ARPU for each of the periods presented:
 
   
Year Ended December 31,
 
   
2012
   
2013
   
2014
 
   
(In NIS millions, except number of subscribers and months)
 
       
Revenues
    5,938       4,927       4,570  
less revenues from equipment sales 
    1,356       942       1,005  
less other revenues*
    1,125       1,034       941  
                         
Revenues used in ARPU calculation  (in NIS millions)
    3,457       2,951       2,624  
Average number of subscribers
    3,291,843       3,135,857       3,034,946  
Months during period
    12       12       12  
ARPU (in NIS, per month)
    88       78       72  
 
 
*
Other revenues include revenues from other communications services such as ISP, transmission services and local and international landline services.
 

 
(4)
EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net; (excluding one-time expense related to employee retirement plan) income tax; depreciation and amortization; and share based payments. 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) and 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 IFRS 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,
 
   
2012
   
2013
   
2014
 
   
(In NIS millions)
 
Net income
    531       288       354  
Financing expenses, net
    259       246       198  
Taxes on income
    195       117       110  
Operating income
    985       651       662  
Other expenses (income), net
    (4 )     (1 )     7  
Depreciation and amortization
    765       676       610  
Share based payments
    7       9       3  
EBITDA
    1,753       1,335       1,282  
 
For a reconciliation of EBITDA with net income by operating segment, see" – EBITDA" below.
 
(5)
Operating income margin is defined as operating income as a percentage of total revenues for each of the applicable periods.
 
(6)
EBITDA margin is defined as EBITDA as a percentage of total revenues for each of the applicable periods.
 
The following table sets forth our consolidated statements of income as a percentage of total revenues from operations for the periods indicated:

   
Year Ended December 31,
 
   
2012
   
2013
   
2014
 
Revenues
    100.0 %     100.0 %     100.0 %
Cost of revenues
    58.3 %     60.7 %     59.7 %
Gross profit
    41.7 %     39.3 %     40.3 %
Selling and marketing expenses
    14.6 %     14.6 %     14.7 %
General and administrative expenses
    10.6 %     11.5 %     10.1 %
Other (income) expenses, net
    (0.1 %)     -       1.0 %
Operating income
    16.6 %     13.2 %     14.5 %
Financing expenses, net
    4.4 %     5.0 %     4.3 %
Income before income tax
    12.2 %     8.2 %     10.2 %
Income tax     3.3 %     2.4 %     2.4 %
Net income     8.9 %     5.8 %     7.7 %
 
Revenues
 
   
Year Ended December 31,
   
Change
 
   
2012
   
2013
   
2014
   
2013 vs. 2012
   
2014 vs. 2013
 
   
(In NIS millions)
             
Revenues
    5,938       4,927       4,570       (17.0 %)     (7.2 %)

The decrease in revenues in 2014 is attributed to a 10.5% decrease in service revenues compared with 2013 due to the intensified competition in the cellular market as well as a decrease in ISP and international calling revenues. The decrease was partially offset by a 6.7% increase in equipment revenues. Netvision's contribution to total revenues for 2014 totaled NIS 853 million (excluding inter-company revenues), compared with NIS 933 million in 2013. The decrease in Netvision's contribution to total revenues resulted mainly from a decrease in service revenues.


 
The decrease in revenues in 2013 is attributed to a 30.5% decrease in equipment revenues, as well as a 13% decrease in service revenues, compared with 2012 due to the intensified competition in the cellular market. Netvision's contribution to total revenues for 2013 totaled NIS 933 million (excluding inter-company revenues), compared with NIS 1,047 million in 2012. The decrease in Netvision's contribution to total revenues resulted mainly from a decrease in service revenues.
 
The following table sets forth the breakdown of our revenues for the periods indicated based on the various sources thereof:
 
   
 2012
   
2013
   
2014
 
   
Revenues
   
% of Total Revenues
   
Revenues
   
% of Total Revenues
   
Revenues
   
% of Total Revenues
 
   
(NIS in millions)
         
(NIS in millions)
         
(NIS in millions)
       
Service revenues:
                                   
Cellular services
    3,279       55.2 %     2,797       56.8 %     2,487       54.4 %
Landline services*
    599       10.1 %     559       11.3 %     489       10.7 %
Internet services (ISP)
    531       9.0 %     483       9.8 %     451       9.9 %
Other services**
    173       2.9 %     146       3.0 %     138       3.0 %
Total service revenues
    4,582       77.2 %     3,985       80.9 %     3,565       78.0 %
Equipment revenues
    1,356       22.8 %     942       19.1 %     1,005       22.0 %
Total revenues
    5,938       100.0 %     4,927       100.0 %     4,570       100.0 %
 
*
Consists mainly of international calling services, wireline telephony services, transmission services and hubbing services.
 
**
Consists of extended warranty fees.
 
 
During 2014, service revenues (comprising 78% of total revenues) decreased 10.5%, compared with 2013. This decrease in service revenues resulted mainly from a 11.1% decrease in revenues from cellular services due to the ongoing erosion in the price of cellular services, resulting from the intensified competition in the cellular market. The decrease in service revenues also resulted from a 6.6% decrease in revenues from internet services and a 12.5% decrease in revenues from landline services. Netvision's contribution to service revenues totaled NIS 781 million (excluding inter-company revenues) in 2014, as compared to NIS 873 million in 2013.
 
During 2013, service revenues (comprising 80.9% of total revenues) decreased 13%, compared with 2012. This decrease in service revenues resulted mainly from a 14.7% decrease in revenues from cellular services due to the ongoing erosion in the price of cellular services, resulting from the intensified competition in the cellular market. The decrease in service revenues also resulted from a 9% decrease in revenues from internet services and a 6.7% decrease in revenues from landline services. Netvision's contribution to service revenues totaled NIS 873 million (excluding inter-company revenues) in 2013, as compared to NIS 965 million in 2012.
 
The decrease in revenues from internet services in 2014 compared with 2013 was mainly due to an erosion in the price of such services and a decrease in international data services  and value added services as a result of the intensified competition. The decrease in revenues from landline services in 2014 compared with 2013 resulted mainly from a decrease in revenues from transmission services and international calling services.
 


 
The decrease in revenues from internet services in 2013 compared with 2012 was mainly due to an erosion in the price of such services and loss of several large business customers of data services. The decrease in revenues from landline services in 2013 compared with 2012 resulted mainly from a decrease in revenues from transmission services and international calling services, as well as a decrease in revenues from hubbing services due to a change in the mix of call destinations.
 
During 2014, revenues from other services decreased 5.5%, compared with 2013. This decrease resulted mainly from a decrease in extended warranty fees which are characterized by lower revenues but higher profitability in 2014.
 
During 2013, revenues from other services decreased 15.6%, compared with 2012, and during 2012. This decrease resulted from a decrease in extended warranty fees due to an increase in sales of iPhone handsets, t o which we generally did not offer such services and following the intensified competition in the market, which led to increased churn rate.
 
During 2014, equipment revenues (comprising 22% of total revenues) increased 6.7%, compared with 2013. This increase resulted from an approximately 6 % increase in the number of cellular handsets sold in 2014, as compared with 2013. Netvision's contribution to equipment revenues totaled NIS 72 million in 2014, compared to NIS 60 million in 2013.
 
During 2013, equipment revenues (comprising 19.1% of total revenues) decreased 30.5%, compared with 2012. This decrease resulted primarily from an approximately 28% decrease in the number of cellular handsets sold in 2013, as compared with 2012, and an approximately 8% decrease in the average sale price of cellular handsets. These decreases were mainly due to the increased competition in the cellular handsets market. Netvision's contribution to equipment revenues in 2013 totaled NIS 60 million compared to NIS 82 million in 2012.
 
The following table sets forth the breakdown of our revenues for the periods indicated based on the types of subscribers:
 
   
2012
   
2013
   
2014
 
   
Revenues
   
% of Total Revenues
   
Revenues
   
% of Total Revenues
   
Revenues
   
% of Total Revenues
 
   
(NIS in millions)
    (NIS in millions)    
(NIS in millions)
       
Individual
    4,067       68.5 %     3,525       71.5 %     3,296       72.1 %
Business
    1,770       29.8 %     1,209       24.6 %     1,087       23.8 %
Other*
    101       1.7 %     193       3.9 %     187       4.1 %
Total
    5,938       100.0 %     4,927       100.0 %     4,570       100.0 %
 
*
Consists of revenues from inbound roaming services, hosting services (since mid-2012) and other services.
 

A breakdown of revenues according to types of subscribers (individual and business) during 2014 compared with 2013, shows a 6.5% decrease in revenues attributable to individual subscribers and a 10.1% decrease in revenues attributable to business subscribers. These decreases resulted mainly from the ongoing erosion in the price of cellular services, resulting from the intensified competition in the cellular market. The decrease in revenues attributable to both individual and business subscribers also resulted from a decrease in revenues from internet services and international calling services which primarily resulted from price erosion due to market competition.
 
 
 
 
A breakdown of revenues according to types of subscribers (individual and business) during 2013 compared with 2012, shows a 13.3% decrease in revenues attributable to individual subscribers and a 31.7% decrease in revenues attributable to business subscribers. These decreases resulted mainly from the ongoing erosion in the price of cellular services, resulting from the intensified competition in the cellular market, and from a decrease in the number of cellular handsets sold and the average handsets sale price in 2013, as compared with 2012, due to the competition in the cellular handsets market. The decrease in revenues attributable to both individual and business subscribers also resulted from a decrease in revenues from internet services which primarily resulted from price erosion due to market competition. Other revenues increased 91.1% in 2013, compared with 2012, mainly due to an increase in revenues from hosting services we provide Golan and Home Cellular, which began operating during the second quarter of 2012.
 
The following table sets forth the breakdown of our revenues for the periods indicated based on the types of subscription plans:
 
   
2012
   
2013
   
2014
 
   
Revenues
   
% of Total Revenues
   
Revenues
   
% of Total Revenues
   
Revenues
   
% of Total Revenues
 
   
(NIS in millions)
         
(NIS in millions)
         
(NIS in millions)
       
Pre-paid
    430       7.2 %     342       6.9 %     317       6.9 %
Post-paid
    5,407       91.1 %     4,392       89.2 %     4,066       89.0 %
Other*
    101       1.7 %     193       3.9 %     187       4.1 %
Total
    5,938       100.0 %     4,927       100.0 %     4,570       100.0 %
 
*
Consists of revenues from inbound roaming services, hosting services (since mid-2012) and other services.
 
A breakdown of revenues according to types of subscription plans (pre-paid and post-paid) during 2014 compared with 2013, shows a 7.4% decrease in revenues attributable to post-paid subscribers and a 7.3% decrease in revenues attributable to pre-paid subscribers. The decrease in revenues attributable to post-paid subscribers was primarily the result of the ongoing erosion in the price of cellular services, resulting from the intensified competition in the cellular market. This decrease resulted also from a decrease in revenues from internet services and international calling services. The decrease in revenues attributable to pre-paid subscribers resulted mainly from increased churn of pre-paid cellular subscribers, as well as from the ongoing price erosion.
 
A breakdown of revenues according to types of subscription plans (pre-paid and post-paid) during 2013 compared with 2012, shows a 18.8% decrease in revenues attributable to post-paid subscribers and a 20.5% decrease in revenues attributable to pre-paid subscribers. The decrease in revenues attributable to post-paid subscribers was primarily the result of the ongoing erosion in the price of cellular services, resulting from the intensified competition in the cellular market. This decrease resulted also from the decrease in equipment revenues, due to a decrease in the number of cellular handsets sold and the average handset sale price in 2013, as compared with 2012, as well as a decrease in revenues from internet services and international calling services. The decrease in revenues attributable to pre-paid subscribers resulted mainly from increased churn of pre-paid cellular subscribers, as well as from the ongoing price erosion.
 
 
Segment Revenues Discussion
 
We operate in two operating segments:
 
Cellcom, which includes Cellcom Israel Ltd. and its subsidiaries, excluding Netvision Ltd. and its subsidiaries. Cellcom mainly operates and maintains cellular networks, provides cellular communications services and sells cellular handsets and other equipment.
 


 
Netvision, which includes Netvision Ltd. and its subsidiaries. Netvision provides internet connectivity services (ISP) and additional telephony services such as international calling (ILD), landline telephony and teleconferencing services.
 
We measure revenues on an operating segment basis. The following is a discussion of our revenues for our two operating segments.
 
Cellcom
 
Revenues for Cellcom in 2014 totaled NIS 3,717 million (including inter-segment revenues), compared to revenues of NIS 3,994 million in 2013. The decrease was primarily due to a decline in service revenues of 10.5% due to the ongoing erosion in the price of cellular services resulting from the intensified competition in the market. The decrease was partially offset by a 5.8% increase in equipment revenues primarily due to an approximately 44% increase in the number of cellular handsets sold in 2014, as compared with 2013, and an approximately 6% decrease in the average sale price of cellular handsets, resulted from the increased competition in the cellular handsets market.
 
Revenues for Cellcom in 2013 totaled NIS 3,994 million (including inter-segment revenues), compared to revenues of NIS 4,891 million in 2012. The decrease was primarily due to a decline in service revenues of 14%, due to the ongoing erosion in the price of cellular services, resulting from the intensified competition in the market. In addition, equipment revenues declined by 30.8% primarily due to an approximately 28% decrease in the number of cellular handsets sold in 2013, as compared with 2012, and an approximately 8% decrease in the average sale price of cellular handsets, resulted from the increased competition in the cellular handsets market.
 
Netvision
 
Revenues for Netvision in 2014 totaled NIS 960 million (including inter-segment revenues), compared to revenues of NIS 1,039 million in 2013. The decrease primarily resulted from a 9.8% decrease in service revenues partially offset by 28.3% increase in equipment revenues. The decrease in service revenues mainly resulted from a decrease in revenues from internet services and international calling services, mainly due to price erosion, as well as a decrease in revenues from hubbing services due to a change in the mix of call destinations.
 
Revenues for Netvision in 2013 totaled NIS 1,039 million (including inter-segment revenues), compared to revenues of NIS 1,134 million in 2012. The decrease primarily resulted from a 6.9% decrease in service revenues and a 26.8% decrease in equipment revenues. The decrease in service revenues mainly resulted from a decrease in revenues from internet services and international calling services, mainly due to price erosion, as well as a decrease in revenues from hubbing services due to a change in the mix of call destinations. The decrease in equipment revenues resulted from a decrease in equipment sales to business customers.
 

 
Cost of revenues and gross profit
 
   
Year Ended December 31,
   
Change
 
   
2012
   
2013
   
2014
   
2013 vs. 2012
   
2014 vs. 2013
 
   
(In NIS millions)
             
Cost of service revenues
    2,450       2,271       1,983       (7.3 %)     (12.7 %)
Cost of equipment revenues
    1,013       719       744       (29.0 %)     3.5 %
Total cost of revenues
    3,463       2,990       2,727       (13.7 %)     (8.8 %)
Gross profit
    2,475       1,937       1,843       (21.7 %)     (4.9 %)

 
The decrease in cost of service revenues in 2014 compared with mainly resulted from a decrease in payroll expenses due to efficiency measures, a decrease in interconnect fees as a result of a decrease in connectivity tariffs, a decrease in cost of revenues from internet and international calling services as a result of a decrease in sales of such services, a one-time reduction of a provision for cell-sites rent expenses in the amount of NIS 44 million, as well as a one-time cancelation of a provision for communications cables expenses in the amount of NIS 22 million. Netvision's contribution to the cost of service revenues (excluding inter-company expenses) decreased to NIS 470 million in 2014 from NIS 602 million in 2013, mainly as a result of a decrease in payroll expenses and interconnect fees, and a decrease in cost of revenues from internet connectivity and international calling services as a result of a decrease in sale of such services.
 
The decrease in cost of service revenues in 2013 compared with 2012 resulted mainly from a decrease in payroll expenses due to efficiency measures we implemented, a decrease in total interconnect fees and in cost of content and value added services, as well as from the reduction of royalty payments to the Ministry of Communications, the rate of which was reduced to 0% from January 1, 2013. Netvision's contribution to the cost of service revenues (excluding inter-company expenses) decreased to NIS 602 million in 2013 from NIS 692 million in 2012, mainly as a result of a decrease in payroll expenses and interconnect fees.

The increase in cost of equipment revenues in 2014 compared with 2013, resulted mainly from an increase in the cost of cellular handsets, primarily as a result of a 6% increase in the number of cellular handsets sold during 2014 as compared with 2013, partially offset by a 4% decrease in the average cost of cellular handsets. Netvision's contribution to cost of equipment revenues increased to NIS 55 million in 2014 from NIS 47 million in 2013 due to the increase in sales of equipment to business customers.
 
 
The decrease in cost of equipment revenues in 2013 compared with 2012, resulted primarily from a decrease in cellular handset cost resulting mainly from a decrease in the number of handsets sold during 2013 compared with 2012 and a decrease in the average cellular handset cost. Also, Netvision's cost of equipment revenues decreased to NIS 47 million in 2013 from NIS 57 million in 2012 due to a decrease in sales of equipment to business customers.
 
The decrease in gross profit in 2014 compared with 2013, resulted mainly from the ongoing erosion in the price of cellular services and internet services.
 
The decrease in gross profit in 2013 compared with 2012, resulted mainly from the ongoing erosion in the price of cellular services and internet services, as well as from the decrease in cellular handset sales.
 


 
Selling and marketing expenses and general and administrative expenses
 
   
Year Ended December 31,
   
Change
 
   
2012
   
2013
   
2014
   
2013 vs. 2012
   
2014 vs. 2013
 
   
(In NIS millions)
             
Selling and marketing expenses
    865       717       672       (17.1 %)     (6.3 %)
General and administrative expenses
    629       570       463       (9.4 %)     (18.8 %)
Total
    1,494       1,287       1,135       (13.9 %)     (11.8 %)

The decrease in selling and marketing expenses in 2014 compared with 2013, was primarily the result of efficiency measures we implemented, which led to a decrease in payroll expenses, advertising and other expenses. The decrease in selling and marketing expenses also resulted from a decrease in amortization expenses in 2014 compared with 2013 attributable to the acquisition of Netvision. Netvision's contribution to selling and marketing expenses in 2014 totaled NIS 96 million compared to NIS 128 million in 2013.
 
The decrease in selling and marketing expenses in 2013 compared with 2012, was primarily the result of efficiency measures we implemented, which led to a decrease in payroll expenses, sales commissions and other expenses. The decrease in sales commissions also resulted from a decrease in the number of cellular handsets sold in 2013, as compared with 2012. The decrease in selling and marketing expenses also resulted from a decrease in amortization expenses in 2013 compared with 2012 attributable to the acquisition of Netvision. Netvision's contribution to selling and marketing expenses in 2013 totaled NIS 128 million compared to NIS 155 million in 2012.
 
The decrease in general and administrative expenses in 2014 compared with 2013, resulted mainly from a decrease in allowance for doubtful accounts, a decrease in depreciation and amortization expenses, as well as from efficiency measures we implemented, which led to a decrease in salaries, rent and other expenses. Netvision's contribution to general and administrative expenses in 2014 totaled NIS 46 million compared to NIS 60 million in 2013, mainly as a result of efficiency measures Netvision implemented.
 
The decrease in general and administrative expenses in 2013 compared with 2012, resulted mainly from a decrease in depreciation and amortization expenses, as well as from efficiency measures we implemented, which led to a decrease in data processing, rent and other expenses. Netvision's contribution to general and administrative expenses in 2013 totaled NIS 60 million compared to NIS 71 million in 2012.
 
Other income (expenses), net
 
   
Year Ended December 31,
 
   
2012
   
2013
   
2014
 
   
(In NIS millions)
 
Other income (expenses), net
    4       1       (46 )
 
Other expenses in 2014 consists mainly of a one-time expense of NIS 39 million following a voluntary retirement plan for employees executed in the second quarter of 2014 in which approximately 380 employees have retired. Other expenses include also capital loss from sale of property, plant and equipment.
 
Other income in 2013 consists mainly of gain from sale of shares in a subsidiary of Netvision, which was partially offset by capital losses mainly related to the sale of vehicles.
 

 
Financing expenses, net
 
   
Year Ended December 31,
 
   
2012
   
2013
   
2014
 
   
(In NIS millions)
 
Financing expenses
    (440 )     (402 )     (298 )
Financing income
    181       156       100  
Financing expenses, net
    (259 )     (246 )     (198 )

 
Financing expenses, net, for 2014 decreased 19.5% compared with 2013. The decrease resulted mainly from a decrease in interest expenses associated with our debentures, in 2014 compared with 2013, due to a lower debt level following the principal payment in the amount of approximately NIS 1 billion during 2014. The decrease in financing expenses, net, also resulted from decrease in the Israeli Consumer Price Index (CPI) linkage expenses associated with our debentures, due to 0.1% deflation in 2014 compared to 1.9% inflation rate in 2013. The decrease in financing expenses, net, was partially offset by a decrease in interest income related to cellular handset income and also by a one-time positive affect in the amount of approximately 15 million in 2013.
 
Financing expenses, net, for 2013 decreased 5% compared with 2012. The decrease resulted mainly from a decrease in interest expenses, associated with our debentures, in 2013, compared with 2012, due to a lower debt level following the principal payment in the amount of approximately NIS 1 billion during 2013. The decrease in financing expenses, net, also resulted from one-time positive effects in the amount of approximately NIS 15 million. The decrease in financing expenses, net, was partially offset by an increase in Israeli Consumer Price Index (CPI) linkage expenses, associated with our debentures, due to increased inflation rate in 2013, compared with 2012. The decrease in financing expenses, net, was also offset in part by a decrease in gains from our investment in tradable debentures in 2013, compared with 2012, as well as a decrease in interest income, related to cellular handset sales, due to the decline in such sales.
 
Interest and CPI linkage expenses associated with the principal amount of the debentures incurred during 2012, 2013 and 2014 were approximately NIS 414 million, NIS 385 million and NIS 251 million, respectively.
 
Income tax
 
   
Year Ended December 31,
   
Change
 
   
2012
   
2013
   
2014
   
2013 vs. 2012
   
2014 vs. 2013
 
   
(In NIS millions)
             
Taxes on income
    195       117       110       (40.0 %)     (6.0 %)

 
Taxes on income for 2014 decreased 6% compared with 2013. This decrease resulted mainly from income tax in respect of prior years .   Income tax for 2013 decreased 40% compared with 2012, mainly due to a significant decrease in profit before income tax, attributed primarily to the adverse effect on our results resulting from the intensified competition in the communications market.
 


 
Net income
 
   
Year Ended December 31,
   
Change
 
   
2012
   
2013
   
2014
   
2013 vs. 2012
   
2014 vs. 2013
 
   
(In NIS millions)
             
Net income
    531       288       354       (45.8 %)     22.9 %

The increase in net income in 2014 compared with 2013, was primarily due to an increase in operating profit partially as a result of efficiency measures we implemented and a decrease in financing expenses due to a lower debt level and one-time effects (as discussed under “Cost of revenues and gross profit” and “Other income (expenses), net” above).
 
The decrease in net income in 2013 compared with 2012, was primarily due to a decrease of 17% in revenues. This decrease was partially offset by a decrease of 13.7% in operating expenses and a decrease of 5% in financing expenses, net, leading to a decrease of 44.2% in income before income tax.
 
EBITDA
 
Segment EBITDA
 
 
We measure EBITDA on an operating segment basis. EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net (excluding one-time expense related to employee retirement plan); income tax; depreciation and amortization; and share based payments. For further information on our presentation of EBITDA and a reconciliation of EBITDA to consolidated net income, see footnote (4) under “- Results of Operations - Comparison of 2012, 2013 and 2014” above.  The following is a reconciliation of EBITDA with net income by operating segment.
 
   
Year Ended December 31, 2014
 
   
(In NIS millions)
 
   
Cellcom
   
Netvision
   
Reconciliation for
consolidation
   
Consolidated
 
Net income
    211       189       (46 )     354  
Financing expenses, net
                            198  
Taxes on income
    80       44       (14 )     110  
Operating income
                            662  
Other (income) expenses
                            7  
Depreciation and amortization
    475       85       50       610  
Share based payments
                            3  
EBITDA
    967       315               1,282  

   
Year Ended December 31, 2013
 
   
(In NIS millions)
 
   
Cellcom
   
Netvision
   
Reconciliation for
consolidation
   
Consolidated
 
Net income
    210       135       (57 )     288  
Financing expenses, net
                            246  
Taxes on income
    91       45       (19 )     117  
Operating income
                            651  
Other expenses
                            (1 )
Depreciation and amortization
    504       96       76       676  
Share based payments
                            9  
EBITDA
    1,066       269       -       1,335  




   
Year Ended December 31, 2012
 
   
(In NIS millions)
 
   
Cellcom
   
Netvision*
   
Reconciliation for
consolidation
   
Consolidated
 
Net income
    464       145       (78 )     531  
Financing expenses, net
                            259  
Taxes on income
    190       31       (26 )     195  
Operating income
                            985  
Other expenses
                            (4 )
Depreciation and amortization
    554       107       104       765  
Share based payments
                            7  
EBITDA
    1,470       283       -       1,753  
 
*
Netvision segment represents results of operations for the four month period commencing September 1, 2011, only (following the completion of the acquisition of Netvision on August 31, 2011).
 
Segment EBITDA Discussion
 
Cellcom
 
In 2014, Cellcom generated EBITDA of NIS 967 million compared to NIS 1,066 million in 2013, a 9.3% decrease.  The decrease was primarily due to a reduction in service revenues due to the ongoing erosion in pricing for cellular services. The decrease was partially offset by efficiency measures we implemented, decrease in allowance for doubtful accounts and decrease in depreciation and amortization and one-time effects (as discussed under “Cost of revenues and gross profit” and “Other income (expenses), net” above).
 
In 2013, Cellcom generated EBITDA of NIS 1,066 million compared to NIS 1,470 million in 2012, a 27.5% decrease.  The decrease was primarily due to a reduction in service revenues due to the ongoing erosion in pricing for cellular services. The decrease in EBITDA also resulted from a decrease in equipment revenues, mainly due to a reduction in the number of cellular handsets sold in 2013, as compared with 2012, and a decrease in the average sale price of cellular handsets.
 
Netvision
 
In 2014, Netvision generated EBITDA of NIS 315 million compared to NIS 269 million in 2013, a 17% increase. The increase was primarily due to efficiency measures we implemented and one-time effects (as discussed under “Cost of revenues and gross profit” and “Other income (expenses), net” above).
 
In 2013, Netvision generated EBITDA of NIS 269 million compared to NIS 283 million in 2012, a 4.9% decrease. The decrease was primarily due to a reduction in service revenues due to the continued erosion in pricing for internet and international calling services.

B.
LIQUIDITY AND CAPITAL RESOURCES
 
General
 
Our liquidity requirements relate primarily to working capital requirements, debt service, capital expenditures for the expansion and enhancement of our networks, end user equipment and payment of dividends, when declared. We fund these requirements through cash flows from operations and issuance of new debt.
 
Following circulars of the Commissioner of Capital Markets, Insurance and Savings in the Ministry of Finance, or Commissioner, published on October 2010 and August 2013,  instructing institutional investors to follow certain procedures and requirements before investing in non-governmental debentures our series F through I indentures  include certain limitations and covenants. For additional details see "- Liquidity and Capital Resources - Debt Service" below. These limitations are expected to apply to any additional debt incurred by us. These procedures, limitations and covenants limit our freedom to conduct our business, may impose additional costs on us and may limit our ability to borrow additional debt from Israeli institutional investors as well as adversely affect the terms and price of such debt raising.
 


 
In May 2012 and June 2013, the rating of our debentures was downgraded. Though the rating of our debentures remained stable since then, any downgrade in our ratings may adversely affect the terms and price of our debt or additional debt raised, particularly through the issuance of debentures to institutional investors, which, given the limitation on the ability of Israeli banks to lend money to us pursuant to the “Guidelines for Sound Bank Administration” issued by the Israeli Supervisor of Banks (as we are a member of IDB’s group of borrowers ), may limit our ability to obtain additional financing to operate, develop and expand our business or to refinance existing debt . We believe that our free cash flow together with 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, including the distribution of dividends, should our Board of Directors decide to reinstate dividend payments (after having suspended dividend declaration after the dividend declaration for the third quarter of 2013 in order to strengthen our balance sheet). Our future capital requirements will depend on many factors, including level of revenues, 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, the level and timing of investing in our 4G network and our recently launched OTT TV services and any decision to reinstate dividends. Our Board of Directors would not expect to reinstate dividends unless it believes that our cash flow and available reserves will be sufficient to fund our needs, including our dividends.
 
In February 2006, our Board of Directors adopted a policy to distribute each year at least 75% of our annual net income 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 to any plans approved by our Board of Directors. We undertook limitations on dividend distributions in our indentures of series F through I debentures. See “Item 8. Financial Information – A. Consolidated Statements and Other Financial Information – Dividend Policy” and " - Debt Service" below. In respect of 2014, our Board of Directors chose not to declare dividends given the intensified competition and its adverse effect on our results of operations and in order to strengthen our balance sheet. 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 various expenditures previously made by the Company, including prior investments and expenses and 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
 
In 2014 our Board of Directors chose not to declare dividends given the intensified competition and its adverse effect on our results of operations and in order to strengthen our balance sheet. During 2013, we distributed cash dividends in the aggregate amount of approximately NIS 85 million ($22 million), in respect of the third quarter of 2013 only, out of our retained earnings, and our Board of Directors chose not to declare dividends for the first, second, and fourth quarters, for the above reasons. During 2012, we distributed cash dividends in the aggregate amount of NIS 391 million ($101 million), including the dividend declared for the third and fourth quarters of 2011 in the amount of NIS 189 million ($49 million) and 72 million ($19 million), respectively and the dividend declared for the first quarter of 2012, based on net income. Our Board of Directors chose not to declare dividends for the second, third and fourth quarters of 2012, for the above reasons.
 
 

 
Debt service
 
Shelf Prospectus
 
In June 2014, we filed a shelf prospectus with the Israeli Securities Authority, or ISA, and the Tel Aviv Stock Exchange, or TASE. The shelf prospectus allows us, from time to time, until June 2016 (which may by extended until June 2017, subject to certain conditions), to offer and sell various securities including debt and equity, in Israel, in one or more offerings, subject to filing a supplemental shelf offering report, that describes the terms of the securities offered and the specific details of the offering. In January 2015, we filed an amendment to the shelf prospectus with the ISA and TASE, which allowed us to offer the debentures holders of our series D and E debentures, to exchange them with our series H and I debentures, respectively, as described below under "—Public Debentures". At this stage, no decision has been made as to the execution of any offering, nor as to its scope, terms and timing, if executed, and there is no certainty that such offering will be executed.
 
The shelf prospectus includes our undertaking to comply with certain reporting obligations under the Israeli securities law   in the event of certain warning signs of financial stress.
 
Public debentures
 
Our Series B debentures were issued in December 2005 and January 2006, to institutional and other investors in private placements and in May 2006, we issued additional debentures. The debentures are listed on the Tel Aviv Stock Exchange. As of December 31, 2014, Series B consisted of approximately NIS 555 million ($143 million) aggregate principal amount of debentures (after we repaid the principal payments in January 2013 and 2014 in the sum of approximately NIS 185 million ($48 million) each. In January 2015 we repaid another principal payment in the same amount). The Series B debentures bear interest at the rate of 5.3% per year, and are linked (principal and interest) to the Israeli CPI. The principal is payable in five annual payments commencing in January 2013, and the interest is payable annually commencing January 2007.
 
The Series 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 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.
 
Our series D debentures were issued in October 2007 to the public in Israel. In February 2008 we issued, in a private placement, additional debentures of this Series. In April 2009 and March 2011 (under our 2009 Shelf Prospectus) and in August 2011 (under our 2011 Shelf Prospectus), we issued to the public in Israel additional Series D debentures.   The debentures are listed for trading on the Tel Aviv Stock Exchange. As of December 31, 2014, Series D debentures consisted of approximately NIS 1,454 million ($374 million) aggregate principal amount (after we repaid principal payments in July 2013 and 2014 in the sum of approximately NIS 485 million ($125 million) each). In February 2015, pursuant to an exchange offer of our Series H and I debentures for a portion of our outstanding Series D and E debentures, respectively, or the Exchange Offer, we exchanged approximately NIS 555 million ($ 143million) principal amount of our Series D debentures with approximately NIS844 million ($ 217million) principal amount of Series H debentures. Following the consummation of the Exchange Offer, our Series D debentures consisted of approximately NIS 899 million ($231 million) principal amount.
 


 
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 is payable annually on July 1, for each of the years 2008 through 2017 (inclusive). Series D debentures bear an annual interest rate of 5.19% and are linked (principal and interest) to the Israeli CPI for August 2007.
 
The Series 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 D debentures contain standard terms and obligations.
 
Our Series E debentures were issued in April 2009, to the public in Israel based on our 2009 shelf prospectus. In March 2011 (under our 2009 Shelf Prospectus) and in August 2011(under our 2011 Shelf Prospectus), we issued to the public in Israel additional Series E debentures. The debentures were listed for trading on the Tel Aviv Stock Exchange. As of December 31, 2014, these debentures consisted of approximately NIS 899 million ($231 million) aggregate principal amount (after we made principal payments in January 2012, 2013 and 2014 in the amount of approximately NIS 300 million ($77 million) each. In January 2015 we made another principal payment in the same amount). In February 2015, pursuant to the Exchange Offer, we exchanged approximately NIS 272 million ($ 70million) principal amount of Series E debentures with approximately NIS335  million ($ 86million) principal amount of Series I debentures. Following the consummation of the Exchange Offer, our Series E debentures consisted of approximately NIS  327million ($84 million) principal amount.
 
The Series E principal is payable in six equal annual payments on January 5, of each of the years 2012 through 2017 (inclusive). The interest on Series E debentures is payable annually on January 5, of each of the years 2010 through 2017 (inclusive). Series E debentures bear an interest rate of 6.25% per annum, without any linkage.
 
The Series E debentures are unsecured and do not restrict our ability to issue additional debentures of any class or distribute dividends in the future. The Series E debentures contain standard terms and obligations.
 
Our Series F and G debentures were issued in March 2012 to the public in Israel under our 2011 shelf prospectus (as amended in March 2012) and were listed for trading on the Tel Aviv Stock Exchange. As of December 31, 2014, these debentures consisted of approximately NIS 715 million ($184 million) aggregate principal amount Series F debentures and approximately NIS 285 million ($73 million) aggregate principal amount Series G debentures.
 
The Series F principal is payable in four annual installments: one payment of 10% of the principal on January 5, 2017, and three equal annual installments of 30% of the principal, on January 5 of each of the years 2018 through 2020 (inclusive). The interest on Series F debentures is payable in semi-annual installments on January 5 and on July 5, of each calendar years commencing July 5, 2012 through January 5, 2020 (inclusive). Series F debentures bear an interest rate of 4.35% per annum, linked to the Israeli CPI for February 2012. In June 2013, following the ratings decrease discussed above, the annual interest rate for our Series F debentures was increased by 0.25% to 4.60%, beginning July 5, 2013.
 


 
The Series G principal is payable in three annual installments: one payment of 20% of the principal on January 5, 2017, a second payment of 50% of the principal on January 5, 2018 and a third and last payment of 30% of the principal on January 5, 2019. The interest on Series G debentures is payable in semi-annual installments on January 5 and on July 5 of each calendar year commencing July 5, 2012 through January 5, 2019 (inclusive). Series G debentures bear an interest rate of 6.74% per annum, without any linkage. In June 2013, following the ratings decrease discussed above, the annual interest rate for our Series G debentures was increased by 0.25% to 6.99%, beginning July 5, 2013.
 
The Series F and G debentures are unsecured and contain, in addition to standard terms and obligations, the following obligations:
 
·
a negative pledge, subject to certain exceptions;
 
·
a covenant not to distribute more than 95% of the profits available for distribution according to the Companies Law (“Profits”); provided that if our net leverage (defined as the ratio of net debt to EBITDA during a period of 12 consecutive months, excluding one-time events) exceeds 3.5:1, we will not distribute more than 85% of our Profits and if our net leverage exceeds 4.0:1, we will not distribute more than 70% of our Profits. For this purpose, net debt is defined as credit and loans from banks and others and debentures, net of cash and cash equivalents and current investments in tradable securities; and EBITDA is defined as profit before depreciation and amortization, other expenses or income, net, financing expenses or income, net and taxes on income;
 
·
a limitation on our ability to voluntarily redeem the debentures prior to their stated maturity date to a minimum amount of NIS 100 million of each series of debentures and an undertaking to pay the holders of such debentures an additional annual interest of 1% in the event of such early redemption;
 
·
a covenant to have the debentures rated by a rating agency (in as much as under our control);
 
·
an obligation to pay additional interest of 0.25% for a two-notch downgrade in the debentures' rating and additional interest of 0.25% for each additional one-notch downgrade and up to a maximum addition of 1%, in comparison to the rating given to the debentures prior to their issuance;
 
·
a covenant not to issue additional debentures of the relevant series if the additional issuance by itself, will cause a certain rating downgrade.
 
We also agreed to the addition of the certain events to the list of events of default of the Series F and G debentures, including:
 
·
cross default, excluding following an immediate repayment initiated in relation to a liability of NIS 150 million or less;
 



 
·
failure of our main business to be cellular communications or loss of our cellular license for a period of over 60 days;
 
·
suspension of trading of the debentures on the TASE over a period of 45 days;
 
·
failure to comply with the above covenant regarding limitations on dividend distributions;
 
·
failure to have the debentures rated over a period of 60 days;
 
·
a petition or court order to withhold all legal proceedings against us or petition for creditors arrangement filed;
 
·
the sale of a major part of our assets or merger (with certain exclusions);
 
·
failure to publish financial reports when due;
 
·
a net leverage in excess of 5.0:1, or in excess of 4.5:1 during four consecutive quarters;
 
·
failure to comply with our negative pledge covenant;  and
 
·
any other event causing or expected to cause a material adverse effect (which shall not include any event that shall or is likely to cause our net leverage to increase to a ratio of under 5.0:1) on our business and posing real threat of a substantial damage to the debenture holders’ rights.
 
Our Series H and I debentures were issued in July 2014 to the public in Israel under our 2014 shelf prospectus   and were listed for trading on the Tel Aviv Stock Exchange. As of December 31, 2014, these debentures consisted of approximately   NIS 106 million ($27 million) aggregate principal amount of Series H debentures and approximately NIS 223 million ($57 million) aggregate principal amount of Series I debentures.   In February 2015, pursuant to the Exchange Offer, under our 2014 shelf prospectus and in a private offering, we issued approximately NIS 844 million ($217 million) principal amount of of Series H debentures and approximately NIS 335 million ($86  million) principal amount of series I debentures in exchange for approximately NIS 555 million ($143 million) principal amount of Series D debentures and approximately NIS 272 million ($70 million) principal amount of Series E debentures, respectively. Following the consummation of the exchange, our Series H and I debentures consisted of approximately NIS 950 million ($244 million) principal amount and NIS  558 million ($143 million) principal amount.
 
The Series H debentures principal is payable in seven annual installments: three equal annual installments of 12% of the principal on July 5 of the years 2018 through 2020 (inclusive), and four equal annual installments of 16% of the principal on July 5 of the years 2021 through 2024 (inclusive). The interest on the Series H debentures is payable in semi-annual installments on January 5 and on July 5, of each calendar year commencing January 5, 2015 through July 5, 2024 (inclusive). The Series H debentures bear an interest rate of 1.98% per annum, linked to the Israeli Consumer Price Index for May 2014.
 
The Series I debentures principal is payable in eight annual installments: three equal annual installments of 10% of the principal on July 5 of the years 2018 through 2020 (inclusive), and five equal annual installments of 14% of the principal on July 5 of the years 2021 through 2025 (inclusive). The interest on the Series I debentures is payable in semi-annual installments on January 5 and on July 5 of each calendar year commencing January 5, 2015 through July 5, 2025 (inclusive). The Series I debentures bear an interest rate of 4.14% per annum, without any linkage.


 
The Series H and I debentures are unsecured and contain, in addition to standard terms and obligations and the above undertakings in our Series F and G indenture which generally apply to our Series H and I debentures as well,  the following obligations:
 
·
in addition to being an event of default, meeting the financial covenants would be a condition for dividend distribution; and
 
·
meeting the financial covenants would also be a condition for the issuance of additional debentures of each of the two new series.
 
The Series H and I Indenture contains substantially similar events of default to those found in the Series F and G Indenture, with the exception of certain new events of default that do not appear in the Series F and G Indenture as well as certain modifications to the events of default that are found in the Series F and G Indenture, including:
 
·
breach of the above limitation on dividend distributions;
 
·
the minimum amount required for triggering a cross default shall not apply to a cross default triggered by another series of debentures;
 
·
the existence of a real concern that we shall not meet our material undertakings towards the debenture holders;
 
·
the inclusion in our financial statements during a period of two consecutive quarters of a note regarding the existence of significant doubt as to our ability to continue as a going concern; and
 
·
breach of our undertakings regarding the issuance of additional debentures.
 
As of December 31, 2014, we complied with the above covenants.
 
Other credit facilities
 
As of December 31, 2014, we had no other credit facilities outstanding.
 
Capital expenditure
 
Our accrual capital expenditure in 2012, 2013 and 2014 amounted to NIS 537 million, NIS 384 million and NIS 467 million, respectively. Accrual capital expenditure is defined as investment in fixed assets and certain intangible assets, such as spectrum licenses, rights of use of communications lines, UMTS networks' enhancement and expansion and development of new products and services, during a given period. For the periods under review, a key focus of our capital investment has been the enhancement and expansion of our existing networks and transmission infrastructure and deployment of our LTE network (in 2014).
 


 
Cash flows from operating activities
 
Cash flows from operating activities totaled in 2014 to NIS 1,557 million similar to  NIS 1,556 million in 2013. The steady cash flow  is primarily attributed to a decrease   in proceeds from customers due to the decrease in service revenues. This decrease was offset by a decrease in payments to vendors as a result of a decrease in operating expenses mainly due to efficiency measures we implemented.
 
Cash flows from operating activities decreased 5.2% in 2013 to NIS 1,556 million from NIS 1,641 million in 2012. The decrease is primarily attributed to a decrease   in proceeds from customers due to the decrease in service revenues, resulted from the ongoing erosion in the price of cellular services, due to the intensified competition in the communications market. This decrease was partially offset by a decrease in payments to vendors for handset purchases due to the decline in sales of cellular handsets, a decrease in operating expenses mainly due to efficiency measures we implemented, as well as a decrease in tax payments following the decrease in profits.
 
Cash flows from investing activities
 
The net cash flows from operating activities is the main capital resource for our investment activities. In 2012, 2013 and 2014, our net cash used in investing activities amounted to NIS 708 million, NIS 344 million and NIS 350 million, respectively. The payments were primarily for the improvement and expansion of ournetworks (and implementation of our LTE network in 2014) and information systems infrastructures. There was no significant change in 2014 compared to 2013. The decrease in 2013 compared with 2012 resulted mainly from a decrease in acquisition of property, plant and equipment, as well as a decrease in investments in tradable debentures in 2013 compared with 2012.
 
Cash flows from financing activities
 
In 2014, net cash used in financing activities amounted to NIS 1,106 million compared to NIS 1,569 million in 2013. The decrease is primarily attributable to the issuance of new series of debentures in 2014 for a net consideration of NIS 326 million.
 
In 2013, the net cash used in financing activities amounted to NIS 1,569 million compared to NIS 439 million in 2012. The increase primarily resulted from an increase in repayment of debentures from NIS 660 million in 2012 to NIS 1,124 million in 2013. The increase in the net cash used in financing activities was also due to the fact that in 2013 no additional debentures were issued, while in 2012 we issued new series of debentures for a net consideration of NIS 992 million. These effects were partially offset by a decrease in dividend payments.
 
During 2012, 2013 and 2014, the average outstanding amount of long-term liabilities (long-term loans and debentures) was NIS 6.4 billion, NIS 5.75 billion and NIS 4.7 billion, respectively.
 
Working capital
 
Our working capital as of December 31, 2014 was NIS 837 million, compared with NIS 1,082 million as of December 31, 2013. The decrease in working capital was primarily due to a decrease in trade receivables partially offset by an increase in trade payables.
 


 
Our working capital as of December 31, 2013 was NIS 1,082 million, compared with NIS 1,232 million as of December 31, 2012. The decrease in working capital was primarily due to a decrease in cash and cash-equivalents, as well as a decrease in trade receivables. These effects were partially offset by a decrease in trade payables and other payables.
 
Trade receivables
 
Trade receivables consist of outstanding amounts due from customers, mainly for cellular, ISP and landline telephony 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, 2014, net current trade receivables amounted to NIS 1,417 million compared with NIS 1,731 million as at December 31, 2013 and NIS 1,856 million as at December 31, 2012. Net long-term trade receivables as of December 31, 2014 amounted to NIS 476 million compared with NIS 512 million as at December 31, 2013 and NIS 888 million as at December 31, 2012. The decrease in trade receivables (current and long-term) in 2014 compared with 2013 and in 2013 compared with 2012 was mainly due to the decrease in revenues as a result of the intensified competition in the cellular market. The current maturity of long-term receivables as of December 31, 2014 was NIS 606 million, compared with NIS 878 million as of December 31, 2013 and NIS 1,037 million as of December 31, 2012.
 
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, 2014.
 
   
Total
   
2015
      2016- 2017       2018-2019    
2020 and Beyond
 
Long-term debt obligations (including interest)(1)
    5,295       1,338       2,623       817       517  
Operating lease obligations
    1,127       250       368       255       254  
Purchase obligations
    1,043       928       86       30       -  
Total
    7,465       2,516       3,076       1,102       771  

(1)
Interest does not include 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 judgments, estimates and assumptions that affect the application of accounting policies and the amounts reflected in the consolidated financial statements and accompanying notes, and related disclosure of contingent assets and liabilities. We base our estimates upon past experience, where applicable, various factors, external sources 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 past 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 3.K to our consolidated financial statements included elsewhere in this annual report, revenues derived from usage of our networks, including airtime, internet services (ISP), international calling services, fixed local calls, interconnect, content and value added services and roaming revenues are recognized when the services are provided, in proportion to the stage of completion of the transaction, and all other revenue recognition criteria are met. The sale of a handset is generally adjacent to the sale of services. Usually, the sale of a handset to the customer is executed with no contractual obligation of the customer to purchase services from us in a minimal amount for a predefined period. As a result, we refer to the sale transaction as a separate transaction and recognize revenue from the sale of the handset upon delivery of the handset to the customer. In case the customer is obligated towards the company to purchase services in a minimal amount for a predefined period, the contract is characterized as a multiple element contract and thus, revenue from sale of handset is recorded in an amount not higher than the fair value of the said handset, which is not contingent upon delivery of additional components (such as services) and is recognized upon delivery of the handset to the customer and when the criteria for revenue recognition are met. Revenues from services are recognized and recorded when the services are provided.
 
Assumptions / approach used
 
In case the customer is obligated towards the company to purchase services in a minimal amount for a predefined period (multiple element contract), we determine the fair value of the individual elements based on prices at which the deliverable is regularly sold on a standalone basis, after considering volume discounts where appropriate.
 


 
 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 determination of fair value of the individual elements (relevant to revenue recognition) for each reporting period represent its best estimate, but the actual fair value can 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 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
 
 We depreciate our property, plant and equipment using the straight-line method. Separate individual significant components are depreciated over their individual estimated useful lives. We periodically review changes in our technology and industry conditions to determine adjustments to estimated remaining useful lives and depreciation rates.
 
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
 
Finite-lived long lived assets
 
At each reporting date, we review finite-lived long-lived assets, principally consisting of property, plant and equipment, spectrum licenses and intangible assets for impairment based on the requirements of International Accounting Standard No. 36, 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. Where it is not possible to estimate the recoverable amount of an individual asset, we group together all of the assets that cannot be tested individually into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”), and estimate the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of value in use and fair value less cost to sell. Value in use is determined by discounting the expected future cash flows, we expect to derive from the asset, using a pre-tax discount rate. An impairment loss is recognized if the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.
 
 

 
Indefinite-lived intangible assets
 
Once a year and for the same date, or more frequently if there are indications of impairment, we estimate the recoverable amount of each cash-generating unit that contains goodwill, or intangible assets that have indefinite useful lives. Cash-generating units to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. We monitor goodwill at operating segments level. As regards cash-generating units that include goodwill, an impairment loss is recognized when the carrying amount of the cash-generating unit, after adjustment for goodwill, exceeds its recoverable amount.
 
Assumptions / approach used
 
In analyzing finite-lived long-lived assets and Indefinite-lived intangible 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 and assumptions within our discounted cash flow models (e.g., terminal value growth rates, pre-tax discount rate, 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 reduce the carrying value to the discounted cash flow amount.
 
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.
 
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 impairment of accounts receivables.
 
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 customers 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.
 
Provisions for contingent liabilities
 
Provisions in general are highly judgmental, especially in cases of legal disputes. We assess the probability of an adverse event as a result of a past event and if the probability is evaluated to be more likely than not and the amount of the obligation can be estimated reliably, we fully provide for the total amount of the estimated contingent liability. We continually evaluate our pending provisions to determine if additional accruals are required. It is often difficult to accurately estimate the ultimate outcome of a contingent liability. Different variables can affect the timing and amount we provide for certain contingent liabilities. Our provisions are therefore subject to estimates made by us having taken into consideration the opinion of our legal counsel, which are subject to changes as the status of legal and commercial disputes changes over time. Adverse revision in our estimates of the potential liability could materially impact our financial condition, results of operations or liquidity.
 
Uncertain tax positions
 
When assessing amounts of current and deferred taxes, we take into consideration the effect of the uncertainty that its tax positions will be accepted and the effect of incurring any additional tax and interest expenses. We are of the opinion that the cumulative tax liability is fair for all the years in respect of which final tax assessments have not yet been received, based on an analysis of a number of matters including interpretations of tax laws and the our past experience. This assessment is based on estimates and assumptions that may also include assessments and exercising judgment regarding future events. It is possible that new information will become known in future periods that will require us to change our estimate regarding the tax liability that was recognized, and any such changes will be expensed immediately in that period.
 
New Accounting Standards and amendments not yet adopted
 
  IFRS 9 (2014), Financial Instruments
 
IFRS 9 (2014) is a final version of the standard, which includes revised guidance on the classification and measurement of financial instruments, and a new model for measuring impairment of financial assets. This guidance has been added to the chapter dealing with general hedge accounting requirements issued in 2013.
 
Classification and measurement
In accordance with IFRS 9 (2014), there are three principal categories for measuring financial assets: amortized cost, fair value through profit and loss and fair value through other comprehensive income. The basis of classification for debt instruments is the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset. Investments in equity instruments will be measured at fair value through profit and loss (unless the entity elected at initial recognition to present fair value changes in other comprehensive income).



IFRS 9 (2014) requires that changes in fair value of financial liabilities designated at fair value through profit or loss that are attributable to changes in its credit risk, should usually be recognized in other comprehensive income.

Hedge accounting – general
Under IFRS 9 (2014), additional hedging strategies that are used for risk management will qualify for hedge accounting. IFRS 9 (2014) replaces the present 80%-125% test for determining hedge effectiveness, with the requirement that there be an economic relationship between the hedged item and the hedging instrument, with no quantitative threshold. In addition, IFRS 9 (2014) introduces new models that are alternatives to hedge accounting as regards credit exposures and certain contracts outside the scope of IFRS 9 (2014) and sets new principles for accounting for hedging instruments. In addition, IFRS 9 (2014) provides new disclosure requirements.

Impairment of financial assets
IFRS 9 (2014) presents a new ‘expected credit loss’ model for calculating impairment. For most financial assets, the new model presents a dual measurement approach for impairment: if the credit risk of a financial asset has not increased significantly since its initial recognition, an impairment provision will be recorded in the amount of the expected credit losses that result from default events that are possible within the twelve months after the reporting date. If the credit risk has increased significantly, in most cases the impairment provision will increase and be recorded at the level of lifetime expected credit losses of the financial asset.

IFRS 9 (2014) is effective for annual periods beginning on or after January 1, 2018 with early adoption being permitted. It will be applied retrospectively with some exemptions.
We have not yet commenced examining the effects of adopting IFRS 9 (2014) on the financial statements.

IFRS 15, Revenue from Contracts with Customers

IFRS 15 replaces the current guidance regarding recognition of revenues from contracts with customers and presents a new model for revenue recognition from aforesaid contracts. IFRS 15 provides two approaches for recognizing revenue: at a point in time or over time. The model includes five steps for analyzing transactions so as to determine when to recognize revenue and at what amount. Furthermore, IFRS 15 extends the disclosure requirements that exist under current guidance.
IFRS 15 is applicable for annual periods beginning on or after January 1, 2017 and earlier application is permitted. IFRS 15 includes various alternative transitional provisions, so that companies can choose between one of the following alternatives at initial application: full retrospective application, full retrospective application with practical expedients, or application as from the mandatory effective date, with an adjustment to the balance of retained earnings at that date in respect of transactions that are not yet complete.
We are examining the effects of adopting IFRS 15 on the financial statements.

 
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, 2014:
 


 
 
Name
 
 
Age
 
 
Position
Ami Erel (2), (3)
 
67
 
Chairman of the Board
Shlomo Waxe (1), (2), (4)
 
69
 
Independent Director
Ari Bronshtein (2), (4)
 
45
 
Director
Ephraim Kunda (1), (2), (4), (5)
 
62
 
Independent Director
Joseph Barnea (1), (2), (3), (4), (5)
 
79
 
Independent / External Director
Ronit Baytel (1), (5)
 
47
 
Independent / External Director
Nir Sztern
 
43
 
President and Chief Executive Officer
Shlomi Fruhling
 
42
 
Chief Financial Officer
Yoni Sabag
 
42
 
Vice President of Marketing
Ron Shvili
 
47
 
Chief Technology Officer
Itamar Bartov
 
52
 
Vice President of Executive and Regulatory Affairs
Keren Shtevy
 
41
 
Vice President of Business Customers
Sharon Amit
 
48
 
Vice President of Human Resources
Amos Maor
 
51
 
Vice President of  Sales and Service
Jack Oster
 
41
 
Vice President of Information Technology (a)
Liat Menahemi Stadler
 
48
 
Vice President of Legal Affairs and Corporate Secretary
Teimuraz Romashvili
 
36
 
Vice President of Pre Paid Activity
Yaniv Gruenwald 
 
40
 
Vice President of Television and Content (b)
Gil Ben-Itzhak
 
49
 
Controller (c)

(a) Mr. Oster resigned from office and will continue to serve in office until his successor is appointed and assumes his responsibilities.
 
(b) Mr. Yaniv Gruenwald was appointed to office as of August 10, 2014.
 
(c) Mr. Gil Ben-Itzhak resigned from office and was replaced by Mr. Ronnen Shles as of January 1, 2015.
 
(1) Member of our Audit Committee.
 
(2) Member of our Analysis Committee.
 
(3) Member of our Option Committee.
 
(4) Member of our Security Committee.
 
(5) Member of our compensation Committee.
 
Ami Erel has served as Chairman of our Board of Directors since 2005. Mr. Erel also  provides consulting services to Discount Investment Corporation Ltd. (where he served as President and Chief Executive Officer from 2001 to 2013), as of July 2014. 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 from 2008 to 2011, 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 deputy Chairman of the board of directors of ADAMA Agricultural Solutions Ltd. (where he served from 2006 and as a director and from January 2011 through October 2011 as Chairman of the board of directors). Mr Erel also serves as a director of Shufersal Ltd., Elron Electronic Industries Ltd. (where he served from 1999 to 2001 as President and until January 2007 as Chairman of the board of directors), Knafaim Holdings Ltd. and Dan hotels Ltd. Mr. Erel served as the chairman of the executive committee of the Manufacturers Association of Israel from 2005 to 2009 and from 2009 to 2011 he served as the chairman of the Israel Export & International Cooperation Institute. Mr. Erel holds a B.Sc. in electrical 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 C. Mer Industries Ltd. and until 2009, served as a board member of Shrem, Fudim – Technologies Ltd. and until May 2012, served as a board member of Tambour Ltd. Mr. Waxe holds a B.A. in political science from the University of Haifa.
 
 

 
Ari Bronshtein has served as a member of our Board of Directors since 2008. Mr. Bronshtein has served as Vice-President of DIC since January 2006. Since July 2010, he also has served as a Chief Executive Officer, and from May 2009 to June 2010 he served as co-Chief Executive Officer of Elron Electronic Industries Ltd. Mr. Bronstein also serves as a member of the boards of directors of various private companies. From 2004 to 2005, he served as Vice President and head of the Economics and Business Development division, and from 2000 to 2003, as Director of Finance and Investments, at Bezeq – The Israeli Telecommunications Corporation Ltd. Mr. Bronshtein holds a B.A. in finance and management and M.Sc. degree in finance and accounting, both from Tel Aviv University.
 
Ephraim Kunda has served as a member of our Board of Directors since 2010. Mr. Kunda is an Israeli businessman and is the owner and managing director of a private consulting company that provides economic consultancy and business mediation services. From 2007 to 2010, Mr. Kunda has served as the Chairman of the board of directors and since 2010 as a member of the board of directors of Ravad Ltd., a public real estate investment company.  From 2003 to 2007, Mr. Kunda served as an external director of Property and Building Corporation Ltd., a public real estate company that is a member of the IDB group. Mr. Kunda holds a B.A. in Economics from Tel Aviv University.
 
Joseph Barnea   has served as a member of our Board of Directors since 2007. Mr. Barnea is a retired businessman .   From October 2012, Mr. Barnea served as an external director of Imagesat International Ltd. 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 executive committee of the Israeli Industrialists Association  and until 2007 he served as the Chairman of its Chemistry and Environment Association. From 2004 to 2009 Mr. Barnea served as a member of the board of the Israeli Export & International Cooperation Institute, from 2005 he serves as a member of the standard committee of the Israeli Standards Institute and prior to that, as a member of its board. From 2002 to 2004 he served first as President and then as Chairman 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 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 Tel Aviv University and an M.B.A. from the Hebrew University.

Nir Sztern has served as our Chief Executive Officer since 2012.   Mr. Sztern served as the chief executive officer of Netvision, from 2010 to 2011. From 2008 to 2010 he served as deputy CEO of Pelephone, and from 2002 to 2008 as Pelephone's vice president of marketing. From 2001 to 2002 he served as vice president of marketing and sales of Barak 013 Ltd. or Barak, a long distance operator (which was later merged into Netvision) and from 1999-2001 as head of Barak's marketing department. From 1994 to 1999 Mr. Sztern served as head of our private sector marketing department. Mr. Sztern holds a B.A. in economics and management from the Tel Aviv University and an M.B.A. in business administration, from the Israeli branch of Manchester University.
 
 

 
  Shlomi Fruhling has served as our Chief Financial Officer since September 2013. Mr. Fruhling has served as a vice president of DIC from 2012.  From 2008 to 2011 he served as VP Strategy and Finance of 013 Netvision Ltd.. From 2005 to 2008 Mr. Fruhling has served as head economist of DIC.  Mr. Fruhling holds a B.A. in economics and business administration from the Tel-Aviv Management College.
 
Yoni Sabag has served as our Vice President of Marketing since 2011. Mr. Sabag has served as head of our private sector marketing department, in charge of the private and small business sectors from 2006 to March 2011. From 2003 to 2006, he served as a director of marketing for the private sector. Mr Sabag has been a member of our marketing department since 2000.
 
 Ron Shvili has served as our Chief Technologies Officer since November 2013. Mr. Shvili has been an Entrepreneur in the field of cyber security since the beginning of 2013, when he retired from the Israeli Defense Forces, or IDF. From 1990 to 2012 Mr. Shvili held various key managerial and technological positions in the IDF and the Israeli Ministry of Defense. Mr. Shvili holds B.Sc and M.Sc in Electrical engineering from Tel-Aviv University.
 
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 a Vice President of Business Development in Overseas Commerce and from 1996 to 2000 he served as a Vice President of Planning and Control in the Israel Postal Authority’s.  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.
 
Keren Shtevy has served as our Vice President of Business Customers since 2012 . Ms. Shtevy served as Netvision's vice president of private customers from 2004 to 2011 and from 2011 as general vice president. From 1998 to 2004 she served at various positions in Netvision, from 1999 in various management positions, in charge of sales and customer service for private customers. Ms. Shtevy holds a B.A. in economics and communications from the University of Haifa.
 
Ms. Sharon Amit has served as our Vice President of Human Resources since 2011.  Ms. Amit has served as Netvision's VP of Human Recourses from 2009 to November 2011. She served as VP of Human Recourses of Tikshoov Call Center from 2006 to 2009, of Bynat Computer Communications from 2002 to 2006 and of ADC Israel from 1996 to 2002. Ms. Amit holds a B.A. in English literature and East Asia science, from the Hebrew University in Jerusalem and an M.A. in labor studies from the Tel Aviv University.
 
Amos Maor has served as our Vice President of Sales and Service as of 2012. Mr. Maor has served as our Vice President of Operations and Supply Chain from 2004 to  January 2011.  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.
 
Jack Oster has served as our Vice President of Information Technology as of 2012. Mr. Oster served as senior director of global delivery centers and global shared services centers as part of global IT management team of Teva Pharmaceutical Industries Ltd from 2007 to November 2012.  From 2005 – 2007 Mr. Oster served as Vice President of Business Applications solutions of Yael Software Ltd. From 2000 – 2005 Mr. Oster served as Senior Manager as part of the management consulting group of KPMG Consulting. Mr. Oster holds a B.Sc. in industrial engineering from Tel-Aviv University and graduated the Executive MBA program from Kellogg-Recanati.
 
Liat Menahemi Stadler has served as our Vice President of Legal Affairs 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 and is a member of both the Israeli and the New York bar associations.
 
Teimuraz Romashvil i has served as our Vice President of Pre Paid Activity since 2011. Mr. Romashvili reports to the Company's VP Sales and Service. Mr.  Romashvili has served as Netvision's head of pre-paid and international activity from 2007 to October 2011. From 2005 to 2007 he served as head of pre-paid activity in Barak and prior to that served in a variety of positions in Barak. Mr. Romashvili holds a B.A. in economics and management from the Economics Academy in Kiev, Ukraine.
 
Yaniv Gruenwald  has served as our Vice President of television and content since August 2014. Mr. Gruenwald has served as Vice President of television and content of Netvision since 2012 and as Chief Technology Officer of Netvision from 2010 to 2011. From 2008 to 2010, he served as a Chief Technology Officer of wire-line & broadband division of Partner Communications Ltd., and from 2005 to 2008 he served as Partner's director of product development. Mr. Gruenwald Holds a B.A. in business administration from the Peres Academic Center and is currently studying in the Executive MBA program at Tel-Aviv University.
 
Gil Ben-Itzhak has served as our Controller between 2006 and 2014.  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.
 
Ronnen Shles has served as our Controller from January 2015.  From 2007 to 2014, Mr. Shles served as head of the accounting unit in our  financial control division. Mr. Shles is a certified public accountant and holds a B.A. in accounting and business administration from the College of Management.
 
B. 
COMPENSATION
 
 
Compensation Policy


 

Our compensation policy, described below, was approved by our compensation committee and board of directors and subsequently approved by our shareholders in September 2013 and shall be in effect for a period of three years therefrom.
 
Preamble
 
The Company’s compensation policy is designed to align executive officer compensation with the Company’s performance and to reflect best practices in executive officer compensation. The Company has created a pay-for-performance policy that is designed to align executive officer and shareholder interests by reinforcing the long-term growth, value creation and sustainability of the Company. The structure is designed to encourage a high degree of execution and rewards individuals for the achievement of objectives that ultimately create shareholder value. The structure is further designed to prevent executive officers from taking unnecessary risks in order to enlarge their compensation. The objective of the compensation policy is to attract, motivate and retain a talented management team that will continue providing unique solutions in a highly competitive and rapidly changing marketplace and deliver long-term value for all shareholders.
 
The Company's executive officer compensation policy refers to three main elements of compensation that include base salary, cash bonus compensation and equity-based compensation. The compensation package for each of our executive officers will include these three components.
 
The Compensation Committee and Board of Directors approve, periodically review and oversee the application of the Company's executive officer compensation programs.
 
Our Board of Directors monitors our executive officers' compensation structure annually in order to ensure that target total compensation for our executive officers is appropriate, considering our peer companies, overall company performance, individual executive officer's scope and size of responsibilities and performance during the previous year.
 
The policy will apply to any compensation determined after approval by the Company's shareholders and will not, and is not intended to, apply to or deemed to amend employment and compensation terms of executive officers existing prior to such date.
 
The compensation policy does not grant any rights to the Company’s directors and executive officers, and the adoption of the compensation policy does not grant any of the Company’s Directors and executive officers a right to receive any elements of compensation set forth in the compensation policy. The elements of compensation to which a director or executive officer will be entitled will be exclusively those that are determined specifically in relation to him or her in accordance with the requirements of the Israeli Companies Law, 1999, or the Companies Law, and the regulations promulgated thereunder.
 
Executive Officer Pay for Performance
 
The Company’s compensation philosophy is to encourage our executive officers to make sound decisions and drive long-term value creation for our shareholders. For our executive officers, we believe that in order to increase shareholder value, our compensation structure must:

 
 
 
•
Have a substantial portion of pay “at risk” (i.e., pay that is not guaranteed); and

 
•
Link “at risk” pay to performance objectives that are directly aligned to the Company’s short and long-term performance objectives as well as strategic initiatives.
 
Effectively aligning the objectives of executive officer compensation with the interests of shareholders requires adopting compensation programs that motivate leadership to drive company performance to achieve sustainable top performance. To that end, our Board of Directors, at the recommendation of our Compensation committee, will establish cash and equity-based compensation plans with targets focused on rewarding individuals for strong company performance. In addition, because we believe that individuals should be rewarded based on the results of their contributions, we also consider individual performance in awarding incentive compensation.
 
Compensation Philosophy and Strategy
 
Our Board, at the recommendation of our Compensation Committee, has defined the following key objectives of our compensation programs for executive officers:

 
•
Drive the Company’s overall business strategy and results as they relate to long-term value creation;

 
•
Pay for performance by linking total compensation to defined performance objectives, both at the Company level and for each executive officer individually;

 
•
Attract and retain key executive officers by providing competitive total compensation opportunities, considering the Company's size, nature of operations and marketplace, while avoiding unnecessary risk taking by executive officers; and

 
•
Align executive officer and investor interests by focusing executive officer behavior on driving long-term value creation.

Compensation Risk Assessment
 
In designing our compensation policy, we reviewed our compensation policies and practices in order to determine whether they create risks that are likely to have a material adverse effect on the Company. We concluded that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on the Company. Among the elements evaluated were the following:
 
 
•
The multiple elements of our compensation packages for executive officers, including base salary, annual cash incentive and equity-based compensation program which vest over a number of years and provide a balance of short-term and long-term compensations with fixed and variable components that promote the long-term sustainability of our business;
     
 
•
Equity-based compensation for our executive officers aligns the interests of the executive officers with those of our shareholders;
     
 
•
Independent oversight by the Compensation Committee;
     
 
•
Inclusion of claw-back provisions in the event of a material restatement  of our financial statements for our financial performance based compensations;




 
•
Effective management processes for developing strategic and annual work plans, and strong internal controls over financial reporting;
     
 
•
The structure of our cash bonus and equity-based compensation, which is based on a number of different performance measures to avoid employees placing undue emphasis on any particular performance measure at the expense of other aspects of the business; and
     
  • The cap on our executive officers' cash bonus and equity-based compensation, commensurable to objectives which do not motivate increased risk taking.
 
Compensation Principles
 
Peer Group Analysis . We use benchmarking as one of the tools for setting and reviewing our compensation system. To attract and retain our key executive officers, our goal is to provide compensation opportunities at competitive market terms. The Company’s peer group is made up of a minimum of 10 companies, including telecommunications companies and companies operating in other markets whose turnover are similar to the Company's , as recommended by the Company's independent compensation consultant. When using the benchmarking, our intent is to create a compensation structure that generally targets the median of our selected peer companies, but also allows total compensation to exceed the median when warranted due to company performance and/or individual experience, responsibilities and exceptional performance.
Additional Considerations. When deciding on or periodically reviewing each executive officer's total compensation, our Compensation Committee and Board of Directors  consider the following: (1) each executive officer's individual attributes, including his/her education, skills, expertise, professional experience and achievements, the executive's role, his/her areas of responsibility and previous compensation arrangements (when applicable); (2) the ratio between our executive officer total target compensation and the total compensation of the rest of the company's employees and the Subcontractors' Employees engaged by the Company (as such term is defined under the Israeli Companies Law), and specifically the ratio to the average total compensation and the median total compensation of such employees, and the influence of those gaps on the working relations in the Company, taking into consideration the Company's size, nature of operations, employees composition, marketplace and comparative data. Our Compensation Committee and Board of Directors considered these ratios in the Company and determined that they do not adversely influence the working relations in the Company .
 
Caps and limitations. Our compensation policy sets the target total compensation comprising of the base salary, a 100% performance score for the cash award and maximum long term compensation for our executive officers, as detailed hereunder. Our Compensation Committee and Board decide on each executive officer's total actual compensation which is limited by the target compensation, based on performance metrics as detailed hereunder. Our Board will not reduce the compensation package approved or any of its components, and will not place additional limitations, not detailed in this compensation policy, other than in unusual circumstances according to our Compensation Committee's and Board of Directors' discretion.
 
Compensation Recovery ("Claw back"). If our financial statements are materially restated within 4 years from publication thereof (other than restatement required due to changes in financial reporting standards), then the executive officers will repay prior payouts,  in an amount of the excess over what the executive officer would have received according to the restated financial statements.
 
 
 
 
Overview of Executive officer Compensation –the Elements of Pay
 
Elements of Executive officer Compensation . In line with the philosophy described above, the following elements compose the compensation of our executive officers:
 
 
·
Base salary;
 
·
A cash bonus award;
 
·
Equity-based compensation awards; and
 
·
Termination arrangements
 
Compensation Mix . Base salary and annual and equity-based compensation awards make up the main elements of our executive officers’ total compensation package. The Company strives to ensure that a substantial portion of each executive officer’s total compensation is comprised of “at-risk” pay, with the targeted weight of each element out of the total compensation package of an executive officer being as follows:

 
·
base salary – 30%-50% for our CEO and 40%-60% for other executive officers;
 
·
cash bonus - 25%-45% for our CEO and 20%-40% for other executive officers; and
 
·
equity-based compensation* - 25%-45% for our CEO and 20%-40% for other executive officers.
*calculated per year, based on fair value at date of grant, with the value of the options amortized as compensation over the vesting period.

The ranges stated in the table above represent the targeted compensation mix desired by the Company; however the actual ratio between fixed and variable elements may vary based on performance.  For example, in a year with no or limited bonus, the percentage of base salary out of total compensation may be higher than stated above.

Our cash bonus and equity-based compensation awards are considered “at-risk” pay because they are not guaranteed and the recipients of the cash bonus awards must achieve specific performance objectives at corporate and individual levels to receive any payment.

Base Salary . The base salary varies between executive officers, and is individually determined according to past performance, educational background, prior business experience, qualifications, role and the business responsibilities of the executive officer. Since a competitive base salary is essential to our ability to attract and retain highly skilled  professionals, we will seek to establish a base salary that is competitive with the base salaries paid to executive officers of a peer group of companies.

Accordingly, base salary shall generally target the 25%-75% percentiles of each executive officer's peer group salary, taking into consideration the aforementioned individual characteristics, as shall be reflected in a peer group analysis conducted by an independent consultant and reviewed by our Compensation Committee and Board of Directors, when such salary is set and/or updated. The Company's office holders’ average base salary percentile in 2014 (in relation to their peer group), based on a peer group analysis conducted by Prof. Moshe Zviran Ltd., an independent compensation consultant, was approximately 45%. The benchmarking indicates that the target Base Salary (i.e. 25%-75% percentiles of each executive officer's peer group salary), when applied to our CEO, ranges approximately between NIS 130K and NIS 165K and when applied to our other executive officers, ranges approximately between NIS 50K to NIS 90K per month.
 
 

 
The base salary may be linked to the Israeli Consumer Price Index, or CPI.
 
Benefits and Perquisites . The following benefits and perquisites may be granted to the executive officers in order, among other things, to comply with legal requirements:
 
 
·
Vacation of up to 30 days per annum;
 
·
Sick days of up to 30 days per annum;
 
·
Convalescence pay equivalent to up to 10 days per annum;
 
·
Monthly remuneration for an education fund, as allowed by applicable law;
 
·
Contribution on behalf of the executive officer to a manager's insurance policy or a pension fund, as allowed by applicable law; and
 
·
Contribution on behalf of the executive officer towards work disability insurance, as allowed by applicable law.
 
We may offer additional benefits and perquisites to the executive officers, which will be comparable to customary market practices, such as: company cellular phone and the costs of the use thereof; company car benefits;  medical insurance, annual medical examination, professional associations membership fees etc.; provided however, that such additional benefits and perquisites shall be determined in accordance with our policies and procedures and with reference to the practice in peer group companies. The value of such additional benefits shall not exceed 30% of the executive officer's base salary.
 
Cash bonus . The Compensation Committee sets the cash bonus performance objectives and target bonus for each executive officer, at the start of each year, which are then reviewed and approved by the Board.  For our CEO, these objectives are based on the Company's annual work plan and objectives. For our other executive officers, these objectives are based on the Company’s annual work plan and objectives at the corporate level and key strategic objectives each executive officer is expected to achieve during that year at the individual level, based on each executive officer's position and scope of responsibilities.
 
The cash bonus payout is determined based on actual performance of the Company and the executive officer in question (after elimination of material one time and reevaluation influences), in each of the performance objectives set for each executive officer, measured on a performance matrix. The results for each group of objectives (as detailed hereunder) are then combined into one performance score, based on the weight each performance objective was given.
 
 
·
Corporate performance objectives may include EBITDA*, net income, free cash flow*, Net Promoter Score, or NPS (indicating our subscribers' satisfaction with our services) and other Company performance objectives which the Company decides to focus on in a specific year. Corporate performance objectives weigh between 30% to 50% of the overall performance score of each executive officer and 80% for our CEO. In extreme cases, such as major changes in our market leading to annual work plan or budget adjustments, our Compensation Committee and Board of Directors may update the objectives to match such changes, during the first half of the relevant year.
 
 
 
 
 
·
Quantitative individual performance objectives may include specific NPS, the budget for the unit relevant to the executive officer, revenues from sales by the unit, recruiting subscribers by the unit and quality of network. These objectives weigh between 30% and 50% of the overall performance score of each executive officer.
 
 
· 
Qualitative individual performance objectives may include corporate governance, risk management, leadership, response to major business changes, executing special projects, as per the CEO's evaluation of each executive officer and as per the evaluation of the CEO by the Compensation Committee and the Board of Directors. This component will weigh up to 20% of the overall performance score of each executive officer (including the CEO).
 
* EBITDA and Free Cash Flow are non-IFRS measures. For a definition of EBITDA see footnote (4) under "Item 5. Operating and financial review and prospects – Results of operations – Comparison of 2012, 2013 and 2014". Free Cash Flow is defined as (a) the net cash provided by operating activities minus (b) the net cash used in investing activities, excluding (i) short-term investments in tradable debentures and deposits and (ii) proceeds from sales of such debentures (including interest received in relation to such debentures) and deposits.
 
Any payout of cash bonuses for any year will be subject to an additional minimum requirement of achieving an annual EBITDA of not less than 60% of the Company's EBITDA for the previous year. In addition, in relation to 2014, our board of directors has set an additional minimum requirement, that any payout of cash bonuses for 2014 will be subject to achieving an annual EBITDA of not less than 85% of the Company's objective EBITDA for that year. We have met this threshold.  Such minimum requirements are in no way indicative of the Company's expectations or estimations for any fiscal year in general, nor 2014 specifically, and are provided in order to assure shareholders that no cash bonuses will be paid to office holders according to the Compensation Policy in years when the Company’s performance has deteriorated materially compared to the prior year or compared to its EBITDA target for 2014.
 
Our Compensation policy sets a minimal threshold score of 75% of the combined target performance and a target bonus of 10 monthly salaries for our CEO and 5-7 monthly salaries for our other executive officers ("Target Bonus") for the target performance objectives, in line with each executive officer's capability to influence the Company's results of operations. Performance below the minimum threshold results in no payout. Performance score under the combined performance target and above the threshold results in a linear reduction in which a 5% reduction of the combined performance score represents a reduction of 10% of the Target Bonus (i.e. down to 50% of the Target Bonus for a performance score of 75% of the combined performance target). Performance score above the combined target performance rewards the executive officer with a linear addition to the Target Bonus in which a 5% addition of the combined performance score represents an addition of 10% to the Target Bonus and up to a maximum of 150% of the Target Bonus.
 
Following is a graphic representation of the cash bonus our executive officers may be entitled to:


 
In order to align executive officer and investor interests for a long term value creation, once the cash bonus was calculated as detailed above, the executive officers will be entitled to 60% of that cash bonus with 40% deferred to the following year. Notwithstanding the aforesaid, for the first year in which the cash bonus shall be determined in accordance with this Compensation Policy, the executive officers will be entitled to 80% of that cash bonus with 20% deferred to the following year. The executive officers shall be entitled to the remaining deferred portion of the cash bonus, if the performance targets set for the following year exceed the 75% threshold of the combined performance target for such following year. We have met this threshold. The deferred portion of the cash bonus shall be linked to the Israeli CPI from the payment date of the first portion and until the payment date of the second portion (if paid).
 
Subject to the conditions and limitations set above, an executive officer who ceases to perform his/her role as an executive officer but has provided services to the company for at least 6 months of the relevant year, will be entitled to receive a cash bonus for that year and the deferred portion of the cash bonus of previous year, relative to the period in which he/she performed their duties during the relevant year. An executive officer who provides services to the Company for less than 6 months during the relevant year of cessation, will not be entitled to a cash bonus for that year nor to the deferred portion of the bonus for the previous year. An executive officer who joins the Company during the relevant year, will be entitled to a portion of the bonus, relative to the period in which he/she performed their duties during the relevant year and provided such period is at least 6 month long.
 
The aggregate maximum payout of all of the executive officers' cash bonuses per annum shall not exceed 2% of the EBITDA for that calendar year (after elimination of material one time and reevaluation influences). In case of a positive EBITDA but negative net profit in a particular year, the Compensation Committee and the Board of Directors of the Company shall examine the circumstances leading to a negative net profit and shall consider reducing or cancelling the cash bonus for that year.
 
Equity-based compensation Plan. Under the Company's 2006 Share Incentive Plan or under any equity-based compensation plan adopted by the Company in the future, the Compensation Committee and Board may resolve to grant, from time to time, options or restricted share units ("RSUs"), or other instruments of equity-based compensation, to our executive officers.


 
The decision on equity-based compensation grant shall take into consideration each executive officer's position, scope of responsibilities, as well as its past performance and contribution to the Company.
 
In order to align executive officer and investor interests for creation of long term value, equity-based awards will include the following terms:
 
·
Awards will vest linearly over a minimum period of three years beginning on the first anniversary of the grant date. The terms of such equity-based awards may include provision for acceleration of vesting in certain events, such as in the event of a merger, a consolidation, a sale of all or substantially all of our consolidated assets, change of controlling shareholder, or the sale or other disposition of all or substantially all of our outstanding shares.
 
·
The exercise price of equity-based awards will be the higher of the average market price of the Company's share during the 30 day period preceding the date of grant, and 8% above the market price of the Company's share at the end of the trading day preceding the date of grant, and will be subject to customary adjustments including for dividend distributions.
 
·
The value of equity-based awards at the date of grant (in accordance with acceptable accounting principles) per each vesting annum (calculated on a linear basis), in addition to the Target Bonus (whether or not actually paid), will not exceed 70% of our CEO's and 60% of our other executive officers' total cost of employment in that calendar year. We believe a grant date cap is more appropriate than an exercise date cap as it better aligns long term value creation objectives.
 
·
The annual exercise  of shares reserved for issuance upon the exercise of options of all the Company's executive officers will not dilute the Company's shareholders by more than 2% (in regards to option plans which contain a 'net exercise mechanism'). In addition, our board of directors committed towards DIC that the Company will not issue options or shares pursuant to executive officers or employees compensation, which may lead to a dilution of the  Company's shareholders by more than 0.5% of the Company's outstanding share capital for that year.
 
Termination and Retirement. Our executive officers may be entitled to up to a 3 months advance notice period upon termination of their employment with the Company if worked in the Company for up to 3 years, or up to 5 month advance notice period if worked in the Company for over three years and will be required to provide the Company with the same notice when they initiate retirement from their position. The executive officer is obligated to work during such period and Company may decide, at its sole discretion, to waive actual work during that period, in whole or in part. Under special circumstances, the Company may, as approved by our Compensation Committee and Board of directors, grant an executive officer who worked in the Company for a minimum of two years and was not terminated for cause, a termination bonus equal to up to 3 monthly salaries  of the executive officer, including benefits or an adjustment period of up to 3 month during which the executive officer will be entitled to continue to enjoy all compensation and benefits. In case the executive officer worked in the Company for a minimum period of five years, such termination bonus or adjustment period, may be up to 6 monthly salaries or 6 months, respectively. In deciding on the grant of a termination bonus or the like, our Compensation Committee and Board of Directors shall take into consideration the executive officer's term of employment, his/her compensation during his/her employment with the Company, the Company's performance during that period, the contribution of the executive officer to achieving the Company's objectives and increasing its profits and the circumstances of termination.
 
 

 
The Company may approve, upon termination of an executive officer’s employment, to amend the terms in connection with the executive officer’s equity-based compensation grants, such as extending the period for exercise of equity-based compensation upon termination, for longer periods than as set forth in the applicable plan, enabling acceleration of vesting of unvested equity-based compensation, while considering the same considerations stated above for a termination bonus.
 
The Company will not pay its executive officers any non-competition fees for post termination periods, although executive officers may be bound by post termination non-competition obligations.

Compensation for our directors

We paid no cash compensation to our directors who are affiliated with our controlling shareholder and the chairman of the Board of Directors (appointed by our controlling shareholder) ("Controlling Shareholder Directors") for their services as directors, as until December 31, 2014 we paid our controlling shareholder an annual management fee, which includes the Controlling Shareholder Directors services. We intend to bring the renewal of our management services agreement with DIC to our forthcoming shareholders meeting.

We pay all directors who are not Controlling Shareholder Directors, including external directors, independent directors and other directors, directors fees in accordance with the  amount of statutory compensation to an external director of a dual-listed company allowed by the applicable Israeli law and regulations (as shall be updated from time to time).
Our directors will not receive cash bonuses or equity-based compensation.

Indemnification

Exemption from liability and liability insurance policy . Our articles of association allow us to exempt in advance a director and executive officer, or office holders, 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) and we may enter into a contract for insurance against liability of any of our office holders with respect to certain breaches of his/her duties and certain financial liabilities and litigation expenses.
 
We maintain a liability insurance policy for the benefit of our office holders. Our directors and executive officers' coverage will not exceed $100 million per claim in the aggregate, and an additional 20% of the aforesaid sum in connection with defending lawsuits in Israel only, and the premium will not exceed US$ 1 million per annum in any renewal or extension or substitution of the policy. Any such renewal or extension or substitution of the liability insurance policy for the benefit of our office holders (including those who are or are related to controlling shareholders or in respect of whom our controlling shareholders have a personal interest, who shall be insured under identical terms) do not require a separate approval of the Company's shareholders, in addition to the approval of this compensation policy (which in itself requires approval once every three years) if our compensation committee resolves that such renewal or extension or substitution upholds the limitations set above.
 


 
Indemnification. Our articles of association provide that we may indemnify our office holders against certain financial liability and litigation expenses. We have undertaken to indemnify our office holders for certain events listed in the indemnification letters given to them. Excluding reasonable litigation expenses, as noted 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 approval of the compensation policy by our shareholders in September 2013 shall not be considered as approval of the indemnification amount to the Company's office holders (over the amounts received from the Company's insurance policy).
 
The above exemption, indemnification and insurance coverage, are subject to the limitations set in the Companies Law.
 
Executive Officer and Director Compensation
 
The aggregate direct compensation we paid to all our executive officers and directors as a group (18 persons) for 2014 was approximately NIS 12 million, of which approximately NIS 1.8 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, in 2014 we recorded the sum of approximately NIS 2.7 million, as a compensation cost related to the options granted to all our executive officers under our share incentive plan. See “6. Directors, Senior Management and Employees - E. Share Ownership – 2006 Share Incentive Plan”. We pay our executive officers an annual bonus based on our overall performance and individual performance, in accordance and subject to the provisions of our compensation policy (described above).  For 2014, our compensation committee and board of directors resolved to pay our executive officers (excluding our CEO) an annual bonus   in   an aggregate sum of approximately NIS 3.8 million, as per our compensation policy, and approximately NIS 0.7 million to Mr. Sztern, our CEO (as per his employment agreement described below).
 
The table below reflects the compensation granted to our five most highly compensated office holders during or with respect to the year ended December 31, 2014. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.” All amounts reported in the table are in terms of cost to the Company, as recognized in our financial statements for the year ended December 31, 2014, which includes compensation paid or to be paid to such Covered Executive following the end of the year in respect of services provided during the year. Each of the Covered Employees was covered by our D&O liability insurance policy and was entitled to indemnification and exculpation in accordance with applicable law and our articles of association. The amounts set forth in the table below are given in thousands of New Israeli Shekels (NIS).
 
Name and Principal Position (1)
Salary Cost (2)
Consultancy  Fees
Bonus (3)
Equity-Based
Compensation (4)
Total
Nir Sztern, President and Chief Executive Officer
1,950
--
738
281
2,969
Ron Shvili, Chief Technology Officer
1,130
--
354
686
2,170
Shlomi Fruhling, Chief Financial Officer
1,111
--
342
686
2,139
Amos Maor, VP  Sales and Service
1,029
--
320
104
1,453
Liat Menahemi Stadler, VP Legal Affairs and Corporate Secretary
980
--
340
87
1,407


 
(1)
Unless otherwise indicated herein, all Covered Executives are or were employed on a full-time (100%) basis.
 
(2)
Salary cost includes the Covered Executive's gross salary plus payment of social benefits made by the Company on behalf of such Covered Executive. Such benefits may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds ( e.g., Managers' Life Insurance Policy), education funds (referred to in Hebrew as “ keren hishtalmut ”), pension, severance, risk insurances ( e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, car, medical insurance and benefits, phone, convalescence or recreation pay and other benefits and perquisites consistent with our policies.
 
(3)
Represents annual bonuses approved by our compensation committee and board of directors to the Covered Executives with respect to the year ended December 31, 2014, based on our compensation policy. 60% of the approved annual bonus (other than with respect to Mr. Sztern) in respect of 2014, to be paid to the Covered Executives in 2015, and the balance (40%) is deferred and may be paid to them in 2016, if the conditions for the payment of the deferred amount (as detailed in the compensation policy) are met during 2015. Doesn't include the deferred portion (20%) of the annual bonuses for the year ended December 31, 2013.
 
(4)
Represents the equity-based compensation expenses recorded in our consolidated financial statements for the year ended December 31, 2014, based on the fair value of the applicable options on the date of grant thereof, in accordance with accounting guidance for equity-based compensation. For a discussion of the assumptions used in reaching this valuation, see Note 20 to our consolidated financial statements included elsewhere in this report.
 
We paid no cash compensation to our directors who are affiliated with DIC for their services as directors, but we paid DIC NIS 2.0 million per year for management services, adjusted to changes in the Israeli Consumer Price Index for June 2006. In 2014 this payment amounted to approximately NIS 2.4 million. In March 2013, our Board of Directors resolved that each of our external directors be paid the maximum amount of statutory compensation to an external director of a dual-listed company allowed by the applicable law and regulations, which is in the amount of NIS 115,400 per year and NIS 3,470 per meeting which such external director attends (including meetings of committees of the Board of Directors), adjusted for changes in the Israeli CPI for December 2007.  In 2014, after giving effect to the CPI adjustments, these amounts equaled approximately NIS 135,000 (approximately $34,713) per year and approximately NIS­­­­­­­­­­­­­­­­­­­­­ 4,100 (approximately $1,054), per meeting. As resolved in our annual shareholders meeting held in July 2011, our independent directors, (Shlomo Waxe and Ephraim Kunda) ) are compensated at the same level as a statutory external director of a dual listed company, as described above.
 
Employment Agreement of Nir Sztern
 
Mr. Nir Sztern, our Chief Executive Officer as of January 1, 2012, is entitled to a gross monthly salary of NIS 120,000 linked to Israeli CPI.  He is also entitled to a company car and the use of a cellular phone. Mr. Sztern is entitled to an annual bonus equal to nine months salary which shall increase or decrease in proportion to our annual profits, with a minimum of six months' salary and a maximum of 15 months' salary bonus, linked to Israeli CPI, in respect of which no social benefits are accrued. Mr. Sztern's annual bonus for 2014 amounted to NIS 0.7 million. Mr. Sztern is also entitled to participate in our share option plan. Mr. Sztern’s agreement contains provisions for vacation days, sick leave, managers’ insurance and an education fund. The aggregate monthly cost to us of Mr. Sztern’s employment in 2014 amounted to approximately NIS162,500  (approximately $41,784), not including the annual bonus. The agreement is for an unspecified period of time and can be terminated by either party with advance notice of three months. Mr. Sztern will continue to receive his salary and benefits for a period of three months after termination by either party, unless we terminate the agreement for cause.


 
C. 
BOARD PRACTICES
 
Corporate Governance Practices
 
We are incorporated in Israel and therefore are subject to various corporate governance practices under the Companies Law, relating to such matters as external directors, the audit committee, the compensation committee and the internal auditor. These matters are in addition to the applicable requirements of the New York Stock Exchange and 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 the 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 “Item 16G – Corporate Governance”.
 
Under the Companies Law, our Board of Directors must determine the minimum number of members of our Board of directors required to have financial and accounting expertise, as defined in the regulations of the Companies Law.  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. Erel, and Bronshtein 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 U.S. 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.A of Form 20-F.
 
In accordance with the Concentration Law, since we are a third layer in a pyramidal structure (a layer being a public corporation), our board of directors' composition must accord with the following requirements: the majority of the board of directors shall be independent directors, as defined in the Companies Law, and the number of external directors shall be half the number of our directors less one (rounded upwards) but not less than two (such external directors to be nominated by a shareholders meeting that shall take place within additional three months). We have made the necessary changes to our board in September 2014 and are in compliance with these requirements. These requirements will be in effect during a transition period of six years, during  which we are to become a second layer corporation.
 

 
 
Board of Directors and Officers
 
 
Our Board of Directors currently consists of six directors, including four independent directors under the rules of the NYSE, of whom two also qualify as external directors under the Companies Law.  Two of our current directors, Mr. Waxe and Mr. Kunda, are independent directors who were elected at our annual shareholders meeting held in December 2014. Our external directors, Mr. Barnea and Ms. Baytel were elected in our annual shareholders meeting held in April 2013 for a term of three years commencing May 2013. Two additional directors, Messrs. Erel and Bronshtein, 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. We do not enter into service contracts with our directors. 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. 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. In addition, the Companies Law provides that an external director cannot appoint an alternate director to serve on the Board of Directors, and an external director cannot appoint another external director to serve as his or her alternate on  a committee of the Board of Directors unless the alternate has the same qualifications as the appointing director.  Similarly, an independent director cannot appoint an alternate director, unless the alternate director has the qualifications to serve as an independent director. 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 securities are listed on a stock exchange are required by the Companies Law to appoint at least two external  directors. For the Concentration Law in this regard see "-Corporate Governance Practices" above. External directors are required to possess professional and other qualifications as set out in the Companies Law and the regulations promulgated thereunder. The appointment of our external directors was approved by our shareholders in May 2007 for an initial term of three years, and our external directors were reelected to additional three year terms in April 2010 and again in April 2013. The Companies Law provides that a person may not be appointed as an external director of a company that has a controlling shareholder if the person is a relative of the controlling shareholder, or if the person, or the person’s relative, partner, employer, direct or indirect supervisor or any entity under the person’s control has or during the two years preceding the date of appointment had, 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.
 
Pursuant to the Concentration Law, for so long as we are a third layer company, additional qualifications apply to our external directors.
 
The term “office holder” is defined in the Companies Law as a general manager, chief business manager, deputy general manager, vice general manager, any 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, and a director.  Each person listed above under “Item 6.A - Directors and Senior Management,” except our controller, 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.
 
For two years following the termination of an external director’s service, the company and its controlling shareholder may not appoint the external director, or his or her spouse or child, as an office holder in that company or another company under common control, and cannot employ or receive services from that person for pay or grant any benefit, either directly or indirectly, including through a corporation controlled by that person. The same restrictions apply in regards to a relative who is not the external director’s spouse or child for a period of one year.
 
Election of external directors
 
External directors are typically elected by a majority vote at a shareholders’ meeting, provided that either:
 


 
 
·
a majority of the aggregate number of shares voted at the meeting by non-controlling shareholders and shareholders who do not have a personal interest in the election of the candidate (other than a personal interest that is unrelated to a relationship with the controlling shareholders) are voted in favor of the election of the external director; or
 
 
·
the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the election of the candidate (other than a personal interest that is unrelated to a relationship with the controlling shareholders) voted against the election of the external director does not exceed 2% of the aggregate voting rights in the company.
 
However, under the Concentration Law, for so long as we are a third layer company, the election of an external director requires (i) the affirmative vote of the holders of a majority of the shares of non-controlling shareholders or shareholders who do not have a personal interest in the approval of the election of the external director (other than a personal interest that is not the result of the shareholder's connections with a controlling shareholder) present, in person or by proxy, at the meeting and voting on the matter; and (ii) that the total number of shares of the shareholders described in section (i) above that were voted in favor of the election of the external director exceeds 2% 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 up to two additional terms of three years each by means of one of the following mechanisms: (i) the board of directors proposed the nominee and the nominee's appointment was approved by the shareholders in the manner required to appoint external directors for their initial term, or (ii) a shareholder holding 1% or more of the voting rights or the external director proposed the nominee, and the nominee is approved by a majority of the votes cast by the shareholders of the company, excluding the votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the controlling shareholders, provided that, the aggregate votes cast by shareholders who are not controlling shareholders and do not have a personal interest in the matter as a result of their relations with the controlling shareholders in favor of the nominee constitute more than 2% of the voting rights in the company, and that the nominee is not the proposing shareholder or a 5% shareholder who is an affiliate or competitor of the company or a relative or affiliate of such a shareholder. Thereafter, in dual listed companies like us, an external director 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 votes as is required for the election of an external director, 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 and compensation committees are 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, analysis committee, option committee, compensation 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, and the majority of its members is required to be independent (as such term is defined under the Israeli Companies Law). The chairman of the audit committee is required to be an external director. The audit committee may not include the chairman of the board, any director employed by the company or by its controlling shareholder or by an entity controlled by the controlling shareholder,  a director who regularly provides services to the company or to its controlling shareholder or to an entity controlled by the controlling shareholder, and any director who derives most of his or her income from the controlling shareholder, 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.
 
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, assessing the scope of work and compensation of the company's independent accountant, assessing the company's internal audit function and the performance of its internal auditor, setting whistle blower procedures (including in respect of the protections afforded to whistle blowers) and is responsible for determining whether certain related party actions and transactions are "material" or "extraordinary" in connection with their approval procedures, reviewing and approving certain related party transactions, as described below, including determining procedures and approvals for entering into controlling shareholder transactions even if they not extraordinary transactions. 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.
 


 
Our audit committee is composed entirely of independent members (both under the Israeli Companies Law and the Sarbanes-Oxley Act) and includes all the external directors - Messrs. Barnea (chairman), Waxe , Baytel and Kunda. Our board of directors determined Ms. Baytel to be qualified to serve as an "audit committee financial expert" as defined by the SEC's rules.
 
Financial exposure management subcommittee
 
Our financial exposure management subcommittee, which is a subcommittee of our audit committee, was nominated by our board of directors and reviews our financial exposures, investment and hedging policies and recommends to our board of directors how we might enhance our investment and hedging performance. Our financial exposure management subcommittee consists of our external directors, Barnea and Baytel.
 
Analysis committee
 
Our analysis committee reviews our costs and annual budget and recommends ways to achieve cost efficiency in our activities to our Board of Directors. Our Analysis committee also reviews our operations and future plans and recommends how we might enhance our present and future performance to our Board of Directors.  Our analysis committee consists of Messrs. Bronshtein (chairman), Erel, Waxe, Barnea and Kunda.
 
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) 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 appointed in February 2008. Our security committee consists of Messrs. Waxe, Bronshtein, Kunda and Barnea.
 
Compensation committee
 
Under the Companies Law, the board of directors of a public company must establish a compensation committee. The compensation committee must consist of at least three directors and must include all of the company’s external directors and the external directors must constitute the majority of its members. The chairman of the compensation committee must be one of the external directors. Other members of the committee should be directors whose terms of compensation are the same as external directors. Under the Companies Law, the compensation committee functions are to recommend to the board of directors , for ultimate shareholder approval by a special majority, a policy governing the compensation of office holders, based on specified criteria, to review modifications to the compensation policy from time to time, to review its implementation and to approve the actual compensation terms of office holders. The composition of our compensation committee complies with the requirements described above. Our compensation committee consists of Ms. Baytel (chairperson), Mr. Kunda and Mr. 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 in the best interest of the company. 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 generally 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, audit committee approval is required, as well. For the approval of the compensation, indemnification or insurance of an officer holder, see "Compensation arrangements" below. 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 controlling shareholders. Extraordinary transactions with a controlling shareholder or with relatives of a controlling shareholder or in which a controlling shareholder has a personal interest, directly and indirectly, including through a company controlled by him or her, and any transaction for him or her to provide services to the company (for arrangements regarding the compensation, indemnification or insurance of a controlling shareholder see "Compensation arrangements" below), require the approval of the audit committee, the board of directors and a majority of the shareholders of the company, in that order. In addition, the shareholders approval must fulfill one of the following requirements:

 
 
 
·
at least majority of the shareholders who have no personal interest in approving the transaction and who vote on the matter vote in favor of the transaction; or
 
 
·
the shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than 2% of the voting rights in the company.
 
In addition, any such extraordinary transaction whose term is more than three years, require approval as described above every three years, unless (with respect to transactions not involving management fees or compensation) the audit committee approves that a longer term is reasonable under the circumstances. The audit committee is further responsible for establishing the procedures and approvals required for such transactions even if they are not extraordinary.
 
Compensation arrangements
 
Every public company must adopt a compensation policy, recommended by the compensation committee and approved by the board of directors and the shareholders, in that order. The shareholder approval requires a majority of the votes cast by shareholders, excluding any controlling shareholder and those who have a personal interest in the matter (similar to the threshold described above under "– Personal interests of a controlling shareholder"). In general, all office holders’ terms of compensation – including fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability insurance and the grant of an exemption from liability – must comply with the company's compensation policy.
 
In addition, the compensation terms of directors, the chief executive officer, and any employee or service provider who is considered a controlling shareholder must be approved separately by the compensation committee, the board of directors and the shareholders of the company (by the same majority noted above), in that order. The compensation terms of other officers require the approval of the compensation committee and the board of directors.
 
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 shareholders 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 ompanies 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, and this duty is the subject of ongoing judicial interpretation.
 
 

 
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 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.
 
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 providing the best service to our subscribers, approximately 76% of our work force (excluding Netvision subsidiaries employees) is engaged in customer-facing positions.
 
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 2012 ***
   
December 2013 ***
   
December 2014 ***
 
Management and headquarters
    62       58       54  
Human resources
    55       67       72  
Marketing
    79       68       57  
Customers*
    4,159       3,170       2,887  
Finance
    144       133       101  
Technologies
    716       698       548  
Operation and administration
    86       84       80  
Netvision subsidiaries**
    134       126       122  
Total
    5,435       4,403       3,921  



*Includes the customer-facing units: business customers, sales and services, Netvision sales and services and supply chain.
**In which Netvision has 50% or more of the issued share capital.
***Includes 33, 15 and 1 employees previously engaged through subcontractors, mainly in the Technologies  and Supply chain units during  2012, 2013 and 2014 respectively; also includes  352 employees of Dynamica and 1,331 employees of Netvision for 2012, 323 employees of Dynamica and 990 employees of Netvision for 2013 and 352 employees of Dynamica and 806 employees of Netvision for 2014.

 
In February 2015, we entered a collective employment agreement with the Company's employees' representatives and the Histadrut, an Israeli labor union, for a term of three years (2015-2017). The agreement applies to the Company's and 013 Netvision Ltd.'s employees, excluding certain managerial and specific positions. The agreement defines employment policy and terms in various aspects, which are more favorable to our employees than the requirements of Israeli law, including minimum wage, annual salary increase, incentives, benefits and other one time or annual payments to the employees, as well as a welfare budget and procedures relating to manning a position, change of place of employment and dismissal, including the respective authority of management and the employees' representative with regards to each. The agreement includes innovative terms, whereby the employees are entitled to participate in our operational income over a certain threshold and enjoy additional payments, under certain conditions. The estimated cost of the agreement over the next three years is approximately NIS 200 million, before tax (including one time payments, of which approximately NIS 30 million are one time payments in the first quarter of 2015), based on our forecasts.   See also   "Item 3. Key Information – D. Risk Factors – Risks Related to our Business - The unionizing of our employees may impede necessary organizational and personnel changes, result in increased costs or disruption to our operation".
 
Israeli labor laws govern the length of the workday, the number of work days per week, minimum wages for employees, provisions concerning 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. Commencing in October 2008, Israeli law requires us to hire certain workers retained through subcontractors who provided us services for a certain minimum period. We are complying with this obligation. In addition, under a 2008 order issued by the Ministry of Economy, 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. Under that order, contribution to a pension plan increased gradually until 2014 and up to 6% of the lower of the employee’s wages or the average salary in Israel, with additional identical contribution for severance pay. We contribute to part of our employees' pension arrangements a percentage higher than that required by the 2008 order, which contributions are also intended to cover future severance payments. Under the collective employment agreement such contributions shall amount to 8.3% of the employee wages, after completing 3 years of employment with us. A provision in our consolidated financial statements covers severance pay in other cases, such as to those employees who were not entitled to managers’ insurance or other pension arrangements. 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 (as of January 1, 2015) up to 18.75% of an employee’s wages (up to a specified amount), of which the employee contributes approximately 12% and the employer contributes approximately 6.75%.
 


 
A new Israeli labor law, passed in 2012, subjects employers to increased liability, including monetary sanctions and criminal liability, in cases of violations of certain labor laws and certain violations by contractors providing maintenance, security and cleaning services.
 
In January 2015, the Minimum Wage Law was amended to increase the minimum wage paid to employees in Israel in four installments, from April 2015 to January 2017. The increase may adversely affect our results of operations.
 
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 and as of January 2015, are subject to the provisions of the collective employment agreement. 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 80% of our customer-facing employees are entitled to performance-based incentives, which are granted mainly to customer-facing personnel, such as sales and service employees. In addition, some of our employees are entitled to an annual bonus based on our overall performance and individual performance, subject to the discretion of our Board of Directors. As of 2015, under the collective employment agreement, some of our employees will be entitled to an annual bonus, if our performance meets the objectives set in advance by our board of directors. We also contribute funds on behalf of some of our employees to an education fund and as of 2015, under the collective employment agreement, to all employees after completing 3 years of employment with us.
 
We have entered into agreements with a number of programming companies under which they provide us with temporary workers.
 
In the second quarter of 2014 we launched, together with the employees representing labor union (before the collective employment agreement was executed), a voluntary retirement plan for employees, in which approximately 380 employees have retired, following which we incurred a one-time cost of approximately NIS 39 million.
 
E. 
SHARE OWNERSHIP
 
As of December 31, 2014, DIC beneficially owned 42,020,582ordinary shares , and the voting rights in an additional 3,412,500 ordinary shares are held by DIC and 87,434 ordinary shares are held by indirect subsidiaries of IDB Development for their own account. This does not include a total of 982,780 ordinary shares held as of that date for members of the public through, among others, provident funds, mutual funds, pension funds, insurance policies and unaffiliated third-party client accounts, which are managed by indirect subsidiaries of IDB Development, a few of which are also indirect subsidiaries of DIC. IDB, DIC and each of other directors who are affiliated with IDB or DIC, disclaim 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
 
The Share Incentive Plan was introduced in September 2006.  It is an option plan open to all our employees, directors, consultants and sub-contractors and to those of our affiliates and our shareholders’ affiliates. 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 restricted stock units (“RSUs”) to be granted, the vesting schedule and the exercise price. The options or 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 or RSUs terminate immediately upon termination of employment or service.  The plan, as amended in 2008 and 2011, defines acceleration events of options or RSUs granted, including a merger, a consolidation, a sale of all or substantially all of our consolidated assets, or the sale or other disposition of all or substantially all of our outstanding shares. The plan terminates upon the earlier of ten years from its adoption date or the termination of all outstanding options or RSUs pursuant to an acceleration event.  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.  Distribution of cash dividends before the exercise of the options reduces the exercise price of each option by an amount equal to the gross amount of the dividend per share distributed.

In August 2012, our board of directors resolved to grant 2,410,678 options to certain non-director officers and senior employees, of which 1,215,000 options were granted to our executive officers including   350,000 options to Mr. Sztern, our CEO, at an exercise price of US$ 5.91 per share. The options granted were vested in two equal installments on each of the first and second anniversary of the date of grant. The options of the first installment may be exercised within 24 months from their vesting and the second installment may be exercised with 18 month from their vesting.

In March 2013, our board of directors resolved to grant additional 75,000 options to an executive officer, at an exercise price of US$ 7.58 per share, under the same terms as the August 2012 grant.

In December 2013, our compensation committee and board of directors resolved to grant additional 234,000 options to two executive officers, at an exercise price of US$ 14.65 per share. The options granted, in accordance and subject to our compensation policy provisions, will vest in three equal installments on each of the first and second and third anniversary of the date of grant. The options of the first installment may be exercised within 24 months from their vesting and the second and third installments may be exercised with 18 month from their vesting.

In August 2014, senior employees and non-director officers of the Company sold an aggregate of 933,348 shares of the Company issued to them upon their exercise of vested options, constituting approximately 0.93% of the Company’s issued share capital, to financial institutions. To our Knowledge, the purchasers intend to place such shares for sale outside the United States to non-US investors. As of December 31, 2014, an aggregate of 573,841 ordinary shares were issuable upon exercise of options according to the terms above and Mr. Ami Erel, our Chairman of the Board of Directors, held 54,647 of our ordinary shares.



2015 Share Incentive Plan
 
The Share Incentive Plan was introduced in March 2015.  It is an option plan open to all our employees, directors, consultants and sub-contractors and to those of our affiliates and our shareholders’ affiliates. 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 restricted stock units (“RSUs”) to be granted, the vesting schedule and the exercise price. The options or RSUs have a term of six years and vest in three equal installments on each of the first, second and third anniversary of the date of grant.  Under the plan, unvested options or RSUs terminate immediately upon termination of employment or service.  The plan defines acceleration events of options or RSUs granted, including a merger, a consolidation, a sale of all or substantially all of our consolidated assets, or the sale or other disposition of all or substantially all of our outstanding shares. The plan terminates upon the earlier of ten years from its adoption date or the termination of all outstanding options or RSUs pursuant to an acceleration event.  The terms of the 2015 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.  Distribution of cash dividends before the exercise of the options reduces the exercise price of each option by an amount equal to the gross amount of the dividend per share distributed.

In March 2015, our compensation committee and our board of directors resolved to grant 2,795,000 options to certain non-director officers and senior employees, of which 1,350,000 options will be granted to our executive officers, including   525,000 options to Mr. Sztern, our CEO, at an exercise price of US$ 5.70  (or, subject to the approval of the Israeli Tax Authority – NIS 22.55) per share. The options will be granted after the lapse of 30 days from the date the 2015 Share Incentive Plan is submitted to the Israeli Tax Authority, in accordance with the Israeli Tax Ordinance. Mr. Sztern's grant is subject to shareholders approval in accordance with the Israeli Companies Law.  The options granted will be vested in three equal installments on each of the first, second and third anniversary of the date of grant. The options of the first installment may be exercised within 24 months from their vesting, and the options of the second and third installments may be exercised with 18 month from their vesting. We will record the total sum of approximately NIS 7.8 million, as a compensation cost related to these grants, over the vesting period (2015 – 2018).

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 December 31, 2014, 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 December 31, 2014. 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 100,584,490   ordinary shares outstanding as of December 31, 2014. 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.*
    45,433,082       45.17 %
Meitav Dash Investments Ltd.**     5,577,376       5.54 %
Psagot Investment House Ltd.***
    6,782,928       6.74 %
Directors and executive officers as a group (18 persons)****
    216,651       0.22 %
 
 
*
DIC, a public Israeli company traded on the Tel Aviv Stock Exchange, is a majority-owned subsidiary of IDB. Includes 29,832,227 ordinary shares held by DIC directly, 12,188,355 ordinary shares held by a wholly-owned subsidiary of DIC (namely, DIC Communication and Technology Ltd., an Israeli company) and 3,412,500 ordinary shares, representing approximately 3.39% of our issued and outstanding shares, held by two  shareholders whose voting rights are vested in DIC. Does not include 87,434   ordinary shares (representing approximately 0.09% of our issued and outstanding shares) held as of December 31, 2014 by indirect subsidiaries of IDB for their own account and a total of 982,780 ordinary shares (representing approximately 0.98% of our issued and outstanding shares) held as of that date for members of the public through, among others, provident funds, mutual funds, pension funds, insurance policies and unaffiliated third-party client accounts, which are managed by indirect subsidiaries of IDB, a few of which are also indirect subsidiaries of DIC.
 
To our best knowledge, as of December 31, 2014, IDB, a public Israeli company traded on the Tel Aviv Stock Exchange, was controlled by the Elzstain-Extra group, as follows:
 
Dolphin Netherlands B.V., a company incorporated in the Netherlands, or Dolphin Netherlands, owned 31.26% of the outstanding shares of IDB. Dolphin Netherlands is indirectly controlled by Eduardo Elsztain. Mr. Elsztain is a Co-Chairman of each of the boards of directors of IDB and DIC. Alejandro Elsztain, the brother of Eduardo Elsztain, is a director of IDB and an alternate director of Eduardo Elsztain in DIC.
 
C.A.A. Extra Holdings Ltd., a privately held company incorporated in Israel, or C.A.A. Extra, owned 31.26% of the outstanding shares of IDB. C.A.A. Extra is wholly owned directly by Mr. Mordechay Ben-Moshe. Mr. Ben-Moshe is a Co-Chairman of each of the boards of directors of IDB and DIC.
 
Companies controlled by Mr. Elsztain and Mr. Ben-Moshe have entered into a shareholders agreement with respect to their ownership of shares of IDB, for the purpose of maintaining and exercising control of IDB as a group. The term of the shareholders agreement expires on May 8, 2021.
 
As a result of a rights offering effected by IDB in February 2015, the holdings of companies controlled by Eduardo Elsztain increased to approximately 61.5% of the outstanding shares of IDB, while the holdings of C.A.A. Extra decreased to approximately 16.2% of the outstanding shares of IDB. Thereafter, IDB announced that in light of provisions in the afore-mentioned shareholders agreement (including a provision that allows either party that holds 5% of IDB's outstanding shares more than the other party to dictate how the other party must vote its shares and a provision regarding the composition of the board of directors of IDB), there may be changes in the control structure of IDB and changes to the composition of its board of directors. As of the date of the filing of this annual report, C.A.A. Extra is contesting such changes and has demanded to purchase IDB shares from companies controlled by Eduardo Elsztain (which would cause it to become the dominant controlling shareholder of IDB).
 


 
Based on the foregoing, IDB (by reason of its control of DIC), companies controlled by Eduardo Elsztain (as described above) and C.A.A. Extra (by reason of their control of IDB), Eduardo Elsztain and Mordechay Ben-Moshe 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, and all of these entities and persons disclaim beneficial ownership of our shares held under management of subsidiaries of IDB for others.
 
According to the Concentration Law, IDB and DIC have until December 2019 to cause us to cease being a third layer company in their pyramidal structure.  IDB and DIC have announced their intention to review possible ways to achieve this goal without having to forfeit control of us, such as by merging with each other or by taking IDB or DIC private. There can be no assurance how or when this would occur, if at all.   For information about the Concentration Law, see the risk factor in Item 3.D above entitled "Recent legislation in Israel affecting corporate conglomerates could adversely affect us."
 
**
As reported by Meitav Dash Investments Ltd. to the Company. As of January 20, 2015, based on a Schedule 13G filed by Meitav Dash Investments Ltd. with the SEC on January 26, 2015 it held only 4.924% of our outstanding share capital.

***
Based on a Schedule 13G filed by Psagot Investment House Ltd. with the SEC on February 18, 2015, it has shared dispositive power with respect to 6,782,928 shares and shared voting power with respect to 4,150,738 shares.

****
Includes162,004 ordinary shares issuable upon the exercise of stock options that are exercisable on, or within 60 days following December 31, 2014, and 54,647 ordinary shares held by Mr. Ami Erel as of December 31, 2014.

 
As of December 31, 2014, we had twenty holders of record of our equity securities who are, to our knowledge, located in the United States. The shares held by these holders of record represent 94.72% of our outstanding ordinary shares. However, this number is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are located because approximately 94.71% of our ordinary shares were held of record by Cede & Co. for the account of the brokers or other nominees, including the Tel Aviv Stock Exchange; approximately 41.78% of our ordinary shares owned directly and indirectly by DIC as of December 31, 2014 is also held of record by Cede & Co.
 
In 2011 and February 2013, DIC sold approximately 5% and 1.7%, respectively, of our then issued share capital, in 2011 purchased approximately 0.31% of our then issued share capital in the TASE and in 2014 purchased approximately 0.33% of our issued share capital in the TASE.
 
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 were in effect as of January 1, 2015 or thereafter.
 


 
Original 1997 shareholders agreements
 
Brian Greenspun, Daniel Steinmetz, Benjamin Steinmetz and Shlomo Piotrkowsky, who owned of record, directly or indirectly, an aggregate of approximately 5.5% of our then outstanding ordinary shares, granted the voting rights in these shares to BellSouth and the Safra brothers. These voting rights were assigned to DIC in connection with its acquisition of our control in September 2005. In 2009, DIC purchased the minority stakes held by Brian Greenspun and Benjamin Steinmetz (indirectly), representing approximately 1.97% of our then share capital. The remaining minority shareholders currently own approximately 3.39% of our outstanding ordinary shares. These minority shareholders are restricted from transferring these shares without the prior written consent of DIC and their transfer are subject to a right of first refusal in favor of DIC. Each of these minority shareholders has 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.
 
Migdal 2006 share purchase agreement
 
In 2006, DIC sold 4% of our then 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 a tag along right, in the event it sells shares resulting in it no longer being a controlling shareholder. 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. To the best of our knowledge, no such right has materialized.
 
Relationship with IDB
 
As of December 31, 2014, an aggregate amount of approximately NIS 136 million principal amount of our Series B, D, E, F, G, H and I Debentures were held by investors who are members of the IDB group and entities affiliated with IDB’s principal shareholders or officers (other than for the benefit of members of the public through provident funds, mutual funds, pension funds and unaffiliated third-party client accounts, which are managed by indirect subsidiaries of IDB).
 
 As of December 31, 2014, an aggregate of   982,780 of our ordinary shares (not included in 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, insurance policies and unaffiliated third-party client accounts, which are managed by indirect subsidiaries of IDB, some of which are also indirect subsidiaries of DIC.

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 (linked to the Israeli Consumer Price Index for June 2006) 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, including the services of the chairman of our board of directors, 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 July 2011, our annual shareholders meeting approved an amendment of the agreement so as to clarify that the DIC officers and employees whose service as directors are covered by the management fees, shall not include any person who serves solely as a director of a subsidiary (or several subsidiaries) of DIC (and does not serve as a director of DIC itself) and does not receive any compensation, other than director's fees, in his or her capacity as a director of any subsidiary of DIC. Also, under the Israeli Companies Law, an agreement with a controlling shareholder, such as our management services agreement with DIC, cannot continue for more than three consecutive years unless re-approved by the audit committee, board of directors and shareholders every three years. Accordingly, our audit committee, board of directors and shareholders approved the agreement for a term ending in January 2015. We intend to propose the approval of such agreement for another term of three years at our forthcoming 2015 annual shareholders meeting.
 
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, entities affiliated with IDB’s principal shareholders or officers and entities otherwise engaged with such IDB member or affiliates in a manner that may create a personal interest of our controlling shareholders or directors. We believe that all such transactions are on commercial terms comparable to those that we could obtain from unaffiliated parties. These transactions are subject to rigorous corporate governance rules, as described under Item 6.C under "Approval of Specified Related Party Transactions under Israeli Law".
 
Registration Rights Agreement
 
In 2006, we entered into a registration rights agreement with DIC, two wholly-owned subsidiaries of DIC (one of whom ceased to exist in 2011) which are shareholders and six other shareholders (some of whom no longer hold the registrable shares).  For a summary of the terms of the agreement, see “Item 10. Additional Information – C. Material Contracts.”
 
Merger with Netvision
 
On August 31, 2011, we completed a merger transaction between us, a wholly-owned subsidiary of ours and Netvision, pursuant to which the abovementioned subsidiary was merged with and into Netvision as the surviving company, in accordance with the relevant provisions of the Companies Law. Following the merger, Netvision was delisted from the TASE and became a private company wholly-owned by us.
 
The aggregate merger consideration was approximately NIS 1.57 billion ($404 million). We financed the payment of the merger consideration by using cash on hand, as well as by issuance of debentures to the public in Israel.
 
Since both us and Netvision were public companies under the joint control of the IDB group, each of us obtained the approvals of the audit committee, board of directors and a special majority of shareholders for the transaction.
 
C. 
INTERESTS OF EXPERTS AND COUNSEL
 
Not applicable.
 


 
ITEM 8.         FINANCIAL INFORMATION
 
A. 
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
 
Consolidated Financial Statements
 
See Item 18.
 
Legal Proceedings
 
General
 
We are served from time to time with claims concerning various matters, including disputes with customers, former employees, 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. These include purported class actions, filed mainly by our subscribers, regarding claims such as alleged overcharging of tariffs, misleading representations, providing services not in compliance with applicable law, our license’s requirements or a subscriber’s agreement.  The following is a summary of all significant or potentially significant litigation as well as all our purported class actions, pending as of the date of this annual report.
 
Various legislative and regulatory changes have been imposed in recent years and additional changes may occur. As a result, the number of requests for certification of class action lawsuits against us have increased which may increase 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.”
 
In cases where the claim is approved, all amounts noted below will be adjusted to reflect changes in the Israeli CPI and statutory interest, from the date that each claim was filed.
 
Based on advice of counsel, we believe it is more likely than not that substantially all the claims and disputes detailed below will be determined in our favor and accordingly, no provision has been made in the financial statements in respect of these claims and disputes. We have made a provision in the amount of approximately NIS 47 million for the claim/s and dispute/s we are willing to settle or for which we cannot reach a conclusion that it is more likely than not that the claim/s and dispute/s will be determined in our favor.
 
Purported class actions
 
46 purported class actions have been filed against us in connection with allegations that we (i) unlawfully, in violation of our license or agreements with our subscribers, charged or overcharged our subscribers for our services, or (ii) misled our subscribers or unlawfully sent our subscribers and other parties commercial messages, or (iii) unlawfully, in violation of our license or agreements with our subscribers, discriminated among our subscribers, or (iv) failed to provide customer care in accordance with the provisions of our license and applicable law. The amount claimed estimated by the plaintiffs in these purported class actions ranges from approximately NIS 0.9 million to NIS 606 million, or was not estimated by the plaintiffs if the lawsuits are certified as class actions or were filed against us and other defendants without specifying the amount claimed from us.  Three purported class actions, for which the amount claimed estimated by the plaintiffs ranges from approximately NIS 220 million to at least hundreds of millions of NIS or no amount claimed was estimated by the plaintiffs, were dismissed with prejudice and the plaintiffs appealed the ruling. In seven purported class actions, for which the amount claimed estimated by the plaintiffs ranges from approximately NIS 15 million to NIS 75 million, or no amount claimed was estimated by the plaintiffs, or were filed against us and other defendants without specifying the amount claimed from us, settlement agreements or an agreed motion for dismissal of a purported class action were filed with the court and the proceedings are still pending.
 
 

 
We have recorded appropriate provisions for each of the settlement agreements filed with the courts and described above.
 
In March 2015, a purported class action was filed against us, by plaintiffs alleging to be subscribers of the Company, claiming compensation for non monetary damages in connection with allegations that we unlawfully violated the privacy of our subscribers. The amount claimed from us, if the lawsuit is certified as class action is estimated by the plaintiffs to be NIS 15 billion, all for alleged non monetary damages.
 
Class actions
 
In November 2013, the District Court of Central Region approved a request to certify a lawsuit filed against us in September 2011 as a class action, relating to an allegation that we breached the agreements with our subscribers by failing to provide them with the full rebates they are entitled to under their agreements. The total amount claimed was estimated by the plaintiff to be approximately NIS 15 million.
 
In July 2014, the Court dismissed the motion to certify two class actions filed against us in May 2010 and June 2011 with prejudice except in respect of three issues that were detailed in settlements of similar class action claims made against Pelephone and Partner and approved by the court, which the Company was willing to adopt as well. These three issues relate to the cellular operators undertaking to provide certain information regarding non-ionizing radiation, sell certain accessories at a discount and conduct certain tests to handsets at certain circumstances. We estimate the settlement's costs to be immaterial. In October 2014, the plaintiffs filed an appeal in respect of the settlements approved by court with Pelephone and Partner, inter alia, with respect to the tests to be conducted as aforesaid. The purported class actions were filed against us in connection with allegations that we unlawfully build and operate our network and sell handsets and related equipment, including in relation to alleged hazards relating to non-ionizing radiation emitted from cell sites and end-user equipment in amounts estimated by the plaintiffs to be from approximately NIS 1 billion to approximately NIS 3.7 billion, had the lawsuits been certified as class actions, as filed.
 
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 (in accordance with IFRS for periods commencing on or after January 1, 2008), 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 of Directors resolved to distribute dividends within the boundaries of the February 2006 dividend policy and until resolved otherwise, on a quarterly basis. Our series F through I debentures include additional limitations, including a covenant not to distribute more than 95% of the profits available for distribution according to the applicable Israeli law (“Profits”), provided that if net leverage (defined as the ratio of net debt to EBITDA over four consecutive quarters) exceeds 3.5:1, we will not distribute more than 85% of the Profits and if net leverage exceeds 4.0:1, we will not distribute more than 70% of the Profits. See "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Debt Service". Our Board of Directors will consider, among other factors, our expected results of operation, including changes in pricing, regulation 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, as well as our debentures' rating, in order to conclude whether there is no reasonable concern that a distribution of dividends will prevent us from satisfying our existing and foreseeable obligations as they become due. 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 of Directors may determine not to distribute dividends in order to strengthen our balance sheet, that market conditions are uncertain or that our cash needs for debt service, capital expenditures or operations require that we do not pay dividends when considered. Accordingly, shareholders should not expect that any particular amount or at all 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 is subject to the following limitations under Israeli law: (1) 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; and (2) our license requires that we and our 10% or more shareholders maintain at least $200 million of combined shareholders’ equity. DIC’s shareholders’ equity on December 31, 2014 was over $ 200 million.
 
When we declare dividends, we do so 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.
 
During 2012 we distributed dividends in the aggregate amount of approximately NIS 391 million ($101 million), including the dividends declared for the third and fourth quarters of 2011   and for the first quarter of 2012 only. Our board of directors decided not to declare dividends for the second, third and fourth quarters of 2012 given the intensified competition and its adverse effect on our results of  operations and in order to strengthen our balance sheet. During 2013, we distributed a dividend in the amount of approximately NIS 85 million ($22 million) for the third quarter of 2013 only, based on our retained earnings. Our Board of Directors chose not to declare dividends for the first, second, and fourth quarters, for the above reasons. In 2014 our Board of Directors chose not to declare dividends for the above reasons.
 
B. 
SIGNIFICANT CHANGES
 
No significant change has occurred since December 31, 2014, 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, or the TASE, 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 TASE, as retroactively adjusted by the TASE to reflect the payment of dividends.
 
       
   
High
   
Low
 
   
NIS
   
NIS
 
Annually
           
             
2010
    100.6       74.5  
2011
    97.4       54.7  
2012
    58.0       19.8  
2013     49.3       26.3  
2014
    48.5       33.5  
                 
Quarterly
               
2013
               
First Quarter
    31.8       26.3  
Second Quarter
    34.6       29.1  
Third Quarter
    41.2       32.5  
Fourth Quarter
    49.3       38.8  
2014
               
First Quarter
    48.5       42.2  
Second Quarter
    48.4       41.9  
Third Quarter
    44.2       39.5  
Fourth Quarter
    41.7       33.5  
                 
Monthly
               
2014
               
September
    44.2       40.7  
October
    41.7       38.4  
November
    38.2       34.5  
December
    37.3       33.5  
2015
               
January
    32.7       19.6  
February
    24.8       19.5  
 
On March 12, 2015, the closing price per share of our ordinary shares on the TASE was NIS 20.1.

Trading in the United States

Our ordinary shares have traded on the New York Stock Exchange, or NYSE, under the symbol CEL since February 7, 2007.

The following table sets forth, for the periods indicated, the high and low prices in $ for our ordinary shares on the NYSE, as retroactively adjusted by the NYSE to reflect the payment of dividends.
 



       
   
High
$
   
Low
$
 
Annually
           
             
2010
    28.2       19.5  
2011
    28.2       14.7  
2012
    15.4       5.1  
2013
    14.1       7.1  
2014
    14.0       8.5  
Quarterly
               
2013
               
First Quarter
    8.5       7.1  
Second Quarter
    9.9       8.2  
Third Quarter
    11.7       9.1  
Fourth Quarter
    14.1       10.7  
2014
               
First Quarter
    13.9       11.7  
Second Quarter
    14.0       12.1  
Third Quarter
    12.4       11.0  
Fourth Quarter
    11.2       8.5  
                 
Monthly
               
2014
               
September
    12.2       11.0  
October
    11.2       10.1  
November
    10.0       8.9  
December
    9.4       8.5  
2015
               
January
    8.4       5.2  
February
    6.2       5.0  

On March 13, 2015, the closing price per share of our ordinary shares on the NSYE was $4.95.

B. 
PLAN OF DISTRIBUTION
 
Not applicable.
 
C. 
MARKETS
 
Our ordinary shares are listed on the NYSE and TASE under the symbol “CEL.”
 
D. 
SELLING SHAREHOLDERS
 
Not applicable.
 
E. 
DILUTION
 
Not applicable.
 
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 by way of creating a pledge which if foreclosed, will result in the transfer of shares), 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 –   Corporate Governance – Company Profile - Legal & Corporate.”
 
 
 
 
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 this duty is the subject of ongoing judicial interpretation. 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 shareholders 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 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. For a description of a covenant we undertook in connection with our series F through I dentures, in regards to our dividend distributions under certain circumstances see “Item 8. Financial Information – A. Statements and Other Financial Information - Dividend Policy” and “— B. Liquidity and Capital Resources – Debt Service".
 
 
 
 
Shareholders 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 shareholders 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 chairperson 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 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.
 
 
·
reasonable litigation expenses, including attorney fees, incurred by the office holder as a result of an administrative enforcement proceeding instituted against him,   including a payment imposed on the office holder in favor of an injured party as set forth in the Israeli Securities Law and expenses that the office holder incurred in connection with a relevant proceeding under the Securities Law, including reasonable legal expenses, which term includes attorney fees.

We maintain a liability insurance policy for the benefit of our officers and directors. See details under "Item 6. Directors, Senior Management and Employees - B. Compensation – Compensation Policy – Indemnification."
 
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 his or her 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 criteria 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 was 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; or in connection with an administrative enforcement proceeding or a  financial sanction, including a payment imposed on the office holder in favor of an injured party as set forth in the Israeli Securities Law, 1968, as amended (the "Securities Law"), and expenses that the office holder incurred in connection with a relevant proceeding under the Securities Law, including reasonable legal expenses, which term includes attorney fees; 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 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 indemnification letters given to them. In respect of office holders whom our controlling shareholders have a personal interest in their receiving indemnification letters from us, such indemnification was approved for a period of three years from our annual shareholder meeting held on July 2011  and in 2014 was extended by our audit committee and board of directors for a three year period until 2017, according to regulations promulgated under the Israeli Companies Law. 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.
 
Any exemption of, indemnification of, or procurement of insurance coverage for, our office holders must be approved according to the procedures required for the approval of compensation under "Item 6. Directors, Senior Management and Employment – C. Board Practices - Approval Of Specified Related Party Transactions Under Israeli Law - Compensation Arrangements".
 
Mergers and Acquisitions under Israeli Law
 
The Companies Law 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 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 (i) acquisition occurs in the context of a private placement by the company that received shareholder approval, (ii) the purchase of shares is from a 25% shareholder of the company and results in the acquirer becoming a 25% shareholder of the company or (iii) the purchase of shares is from a 45% shareholder of the company and results 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 six months following the consummation of a full tender offer, but the acquirer may stipulate that any shareholder tendering his shares will not be entitled to appraisal rights. 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 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 – A. History and Development of the Company – Acquisition of Netvision Ltd. during 2011”, “Item 4. Information on the Company – B. Business Overview – Network and Technology”, “Item 4. Information on the Company – B. Business Overview – Customer Care”, “Item 4. Information on the Company – B. Business Overview – Cellular Services and Products” and "-Landline services" and “Item 4. Information on the Company – B. Business Overview – Netvision.”
 
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 (one of whom ceased to exist in 2011) on customary terms and conditions.  Upon the subsequent sales of shares by DIC to financial investors in 2006, these shareholders also joined the registration rights agreement. We refer to DIC, its two subsidiaries and the additional shareholders who are parties to the registration rights agreement 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 December 31, 2014,  42,020,582   ordinary shares, held by DIC directly and through its wholly-owned subsidiary, 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.
 
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.
 
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 U.S. holder in light of the holder’s particular circumstances and does not address U.S. state, local and non-U.S. tax consequences.  This discussion does not address the potential application of the provisions of the Internal Revenue Code of 1986, as amended, or the Code, known as the Medicare contribution tax or any alternative tax consequences. The discussion applies only to U.S. holders (as defined below) that hold Company's 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 U.S. holders subject to special rules, such as certain financial institutions, insurance companies, dealers or 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, tax-exempt organizations, shareholders that own or are deemed to own 10% or more of the Company’s voting power, or shareholders that own our shares in connection with a trade or business conducted outside of the United States.
 


 
This discussion is based on the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations and the U.S.-Israel income tax treaty, all as of the date hereof.  These laws are subject to change, possibly on a retroactive basis.  Shareholders are urged to consult their tax advisors regarding the U.S. federal, state, local and foreign tax consequences of purchasing, owning and disposing of the Company's 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 person that is eligible for the benefits of the U.S.-Israel income tax treaty and is, for U.S. federal income tax purposes, a beneficial owner of the Company’s shares that is either:
 
 
·
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 owns Company's 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.  Such entities and their partners or members should consult their tax advisors regarding the tax consequences of ownership of the Company’s shares.
 
Except as described below, this discussion assumes that the Company is not a passive foreign investment company for any taxable year.
 
Taxation of Distributions
 
 Distributions paid on the Company’s shares, other than certain pro rata distributions of ordinary shares, will be treated as dividends 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 and include them in income on the date of receipt.  Subject to applicable limitations, dividends paid to certain non-corporate U.S. holders will be taxable at favorable rates applicable to long-term capital gains.  The dividend income will include any amounts withheld by the Company or its paying agent in respect of Israeli taxes. The dividend will be treated as foreign-source 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 dividend is converted into U.S. dollars after the date of receipt.  Such gain or loss would generally be treated as U.S.-source ordinary income or loss.
 
Subject to applicable limitations that vary depending upon a U.S. holder’s particular circumstances, Israeli taxes withheld from dividends at a rate not exceeding the applicable rate provided by the U.S.-Israel income tax treaty may be creditable against the U.S. holder’s U.S. federal income tax liability.  Israeli taxes withheld in excess of the applicable 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 credit is calculated separately with respect to specific classes of income. Instead of claiming a credit, a U.S. holder may, at the U.S. holder’s election, deduct the otherwise creditable foreign taxes in computing the taxable income for the year, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year. The rules governing foreign tax credits are complex and U.S. holders should consult their 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
 
Gain or loss realized on the sale or other disposition of the Company's 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 U.S. holder's tax basis in the shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars.  Such gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.
 
Passive Foreign Investment Company Rules
 
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 2014. However, since PFIC status depends upon the composition of a company’s income and assets and the market value of its assets  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 a PFIC for any taxable year during which a U.S. holder owned 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 disposition and to any year before the Company became a PFIC would be taxed as ordinary income.  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, for that taxable year, and an interest charge would be imposed on the resulting tax liability.  Further, any distribution in excess of 125% of the average of the annual distributions received by the U.S. holder on the Company's shares during the preceding three years or the U.S. holder’s holding period, whichever is shorter, would be subject to taxation as described immediately above. Certain elections (such as a mark-to-market election) may be available to U.S. holders and may result in alternative tax treatment.  In addition, if  the Company was a PFIC for a taxable year in which we pay a dividend or the prior taxable year, the favorable dividend rates discussed above with respect to dividends paid to certain non-corporate holders would not apply. If the Company was a PFIC for any taxable year in which a U.S. holder owned the Company’s shares, the U.S. holder would generally be required to file annual returns with the Internal Revenue Service, or the IRS, on IRS Form 8621.
 


 
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 may be subject to information reporting and 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 timely furnished to the IRS.
 
Certain U.S. holders who are individuals (and under proposed Treasury regulations, certain entities controlled by individuals) may be required to report on IRS Form 8983 information relating to their holdings of the Company's shares, subject to certain exceptions (including an exception for securities held in accounts maintained by U.S. financial institutions). U.S. holders should consult their tax advisers regarding the application of these rules in the U.S. holders' particular circumstances.
 
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 system 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 shareholders that hold our ordinary shares as capital assets and does not address all of the tax consequences that may be relevant to holders of our ordinary shares in light of their particular circumstances or certain types of holders of our ordinary shares subject to special tax treatment.  Because individual circumstances may differ, shareholders should consult their tax advisors 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 were subject to corporate tax at the rate of 26.5% for the 2014 tax year, and are subject to corporate tax at the rate of 26.5% for the 2015 tax year. The corporate tax rate is scheduled to remain at 26.5% for future tax years. Israeli companies are generally subject to capital gains tax at the corporate tax rate.
 
 


Amendment No. 174 to the Income Tax Ordinance, enacted in January 2010, provides that Israeli Accounting Standard No. 29 will not apply with respect to the tax years 2007, 2008 and 2009, and as a result the International Financial Reporting Standards (IFRS) will not apply for purposes of determining taxable income for such tax years. In January 2012, Amendment No. 188 to the Income Tax Ordinance was enacted which provides that Israeli Accounting Standard No. 29 (and as a result IFRS) also will not apply with respect to the tax years 2010 and 2011. This provision was extended by Amendment No. 202 on July 30, 2014 and it applies to tax years 2012 and 2013 as well. The effect of this amendment on our consolidated financial statements, included elsewhere in this annual report, is not material.
 
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 who 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 generally applicable to real capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% 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 30%.  Additionally, if such shareholder is considered a significant shareholder at any time during the 12-month period preceding such sale, the tax rate will be 30%. 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.
 
As of January 1, 2013, shareholders that are individuals who have taxable income  that exceeds NIS 800,000 in a tax year (linked to the Israeli CPI each year) (NIS 811,560 in 2014), will be subject to an additional tax, referred to as High Income Tax, at the rate of 2% on their taxable income for such tax year which exceeds such threshold. For this purpose, taxable income will include taxable capital gains from the sale of our shares and taxable income from dividend distributions.
 
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  (in which case a partial exemption may be available) and that the gains were not derived from a permanent establishment maintained by such shareholders in Israel.  Shareholders that do not engage in activity in Israel generally should not be subject to such tax.  However, a non-Israeli corporation will not be entitled to the exemption from capital gains tax if Israeli residents (i) have a controlling interest of more than 25% in such non-Israeli corporation or (ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
 


 
In addition, under the U.S.-Israel income 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 income tax treaty and who is entitled to claim the benefits afforded to such person by the U.S.-Israel income 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 income 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 income tax treaty does not relate to U.S. state or local taxes.
 
Taxation of Dividends Paid on Our Ordinary Shares
 
Taxation of Israeli Residents
 
Individuals who are Israeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, 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 is 30%.  The company distributing the dividend is required to withhold tax at the rate of 25% (a different rate may apply to dividends paid on shares deriving from the exercise of stock options or other equity-based awards granted as compensation to employees or office holders of the company).  Companies which are Israeli residents 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%.
 
For information with respect to the applicability of Israeli High Income Tax on distributions of dividends, see "-Capital Gains Tax on Sales of Our Ordinary Shares - Taxation of Israeli Residents" above.
 
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 25% 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 30%.  The company distributing the dividend is required to withhold tax at the source at the rate of 25%.
 
Under the U.S.-Israel income 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%.  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 obligation to file tax returns 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's website 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 foreign currencies. In particular, in 2013 and 2014, such payments represented approximately 24% and 20%, respectively, of total cash outflows (including payments of principal and interest on our debentures). Also, we are exposed to interest rate risks through our hedging instruments and to possible fluctuations in the Israeli CPI through our Series B , D, F and H debentures.
 


 
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 3 to 5 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 IFRS, 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.
 
As of December 31, 2014, we had four outstanding series of debentures, which are linked to the Israeli CPI, in an aggregate principal amount of approximately NIS 3.2 billion.  As of December 31, 2014, we had forward Israeli CPI / NIS transactions, in a total amount of approximately NIS 1.9 billion, with an average maturity period of 11 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,
 
   
2012
   
2013
   
2014
 
   
Par Value
   
Fair Value
   
Par Value
   
Fair Value
   
Par Value
   
Fair Value
 
   
(In NIS millions)
 
Forward contracts on foreign currency exchange rate (mainly US$– NIS)
    326       (10 )     160       (7 )     19       0  
Forward contracts on Israeli CPI rate
    1,625       (25 )     1,675       (22 )     1,925       (31 )
Options on the foreign currency exchange rate (mainly US$– NIS)
    198       2       231       1       97       1  
Total
    2,149       (33 )     2,066       (28 )     2,041       (30 )

 
Sensitivity information
 
Without taking into account our hedging instruments and based upon our debt outstanding as at December 31, 2014, fluctuations in foreign currency exchange 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 3.2 million in our financing expenses;
 
 
·
a devaluation of the NIS against the U.S. dollar of 1.0% would increase our financing expenses by approximately NIS 1.0 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
 
Not applicable.
 
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, 2014, 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.

Management Annual Report on Internal Control Over Financial Reporting
 
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 IFRS and includes those policies and procedures that:
 
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
 


 
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
 
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of the company’s assets that could have a material effect on the financial statements.
 
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, 2014. 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 (1992).
 
Based on our assessment, management believes that as of December 31, 2014 our internal control over financial reporting is effective based on this criteria.
 
The effectiveness of management's internal control over financial reporting as of December 31, 2014 has been audited by the Company's independent registered public accounting firm, Somekh Chaikin, a member of KPMG International and their report as of March 15, 2014, herein expresses an unqualified opinion on the Company's internal control over financial reporting.
 
Attestation Report of the Registered Public Accounting Firm
 
Our independent registered public accounting firm have issued an audit report on the effectiveness of our internal control over financial reporting. This report is included in page F-3 of this Form 20-F.
 
Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this annual report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT
 
Our board of directors has determined that Ms. Baytel qualifies as “audit committee financial expert” 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.
 
ITEM 16B.    CODE OF ETHICS
 
Our Code of Ethics applies to all of our officers, directors and employees. We have posted a copy of our Code of Ethics on our website at www.cellcom.co.il under “Investor Relations – Corporate Governance –Code of Ethics.”



ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Somekh Chaikin, a member of KPMG International, has served as our independent registered public accounting firm for 201 3 and 2014. These accountants billed the following fees to us for professional services in each of those fiscal years:
 
   
2013
   
2014
 
   
(NIS in thousands)
 
Audit Fees
    3,143       2,575  
Audit-Related Fees
    206       85  
Tax Fees
    150       23  
Total
    3,499       2,683  


“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 audit 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 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
 
None.
 
ITEM 16E.     PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
None.
 
ITEM 16F.     CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
 
None.
 


 
ITEM 16G.    CORPORATE GOVERNANCE
 
The following are the significant ways in which our corporate governance practices differ from those followed by domestic companies under the listing standards of the NYSE:
 
Nominating/Corporate Governance Committee - Under Section 303A.04 of the LCM, a U.S. domestic listed company, other than a controlled company, must have a nominating/corporate governance committee composed entirely of independent directors. We do not have a nominating/corporate governance committee as we are not required to have such a committee under the Israeli Companies Law.
 
Compensation Committee - Under Section 303A.05 of the LCM, a U.S. domestic listed company, other than a controlled company, must have a compensation committee composed entirely of independent directors that operates pursuant to a written charter addressing its purpose, responsibilities and membership qualifications and may receive counseling from independent consultants, after evaluating their independence. We have a compensation committee whose purpose, responsibilities and membership qualifications are governed by the Israeli Companies Law. There are no specific independence evaluation requirements for outside counsel. Israeli Companies law requires our compensation committee to include a majority of external directors (who are also independent directors). Our compensation committee is currently composed entirely of independent directors.
 
Separate Meetings of Non-Management Directors -  Under Section 303A.03 of the LCM, the non-management directors of each U.S. domestic listed company must meet at regularly scheduled executive sessions without management. We do not have a similar requirement under the Israeli Companies Law, and our independent directors do not meet separately from directors who are not independent, other than in the context of audit committee meetings.
 
Audit Committee - Under Section 303A.06 of the LCM, domestic listed companies are required to have an audit committee that complies with the requirements of Rule 10A-3 of the Securities and Exchange Act of 1934. Rule 10A-3 requires the audit committee of a U.S. company to be directly responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review, or attest services, and that each such firm must report directly to the audit committee. However, Rule 10A-3 provides that foreign private issuers may comply with applicable home country law that (i) requires or permits shareholders to appoint the registered public accounting firm or (ii) prohibits the delegation of responsibility to the issuer’s audit committee without being in conflict with Rule 10A-3. Pursuant to the Israeli Companies Law, our registered public accounting firm is appointed by the shareholders at the annual meeting of shareholders. Our audit committee is responsible for recommending to the shareholders the appointment of our registered public accounting firm and to pre-approve the amounts to be paid to our registered public accounting firm. Pursuant to our audit committee charter, our audit committee is responsible for overseeing the work of our registered public accounting firm.
 
Equity Compensation Plans - Under Section 303A.08 of the LCM, shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, with certain limited exemptions as described in the Rule. We follow the requirements of the Israeli Companies Law, under which approval of equity-compensation plans and material revisions thereto is within the authority of the board of directors. However, any compensation to directors or the chief executive officer, including equity based compensation, generally
 


requires the approval of the compensation committee, the board of directors and the shareholders, in that order. The compensation of office holders is generally required to comply with a shareholder-approved compensation policy, which is required to include a monetary cap on the value of equity compensation that may be granted to any office holder. Our compensation policy complies with that requirement.
 
Corporate Governance Guidelines - Under Section 303A.09 of the LCM, domestic listed companies must adopt and disclose their corporate governance guidelines. We do not have a similar requirement under the Israeli Companies Law and therefore, other than as disclosed in this annual report on Form 20-F, we are not required to disclose our corporate governance guidelines.
 
ITEM 16H.    MINE SAFETY DISCLOSURE
 
Not applicable.
 
PART III
 
ITEM 17.       FINANCIAL STATEMENTS
 
See Item 18.
 
ITEM 18.       FINANCIAL STATEMENTS
 
See pages F-1 through F-71 of this annual report.
 
ITEM 19.       EXHIBITS
 
Exhibit
Number
 
Description
 
     
1.1
 
Updated Articles of Association and Memorandum of Association ††††
     
2.1
 
Form of Ordinary Share Certificate †
     
4.2
 
Series B Indenture dated December 21, 2005 and an addendum dated February 27, 2006 between Cellcom and Hermetic Trust (1975) Ltd. †
     
4.4
 
Series D Indenture dated September 20, 2007, between Cellcom and Hermetic Trust (1975) Ltd.   ††
     
4.5
 
Series E Indenture dated March 31, 2009, between Cellcom and Hermetic Trust (1975) Ltd. †††
     
4.6
 
Shelf Prospectus Indenture dated July 14, 2011, between Cellcom and Hermetic Trust (1975) Ltd. ††††
     
4.7
 
Shelf Prospectus Indenture dated March 7, 2012, between Cellcom and Strauss Lazar Trust Company (1992) Ltd. ††††
     
4.7.1
 
Amendment and Addendum no. 1 to the Indenture from January 19, 2012, dated March 7, 2012, between Cellcom and Strauss Lazar Trust Company (1992) Ltd. ††††




Exhibit
Number
 
Description
 
     
4.8
 
Series H and I Indenture dated June 23, 2014, between Cellcom and Mishmeret trust Services Company Ltd., as amended in Addendum no.1 dated June 26, 2014 *
     
4.9
 
Amended 2006 Share Incentive Plan †† †††
     
4.10
 
Registration Rights Agreement dated March 15, 2006 among Cellcom, Goldman Sachs International, DIC, DIC Communication and Technology Ltd. and PEC Israel Economic Corporation †
     
4.11
 
Amended Non-Exclusive General License for the Provision of Mobile Radio Telephone Services in the Cellular Method dated June 27, 1994 *
     
4.12
 
Netvision Ltd. Merger Agreement ††††
     
4.13
 
2015 Share Incentive Plan *
     
8.1
 
Subsidiaries of the Registrant ††††
     
12.1
 
Certification of Principal Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act *
     
12.2
 
Certification of Principal Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act *
     
13.1
 
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act *
     
15
 
Consent of Independent Registered Public Accounting Firm *
 
* Filed herewith.
 
† Incorporated by reference to our registration statement on Form F-1 (registration no. 333-140030) filed with the SEC on January 17, 2007.
 
†† Incorporated by reference to our annual report on Form 20-F for the year 2007 filed with the SEC on March 18, 2008.
 
† † † Incorporated by reference to our annual report on Form 20-F for the year 2009 filed with the SEC on March 2, 2010.
 
†††† Incorporated by reference to our annual report on Form 20-F for the year 2011 filed with the SEC on March 7, 2012.
 
††††† Incorporated by reference to our registration statement on Form S-8 filed with the SEC on November 14, 2012.
 


 
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/ Nir Sztern
 
Name:
Nir Sztern
 
Title:
President and Chief Executive Officer

 

 
Date: March 16, 2015
 

 

Cellcom Israel Ltd.
and Subsidiaries
 
Consolidated Financial Statements
 
As at December 31, 2014
(Audited)


Contents
Page
 
F3-F4
   
Consolidated Financial Statements
 
   
F5
   
F6
   
F7
   
F8
   
F9-F10
   
F11-F71
 

Report of Independent Registered Public Accounting Firm


To Board of Directors and Shareholders of
Cellcom Israel Ltd.
 
We have audited the accompanying consolidated statements of financial position of Cellcom Israel Ltd. (hereinafter – “the Company”) and subsidiaries as of December 31, 2014 and 2013 and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2014. We also have audited the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Cellcom Israel Ltd.’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 the accompanying Management’s Annual 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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The accompanying consolidated financial statements as of and for the year ended December 31, 2014 have been translated into United States dollars (“dollars”) solely for the convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial statements expressed in New Israeli Shekels have been translated into dollars on the basis set forth in Note 2D to the consolidated financial statements.

Somekh Chaikin
Certified Public Accountants (Isr.)
Member Firm of KPMG International
Tel Aviv, Israel
March 15, 2015

Cellcom Israel Ltd. and Subsidiaries

 
         
December 31,
2013
   
December 31,
2014
   
Convenience
 translation into
US dollar (Note 2D)
December 31,
2014
 
   
Note
   
NIS millions
   
NIS millions
   
US$ millions
 
                         
Assets
                       
Cash and cash equivalents
    8       1,057       1,158       298  
Current investments, including derivatives
            513       521       134  
Trade receivables
    9       1,731       1,417       364  
Other receivables
    9       63       65       17  
Inventory
    10       84       89       23  
                                 
Total current assets
            3,448       3,250       836  
                                 
Trade and other receivables
    9       854       824       212  
Property, plant and equipment, net
    11       1,865       1,834       472  
Intangible assets, net
    12       1,390       1,315       338  
Deferred tax assets
    28       22       17       4  
                                 
Total non- current assets
            4,131       3,990       1,026  
                                 
Total assets
            7,579       7,240       1,862  
                                 
Liabilities
                               
Current maturities of debentures and long term loans and short term credit
    17       1,100       1,092       281  
Trade payables and accrued expenses
    13       582       773       199  
Current tax liabilities
            99       77       20  
Provisions
    14       187       101       26  
Other payables, including derivatives
    15       398       370       95  
                                 
Total current liabilities
            2,366       2,413       621  
                                 
Long-term loans from banks
    17       5       -       -  
Debentures
    17       4,332       3,548       912  
Provisions
    14       21       21       5  
Other long-term liabilities
    16       10       12       3  
Liability for employee rights upon retirement, net
    18       13       14       4  
Deferred tax liabilities
    28       122       140       36  
                                 
Total non- current liabilities
            4,503       3,735       960  
                                 
Total liabilities
            6,869       6,148       1,581  
                                 
Equity attributable to owners of the Company
    19                          
Share capital
            1       1       -  
Cash flow hedge reserve
            (13 )     (3 )     -  
Retained earnings
            719       1,078       277  
                                 
Non-controlling interests
            3       16       4  
                                 
Total equity
            710       1,092       281  
                                 
Total liabilities and equity
            7,579       7,240       1,862  

 
Date of approval of the consolidated financial statements: March 15, 2015.
 
The accompanying notes are an integral part of these consolidated financial statements.

Cellcom Israel Ltd. and Subsidiaries
 
Consolidated Statements of Income
 
         
Year ended
December 31,
   
Year ended
December 31,
   
Year ended
December 31,
   
Convenience
 translation into US
dollar (Note 2D)
Year ended
 December 31,
 
         
2012
   
2013
   
2014
   
2014
 
   
Note
   
NIS millions
   
NIS millions
   
NIS millions
   
US$ millions
 
                               
Revenues
    22       5,938       4,927       4,570       1,175  
Cost of revenues
    23       (3,463 )     (2,990 )     (2,727 )     (701 )
                                         
Gross profit
            2,475       1,937       1,843       474  
                                         
Selling and marketing expenses
    24       (865 )     (717 )     (672 )     (173 )
General and administrative expenses
    25       (629 )     (570 )     (463 )     (119 )
Other income (expenses),  net
    26       4       1       (46 )     (12 )
                                         
Operating profit
            985       651       662       170  
                                         
Financing income
            181       156       100       26  
Financing expenses
            (440 )     (402 )     (298 )     (77 )
Financing expenses, net
    27       (259 )     (246 )     (198 )     (51 )
                                         
Profit before taxes on income
            726       405       464       119  
                                         
Taxes on income
    28       (195 )     (117 )     (110 )     (28 )
Profit for the year
            531       288       354       91  
Attributable to:
                                       
Owners of the Company
            530       287       351       90  
Non-controlling interests
            1       1       3       1  
Profit for the year
            531       288       354       91  
                                         
Earnings per share
    19                                  
Basic earnings per share (in NIS)
            5.34       2.89       3.51       0.90  
                                         
Diluted earnings per share (in NIS)
            5.33       2.86       3.48       0.89  
                                         
Weighted-average number of shares used in the calculation of basic earnings per share (in shares)
            99,481,487       99,495,525       99,924,306       99,924,306  
                                         
Weighted-average number of shares used in the calculation of diluted earnings per share (in shares)
            99,609,722       100,319,724       100,706,282       100,706,282  

The accompanying notes are an integral part of these consolidated financial statements.

Cellcom Israel Ltd. and Subsidiaries
 
Consolidated Statements of Comprehensive Income

   
Year ended
December 31,
   
Year ended
December 31,
   
Year ended
December 31,
   
Convenience
 translation into US
dollar (Note 2D)
Year ended
 December 31,
 
   
2012
   
2013
   
2014
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
   
US$ millions
 
                         
Profit for the year
    531       288       354       91  
Other comprehensive income items that after initial recognition in comprehensive income were or will be transferred to profit or loss
                               
Changes in fair value of cash flow hedges transferred to profit or loss
    (18 )     14       13       3  
Changes in fair value of cash flow hedges
    (7 )     (16 )     -       -  
Tax on other comprehensive income items that were or will be transferred to profit or loss in subsequent periods
    6       1       (3 )     (1 )
Total other comprehensive income (loss) for the year that after initial recognition in comprehensive income was or will be transferred to profit or loss, net of tax
    (19 )     (1 )     10       2  
Other comprehensive income items that will not be transferred to profit or loss
                               
Actuarial losses on defined benefit plan, net of tax
    (1 )     (1 )     (1 )     -  
Total other comprehensive loss for the year that will not be transferred to profit or loss, net of tax
    (1 )     (1 )     (1 )     -  
Total other comprehensive income (loss) for the year, net of tax
    (20 )     (2 )     9       2  
Total comprehensive income for the year
    511       286       363       93  
Total comprehensive income attributable to:
                               
 Owners of the Company
    510       285       360       92  
 Non-controlling interests
    1       1       3       1  
Total comprehensive income for the year
    511       286       363       93  

The accompanying notes are an integral part of these consolidated financial statements.

Cellcom Israel Ltd. and Subsidiaries
 
Consolidated Statements of Changes in Equity

   
Attributable to owners of the Company
   
Non-controlling interests
   
Total equity
   
Convenience translation into US dollar (Note 2D)
 
   
Share capital
   
Capital reserve
   
Retained earnings
   
Total
                   
   
NIS millions
   
US$ millions
 
                                           
Balance as of January 1, 2012
    1       7       175       183       4       187       48  
Comprehensive income  for the year
                                                       
Profit for the year
    -       -       530       530       1       531       137  
Other comprehensive loss for the year, net of tax
    -       (19 )     (1 )     (20 )     -       (20 )     (5 )
Transactions with owners,  recognized directly in equity
                                                       
Share based payments
    -       -       7       7       -       7       2  
Dividend paid in cash
    -       -       (202 )     (202 )     -       (202 )     (52 )
Derecognition of non-controlling  interests due to loss of control in a consolidated company
    -       -       -       -       (3 )     (3 )     (1 )
Balance as of December 31, 2012
    1       (12 )     509       498       2       500       129  
                                                         
Comprehensive income  for the year
                                                       
Profit for the year
    -       -       287       287       1       288       74  
Other comprehensive loss for the year, net of tax
    -       (1 )     (1 )     (2 )     -       (2 )     -  
Transactions with owners, recognized directly in equity
                                                       
Share based payments
    -       -       9       9       -       9       2  
Dividend paid in cash
    -       -       (85 )     (85 )     -       (85 )     (22 )
                                                         
Balance as of December 31, 2013
    1       (13 )     719       707       3       710       183  
                                                         
Comprehensive income  for the year
                                                       
Profit for the year
    -       -       351       351       3       354       91  
Other comprehensive income for the year, net of tax
    -       10       (1 )     9       -       9       2  
Transactions with owners, recognized directly in equity
                                                       
Share based payments
    -       -       3       3       -       3       1  
Expiration of put option over non- controlling interests in a consolidated company
    -       -       6       6       10       16       4  
                                                         
Balance as of December 31, 2014
    1       (3 )     1,078       1,076       16       1,092       281  

The accompanying notes are an integral part of these consolidated financial statements.

Cellcom Israel Ltd. and Subsidiaries
 
Consolidated Statements of Cash Flows
 
   
Year ended
December 31,
   
Year ended
December 31,
   
Year ended
December 31,
   
Convenience
 translation into US
dollar (Note 2D)
Year ended
 December 31,
 
   
2012
   
2013
   
2014
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
   
US$ millions
 
Cash flows from operating activities
                       
Profit for the year
    531       288       354       91  
Adjustments for:
                               
Depreciation and amortization
    765       676       610       157  
Share based payment
    7       9       3       1  
Loss on sale of property, plant and equipment
    2       2       7       2  
Gain on sale of shares in an associate
    (6 )     -       -       -  
Income tax expense
    195       117       110       28  
Financing expenses, net
    259       246       198       51  
Other expenses (income)
    2       (3 )     -       -  
                                 
Changes in operating assets and liabilities:
                               
Change in inventory
    52       27       (5 )     (1 )
Change in trade receivables (including long- term amounts)
    183       576       422       108  
Change in other receivables (including long- term amounts)
    6       (34 )     (35 )     (9 )
Change in trade payables, accrued expenses and provisions
    (89 )     (185 )     (24 )     (6 )
Change in other liabilities (including long-term amounts)
    (92 )     (33 )     36       9  
Proceeds from (payments for) derivative hedging contracts, net
    20       (17 )     (6 )     (2 )
Income tax paid
    (209 )     (119 )     (119 )     (31 )
Income tax received
    15       6       6       2  
Net cash from operating activities
    1,641       1,556       1,557       400  
                                 
Cash flows used in investing activities
                               
Acquisition of property, plant, and equipment
    (457 )     (275 )     (289 )     (74 )
Acquisition of intangible assets
    (97 )     (90 )     (77 )     (20 )
Dividend received
    -       1       -       -  
Change in current investments, net
    (212 )     (16 )     (15 )     (4 )
Proceeds from (payments for) other derivative contracts, net
    9       (10 )     4       1  
Proceeds from sale of property, plant and equipment
    7       17       4       1  
Interest received
    35       29       23       6  
Proceeds from sale of shares in a consolidated company
    7       -       -       -  
Net cash used in investing activities
    (708 )     (344 )     (350 )     (90 )

 
The accompanying notes are an integral part of these consolidated financial statements.

Cellcom Israel Ltd. and Subsidiaries
 
Consolidated Statements of Cash Flows (cont'd)
 
   
Year ended
December 31,
   
Year ended
December 31,
   
Year ended
December 31,
   
Convenience
 translation into US
dollar (Note 2D)
Year ended
 December 31,
 
   
2012
   
2013
   
2014
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
   
US$ millions
 
                         
Cash flows used in financing activities
                       
Payments for derivative contracts, net
    (12 )     (8 )     (29 )     (7 )
Repayment of long term loans from banks
    (16 )     (6 )     (12 )     (3 )
Repayment of debentures
    (660 )     (1,124 )     (1,092 )     (281 )
Proceeds from issuance of debentures, net of issuance costs
    992       -       326       84  
Dividend paid
    (391 )     (81 )     (4 )     (1 )
Interest paid
    (352 )     (350 )     (295 )     (76 )
                                 
Net cash used in financing activities
    (439 )     (1,569 )     (1,106 )     (284 )
                                 
Changes in cash and cash equivalents
    494       (357 )     101       26  
                                 
Cash and cash equivalents as at the beginning of the year
    920       1,414       1,057       272  
                                 
Cash and cash equivalents as at the end of the year
    1,414       1,057       1,158       298  

The accompanying notes are an integral part of these consolidated financial statements.

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 1 - Reporting Entity

Cellcom Israel Ltd. ("the Company") is a company incorporated and domiciled in Israel and its official address is 10 Hagavish Street, Netanya 4250708, Israel. The consolidated financial statements of the Group as at December 31, 2014 comprise the Company and its subsidiaries (together referred to as the "Group"). The Group operates and maintains a cellular mobile telephone system in Israel and provides cellular and landline telecommunications services, internet connectivity services (ISP), international calls services and television over the internet services (known as Over the Top TV services, or OTT TV services). The Company is a consolidated subsidiary of Discount Investment Corporation (the parent company "DIC").
In May 2014, the creditors' arrangement for IDB Holding Corporation Ltd. was completed and the control in IDB Development Corporation Ltd. (DIC's parent company) was transferred to two companies, one controlled by Mr. Eduardo Elsztain and one by Mr. Mordechay Ben-Moshe. As a result, the indirect control in the Company was transferred to such entities. See also Note 30(1), regarding the change in the structure of control in IDB, and as a result in the Company, in February 2015, after the end of the reporting period.

Note 2 - Basis of Preparation

A.
Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB). The Company adopted IFRSs for the first time in 2008, with the date of transition to IFRSs being January 1, 2007.

These consolidated financial statements were approved by the Company's Board of Directors on March 15, 2015.

B.
Functional and presentation currency

These consolidated financial statements are presented in New Israeli Shekels ("NIS"), which is the Group's functional currency, and are rounded to the nearest million. NIS is the currency that represents the primary economic environment in which the Group operates.

C.
Basis of measurement

These consolidated financial statements have been prepared on the basis of historical cost except for the following assets and liabilities: current investments and derivative financial instruments that are measured at fair value through profit or loss, inventory is measured at the lower of cost or net realizable value, deferred tax assets and liabilities, assets and liabilities in respect of employee benefits and provisions.

For further information regarding the measurement of these assets and liabilities see Note 3, regarding significant accounting policies.

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 2 - Basis of Preparation (cont'd)

The value of non-monetary assets and equity items that were measured on the basis of historical cost were adjusted for changes in the general purchasing power of the Israeli currency - NIS, based upon changes in the Israeli Consumer Price Index (“CPI”) until December 31, 2003, as until that date the Israeli economy was considered hyperinflationary.

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

For the convenience of the reader, the reported NIS figures as of December 31, 2014 and for the year then ended, have been presented in dollars, translated at the representative rate of exchange as of December 31, 2014 (NIS 3.889 = 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.

E.
Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

The preparation of accounting estimates used in the preparation of the Group's financial statements requires management to make assumptions regarding circumstances and events that involve considerable uncertainty. Management of the Group prepares the estimates on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about estimates, uncertainty and critical judgments about provisions and contingent liabilities, is described in Notes 14 and 31. In addition, information about critical estimates, made while applying accounting policies and that have the most significant effect on the consolidated financial statements are described below:

Trade and other receivables
The financial statements include an impairment loss in trade and other receivables which properly reflect, according to management's estimation, the potential loss from non-recoverable amounts. The Group provides for impairment loss based on its experience in collecting past debts, as well as on information on specific debtors. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. See also Note 21.

Impairment loss and useful life of assets
The Group regularly reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. See also Note 3H.
The useful economic life of the Group's assets is determined by management at the time the asset is acquired and regularly reviewed for appropriateness. The Group defines useful life of its assets in terms of the assets' expected utility to the Group. This judgment is based on the experience of the Group with similar assets. The useful life of licenses is based on the duration of the license agreement. See also Notes 3D and 3F.

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 2 - Basis of Preparation (cont'd)
 
Impairment of goodwill
The Group reviews a cash generating unit containing goodwill for the purpose of testing it for impairment at least once a year. Determining the recoverable amount requires management to make an estimate of the projected future cash flows from the continuing use of the cash-generating unit and also to choose a suitable discount rate for those cash flows which represents market estimates as for the time value of the money and the specific risks that are related to the cash-generating unit. Determining the estimates of the future cash flows is based on management past experience and management best estimates as for the economic conditions that will exist over the rest of the remaining useful life of the cash generating unit. Further details are given in Note 3H.

Legal claims
In estimating the likelihood of outcome of legal claims filed against the Company and its investees, the Group takes into consideration the opinion of its legal counsel. These estimates are based on the legal counsel's best professional judgment, taking into account the stage of proceedings and historical legal precedents in respect of the different issues. Since the outcome of the claims will be determined in courts, the results could differ from these estimates. See also Note 31.

Uncertain tax positions
When assessing amounts of current and deferred taxes, the Group takes into consideration the effect of the uncertainty that its tax positions will be accepted and of the Group incurring any additional tax and interest expenses. The Group is of the opinion that the cumulative tax liability is fair for all the years in respect of which final tax assessments have not yet been received, based on an analysis of a number of matters including interpretations of tax laws and the Group’s past experience. This assessment is based on estimates and assumptions that may also include assessments and exercising judgment regarding future events. It is possible that new information will become known in future periods that will require the Group to change its estimate regarding the tax liability that was recognized, and any such changes will be expensed immediately in that period. See also Note 28.

F.
Changes in accounting policies

As from January 1, 2014 the Group applies the new amendment described below:

Amendment to IAS 32, Financial Instruments: Presentation : Offsetting Financial Assets and Financial Liabilities

The amendment to IAS 32 clarifies that an entity currently has a legally enforceable right to set-off amounts that were recognized, if that right is not contingent on a future event and it is enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all its counterparties. The amendment to IAS 32 has been applied retrospectively. The application of the amendment had no material impact on the Group's financial statements.

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 2 - Basis of Preparation (cont'd)

G.
Exchange rates and known Consumer Price Indexes are as follows:

 
Exchange rates
of US$
 
Consumer Price
Index (points)*
       
As of December 31, 2014
3.889
 
223.36
As of December 31, 2013
3.471
 
223.58 
As of December 31, 2012
3.733
 
219.39
       
Change during the year:
     
       
Year ended December 31, 2014
12.04%
 
(0.10%)
Year ended December 31, 2013
(7.02%)
 
1.91%
Year ended December 31, 2012
(2.30%)
 
1.44%
       
*According to 1993 base index.      


Note 3 - Significant Accounting Policies

The accounting policies set out below have been applied consistently by the Group for all periods presented in these consolidated financial statements, except as explained in Note 2F.

A.
Basis of consolidation

 
1.
Subsidiaries

Subsidiaries are entities controlled by the parent company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

 
2.
Non-controlling interests

Non-controlling interests comprise the equity of a subsidiary that cannot be attributed, directly or indirectly, to the parent company. Profit or loss and each component of other comprehensive income are attributable to the owners of the parent company and to non-controlling interests.

 
3.
Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.


Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont'd)

B.
Foreign currency transactions

Transactions in foreign currencies are translated to NIS at the prevailing foreign exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies as of the reporting date are translated to NIS at the prevailing foreign exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured in terms of historical cost, are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to NIS at the exchange rate at the date that the fair value was determined. Foreign exchange differences arising on translation are recognized in profit and loss.

C.
Financial instruments

(1)
Non-derivative financial assets

Initial recognition of financial assets

The Group initially recognizes receivables and deposits on the date that they are created. All other financial assets acquired in a regular way purchase, including assets designated at fair value through profit or loss, are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument, meaning on the date the Group undertook to purchase or sell the asset. Financial assets are initially measured at fair value. If the financial asset is not subsequently accounted for at fair value through profit or loss, then the initial measurement includes transaction costs that are directly attributable to the asset acquisition or creation.

The Group subsequently measures financial assets at either fair value or amortized cost, as described below:

Financial assets measured at amortized cost

A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment loss, if:
 
●
the asset is held within a business model with an objective to hold assets in order to collect contractual cash flows;
 
●
the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest; and
 
●
the Group has not elected to designate them at fair value through profit or loss in order to reduce or eliminate an accounting mismatch.

Financial assets measured at amortized cost include cash and cash equivalents, current investments and trade and other receivables.

Cash and cash equivalents comprise cash balances available for immediate use and call deposits. Cash equivalents comprise short-term highly liquid investments (with original maturities of three months or less) that are readily convertible into known amounts of cash and are exposed to insignificant risks of change in value.

Financial assets measured at fair value

Financial assets other than those classified as measured at amortized cost are subsequently measured at fair value with all changes in fair value recognized in profit or loss.

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont'd)

Derecognition of financial assets
Financial assets are derecognized when the contractual rights of the Group to the cash flows from the asset expire, or the Group transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Regular way sales of financial assets are recognized on the trade date, meaning on the date the Group undertook to sell the asset. As to the Group’s policy on impairment see Paragraph H.

Offset of financial instruments
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

As of January 1, 2012, the Group early applies IFRS 9 (2009), Financial Instruments , with respect to classification and measurement of financial assets, with an early application date of January 1, 2012, without first applying the rest of the provisions determined in IFRS 9 (2014), Financial instruments , the final version of the standard, as mentioned in Note 3R below. According to IFRS 9 (2009), an entity shall classify and measure its financial assets at amortized cost or at fair value, considering its business model for managing financial assets and with respect to the contractual cash flows of these financial assets. According to the transitional provisions of IFRS 9 (2009), the classification of the financial assets held by the Group as of the date of initial application was based on the facts and circumstances of the business model, according to which the assets were held as at that date.

(2)
Non-derivative financial liabilities

The Group initially recognizes debt securities issued on the date they originated. All other financial liabilities are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. Financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. The Group subsequently measures financial liabilities at amortized cost using the effective interest method.

Non-derivative financial liabilities include loans, debentures and trade and other payables.

Financial liabilities are derecognized when the obligation of the Group, as specified in the agreement, expires or when it is discharged or cancelled.
Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when, and only when, the Group currently has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

(3) 
Derivative financial instruments, including hedge accounting

The Group holds derivative financial instruments to hedge its foreign currency and CPI risks exposures.

Derivatives are initially recognized at fair value; transaction costs that can be attributed are recognized to profit and loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value. Changes in fair value are accounted for as follows:

Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognized through other comprehensive income directly in a hedging reserve to the extent that the

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont'd)

hedge is effective. To the extent that the hedge is ineffective, changes in the fair value are recognized in profit and loss when the hedged item is sold or leaves the Group's possession, and is presented under the same line item in the consolidated statements of income as the hedged item.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in comprehensive income and presented in the hedging reserve in equity remains there until the forecasted transaction occurs or is no longer expected to occur. The amount recognized in comprehensive income is transferred to profit and loss in the same period that the hedged item affects profit and loss.

Economic Hedges
Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies or linked to the CPI. Changes in the fair value of such derivatives are recognized in profit and loss, as financing income or expenses .

(4)
Financial instruments linked to the Israeli CPI that are not measured at fair value

The carrying amount of a CPI linked financial instrument and the payments derived from it are revalued in each period according to the actual rate of change in the CPI.

D.
Property, plant and equipment

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and an estimate of the costs of dismantling and removing the items and restoring the site on which they are located (when the Group has an obligation to dismantle and remove the asset or to restore the site). Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

Communications networks consist of several significant components with different useful lives. Each component is treated separately and is depreciated over its useful life.

Changes in the obligation to dismantle and remove the items and to restore the site on which they are located, other than changes deriving from the passing of time, are added or deducted from the cost of the asset in the period in which they occur. The amount deducted from the cost of the asset shall not exceed the balance of the carrying amount on the date of change, and any balance is recognized in profit or loss.

Gains or losses on disposal of an item of property, plant and equipment are determined by comparing the net disposal net proceeds with the carrying amount of property, plant and equipment and are recognized net within "other expenses, net" in profit or loss.


Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont'd)

The cost of replacing part of a fixed asset item is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of day-to-day servicing are recognized in profit or loss as incurred.

Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life. An asset is depreciated from the date it is ready for use, meaning the date it reaches the location and condition required for it to operate in the manner intended by management.

Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of the fixed asset item. The annual depreciation rates for the current and comparative periods are as follows :
 
   
%
     
Communications network
 
5-25
Control and testing equipment
 
15-25
Vehicles
 
15-33
Computers and hardware
 
15-33
Furniture and office equipment
 
6-15

Leasehold improvements are depreciated over the shorter of their estimated useful lives or the expected lease terms .

Depreciation methods, useful lives and residual values are reviewed at least at the end of each reporting year and adjusted if appropriate.

E.
Rights of use of communications lines

The Group implements IFRIC 4, "Determining Whether an Arrangement Contains a Lease", which defines criteria for determining at the beginning of the arrangement, whether the right to use asset constitutes a lease arrangement.

According to IFRIC 4, as mentioned above, acquisition transactions of irrevocable rights of use of underwater cables capacity are treated as service receipt transactions. The amount which was paid for the rights of use of communications lines is recognized as a prepaid expense and is amortized on a straight-line basis over the period stated in the agreements, including the option period, which constitutes the estimated useful life of those capacities.

F.
Intangible assets

Intangible assets consist of goodwill, assets recognized during business combination, licenses, computer software costs, information systems and deferred expenses.

 
1.
Goodwill that arises upon the acquisition of subsidiaries is presented as part of intangible assets.
In subsequent periods goodwill is measured at cost less accumulated impairment losses.

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

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont'd)

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

 
4.
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure   is recognized in profit or loss as incurred.

 
5.
Amortization is a systematic allocation of the amortizable amount of an intangible asset over its useful life. Amortization is calculated using the straight-line method, except for Customer Relationship recognized during business combinations, which is amortized according to the economic benefit expected from this asset each period (and up to 2019). The annual amortization rates for the current and comparative periods are as follows:

  %    
       
Licenses
5-6
 
(mainly 6)
Information systems
25
   
Software
15-25
   
 
Goodwill has an indefinite useful life and is not systematically amortized but tested for impairment at least once a year.

Amortization methods, useful lives and residual values are reviewed at least each year-end and adjusted if appropriate.

The Group examines the useful life of an intangible asset that is not periodically amortized at least once a year in order to determine whether events and circumstances continue to support the decision that the intangible asset has an indefinite useful life.

G.
Inventory

Inventory of cellular phone equipment, accessories and spare-parts are measured at the lower of cost and net realizable value. Cost is determined by the moving average method.

 
The cost of inventory which serves the landline communications is determined on a "first-in, first-out" basis.

The Group periodically evaluates the condition and age of inventories and makes provisions for impairment of inventories accordingly.

H.
Impairment

 
1.
Non-derivative financial assets

A financial asset not carried at fair value through profit or loss is tested for impairment when objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont'd)

loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

An impairment loss in respect of a financial asset measured at amortized cost, is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate of that asset. All impairment losses are recognized in profit or loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost, the reversal is recognized in profit or loss.

 
2.
Property, plant and equipment and intangible assets

The carrying amounts of the Group’s property, plant and equipment and finite lived intangible assets are reviewed at each reporting date, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, then the asset’s recoverable amount is estimated.

Once a year and on the same date, or more frequently if there are indications of impairment, the Group estimates the recoverable amount of each cash generating unit that contains goodwill, or intangible assets that have indefinite useful lives.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit, for which the estimated future cash flows from the asset or cash-generating unit were not adjusted.

Cash-generating units to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. The Group monitors goodwill at operating segments level.
 
An impairment loss is recognized if the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the cash-generating unit on a pro rata basis.

I.
Employee benefits

 
1.
Post employment benefits
 
Part of the Group's liability for post employment benefits is covered by a defined contribution plan financed by deposits with insurance companies or with funds managed by a trustee. A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. The Group's
 
Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont'd)

obligation of contribution to defined contribution pension plan is recognized as an expense in profit and loss in the periods during which services are rendered by employees. In addition, the Group has a net obligation in respect of defined benefit plan. A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. This benefit is presented at present value deducting the fair value of any plan assets and is determined using actuarial assessment techniques which involves, among others, determining estimates regarding the capitalization rates, anticipated return on the assets, the rate of the increase in salary and the rates of employee turnover. There is significant uncertainty in respect to these estimates because of the long-term programs. For further information, see Note 18.

The Group recognizes immediately, directly in retained earnings through other comprehensive income, all actuarial gains and losses arising from defined benefit plans. Interest costs and expected return on plan assets that were recognized in profit or loss are presented under financing income and expenses, respectively.

 
2.
Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. The employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits depending on when the Group expects the benefits to be wholly settled.

 
3.
Share based payments

The grant date fair value of options granted to employees is recognized as salaries and related expenses, with a corresponding increase in retained earnings, over the period that the employees become unconditionally entitled to the options.

Fair value is measured using the Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, to consider exercise restrictions and behavioral considerations.

J.
Provisions

A provision is recognized if the Group has a present legal or constructive obligation, as a result of a past event, that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at management's best estimate of the expenditure required to settle the obligation at the reporting date.

A provision for claims is recognized if the Group has a present legal or constructive obligation, as a result of a past event, and it is more likely than not that an outflow of economic benefits will be required to settle the obligation and the amount of obligation can be estimated reliably.

A provision for onerous contracts is recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract.

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont'd)

K.
Revenue

Revenues derived from services, including cellular services, internet connectivity services (ISP), international calls services, fixed local calls, interconnect, roaming revenues and content and value added services, are recognized when the services are provided, in proportion to the stage of completion of the transaction and all other revenue recognition criteria are met.
 
The sale of a handset is generally adjacent to the sale of services. Usually, the sale of handset to the customer is executed with no contractual obligation of the client to consume services in a minimal amount for a predefined period. As a result, the Group refers to the sale transaction as a separate transaction and recognizes revenue from sale of handset upon delivery of the handset to the customer. Revenue from services is recognized and recorded when the services are provided.

In case the customer is obligated towards the Group to consume services in a minimal amount for a predefined period, the contract is characterized as a multiple element arrangement and thus, revenue from sale of handset is recorded in an amount not higher than the fair value of the said handset, which is not contingent upon delivery of additional components (such as services) and is recognized upon delivery to the customer and when the criteria for revenue recognition are met. The Group determines the fair value of the individual elements based on prices at which the deliverable is regularly sold on a standalone basis, after considering discounts where appropriate.

The Group also offers other services, such as extended equipment warranty plans, which are provided for a monthly fee and are either sold separately or bundled and included in packaged rate plans. Revenues from those services are recognized over the service period.

Revenues from long-term credit arrangements 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.

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.

When the Group acts as an agent or an intermediary without bearing the risks and rewards resulting from the transaction, revenues are presented on a net basis (as a profit or a commission). However, when the Group acts as a principal supplier and bears the risks and rewards resulting from the transaction, revenues are presented on a gross basis, distinguishing the revenue from the related expenses.

L.
Cost of revenues

Cost of revenues mainly include equipment purchase costs, salaries and related expenses, value added services costs, royalties expenses, ongoing license fees, interconnection and roaming expenses, cell site leasing costs, depreciation and amortization expenses and maintenance expenses, directly related to services rendered.

M.
Advertising expenses

Advertising costs are expensed as incurred.

N.
Lease payments

Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease.

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont'd)

O.
Financing income and expenses

Financing income is comprised of interest income on cash deposits, interest income on installment sales, gain from hedging transactions, income from exchange rate differences and from investment in debt securities. Interest income is recognized in the consolidated statements of income as it accrues using the effective interest method.

Financing expenses are comprised of interest and indexing expenses on loans and debentures, loss from hedging transactions, expenses from exchange rate differences and unwinding of the discount on provisions. All borrowing costs are recognized in profit and loss using the effective interest method.

In the statements of cash flows, interest received and dividends received are presented as part of cash flows from investing activities. Interest paid and dividends paid are presented as part of cash flows from financing activities.

Foreign currency, investment in debt securities and hedging instruments gains and losses that are recognized in profit or loss are reported on a net basis.

P.
Taxes on income

Taxes on income comprise current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or are recognized directly in equity or in other comprehensive income to the extent they relate to items recognized directly in equity or in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Current tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and there is intent to settle current tax liabilities and assets on a net basis or the tax assets and liabilities will be realized simultaneously.

Deferred tax is recognized for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset deferred tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle deferred tax liabilities and assets on a net basis or their deferred tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

A provision for uncertain tax positions, including additional tax and interest expenses, is recognized when it is more probable than not that the Group will have to use its economic resources to pay the obligation.

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont'd)

Q.
Earnings per share

The Company presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit and loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.
 
R.
New standards not yet adopted

IFRS 9 (2014), Financial Instruments

IFRS 9 (2014) is a final version of the standard, which includes revised guidance on the classification and measurement of financial instruments, and a new model for measuring impairment of financial assets. This guidance has been added to the chapter dealing with general hedge accounting requirements issued in 2013.

Classification and measurement
In accordance with IFRS 9 (2014), there are three principal categories for measuring financial assets: amortized cost, fair value through profit and loss and fair value through other comprehensive income. The basis of classification for debt instruments is the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset. Investments in equity instruments will be measured at fair value through profit and loss (unless the entity elected at initial recognition to present fair value changes in other comprehensive income).
IFRS 9 (2014) requires that changes in fair value of financial liabilities designated at fair value through profit or loss that are attributable to changes in its credit risk, should usually be recognized in other comprehensive income.

Hedge accounting – general
Under IFRS 9 (2014), additional hedging strategies that are used for risk management will qualify for hedge accounting. IFRS 9 (2014) replaces the present 80%-125% test for determining hedge effectiveness, with the requirement that there be an economic relationship between the hedged item and the hedging instrument, with no quantitative threshold. In addition, IFRS 9 (2014) introduces new models that are alternatives to hedge accounting as regards credit exposures and certain contracts outside the scope of IFRS 9 (2014) and sets new principles for accounting for hedging instruments. In addition, IFRS 9 (2014) provides new disclosure requirements.

Impairment of financial assets
IFRS 9 (2014) presents a new ‘expected credit loss’ model for calculating impairment. For most financial assets, the new model presents a dual measurement approach for impairment: if the credit risk of a financial asset has not increased significantly since its initial recognition, an impairment provision will be recorded in the amount of the expected credit losses that result from default events that are possible within the twelve months after the reporting date. If the credit risk has increased significantly, in most cases the impairment provision will increase and be recorded at the level of lifetime expected credit losses of the financial asset.

IFRS 9 (2014) is effective for annual periods beginning on or after January 1, 2018 with early adoption being permitted. It will be applied retrospectively with some exemptions.

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont'd)

R.
New standards not yet adopted (cont'd)

The Group has not yet commenced examining the effects of adopting IFRS 9 (2014) on the financial statements.

IFRS 15, Revenue from Contracts with Customers

IFRS 15 replaces the current guidance regarding recognition of revenues from contracts with customers and presents a new model for revenue recognition from aforesaid contracts. IFRS 15 provides two approaches for recognizing revenue: at a point in time or over time. The model includes five steps for analyzing transactions so as to determine when to recognize revenue and at what amount. Furthermore, IFRS 15 extends the disclosure requirements that exist under current guidance.

IFRS 15 is applicable for annual periods beginning on or after January 1, 2017 and earlier application is permitted. IFRS 15 includes various alternative transitional provisions, so that companies can choose between one of the following alternatives at initial application: full retrospective application, full retrospective application with practical expedients, or application as from the mandatory effective date, with an adjustment to the balance of retained earnings at that date in respect of transactions that are not yet complete.

The Group is examining the effects of adopting IFRS 15 on the financial statements.


Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 4 - Determination of Fair Values

A number of the Group's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

A. 
Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the appropriate interest rate at the reporting date.

B. 
Current investments and derivatives
The fair value of forward exchange contracts is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using market interest rates appropriate for similar instruments, including the adjustment required for the parties' credit risks.

The fair value of investments in debt securities is based on quoted market prices.

For further information regarding the fair value hierarchy see Note 21, regarding financial instruments.

C.
Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

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


Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 5 - Financial Risk Management

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s financial risk management framework. The Board has established a sub-committee for financial exposures management, which is responsible for developing and monitoring the Group’s financial exposures management policies. The sub-committee recommends to the Board of Directors changes in the Group's financial exposures management policy.

The Group’s risk management policies are established to identify and analyze the financial risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities through training and procedures. The Group aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group Audit Committee oversees how management monitors compliance with the Group’s financial risk management policies and procedures, and reviews the adequacy of the financial risk management framework in relation to the risks faced by the Group. See also Note 21.

Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis.

Trade and other receivables
The Group conducts credit evaluations on receivables over a certain amount, and requires financial guarantees against them. Management monitors outstanding receivable balances and the financial statements include appropriate allowances for estimated irrecoverable amounts. The Group is exposed to credit risk arising mainly from its operation in Israel.

Cash and cash equivalents
The Group’s cash and cash equivalents are maintained with major banking institutions in Israel.

Investments in debt instruments
The Group limits its exposure to credit risk by investing only in liquid debt instruments and only with counterparties that have a credit rating of at least "AA-" from S&P Maalot. Management actively monitors credit ratings and given these high credit ratings, management does not expect any counterparty to fail to meet its obligations.

Derivatives
The counterparties of the derivatives held by the Group are major banks in Israel.

At the reporting date, there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivatives, in the consolidated statement of financial position. Financial instruments that could potentially subject the Group to credit risks consist primarily of trade receivables. Credit risk with respect to these receivables is limited due to the composition of the subscriber base, which includes a large number of individuals and businesses.


Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 5 - Financial Risk Management (cont'd)

Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and extreme conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The cash surpluses held by Group companies that are not required for financing their current activity, are invested in interest-bearing investment channels such as: short-term deposits and debentures. These investment channels are chosen based on future forecasts of the cash Group will require in order to meet its liabilities.

The Group examines current forecasts of its liquidity requirements so as to make certain that there is sufficient cash for its operating needs, and it is careful at all times to have enough unused credit facilities so that the Group does not exceed its credit limits and is in compliance with its financial covenants. These forecasts take into consideration matters such as the Group’s plan to use debt for financing its activity, compliance with required financial covenants, and compliance with external requirements such as laws or regulation.

The Group has contractual commitments to purchase inventories, fixed assets and other current services. For further information regarding material commitments see Note 30.

Market risk
In the ordinary course of business, the Group buys and sells derivatives, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out according to the policy established by the Board of Directors.

Interest rate and CPI risk
The Group is exposed to fluctuations in the interest rate, including changes in the CPI, as the majority of its borrowings are linked to the CPI. As part of its risk management policy the Group has entered into forward contracts that partially hedge the exposure to changes in the CPI. All such transactions are carried out within the policy established by the Board of Directors.

Currency risk
The Group's operating income and cash flows are exposed to currency risk, mainly due to handset and network related acquisitions and its international roaming services activity. The Group also manages bank accounts that are denominated in a currency other than its respective functional currency, primarily USD and Euro. As part of its financial exposures hedging policy, the Group uses forward and option contracts to partially hedge the exposure to fluctuations in foreign exchange rates.


Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 5 - Financial Risk Management (cont'd)

Capital management
The Group's capital management aim is to ensure a sound and efficient capital structure which takes into consideration, among others, the following factors:
A gearing ratio that supports the Group's cash flow needs with respect to its potential cash flow generation and also supporting its dividend policy, considering the limitation imposed on dividend distribution as established in the indenture of the Group's Series F, G, H and I debentures, while maintaining a Net Debt to EBITDA ratio (see definition in Note 17, regarding Debentures and Loans from Banks) as established in the indenture of the Series F, G, H and I debentures, and that meets the industry standards. The Group considers Net Debt to EBITDA ratio to be an important measure for investors, debentures holders, analysts, and rating agencies. This ratio is a non-GAAP figure not governed by International Financial Reporting Standards and its definition and calculation may vary from one Group to another. The Group's debt mainly consists of short and long-term debentures traded publicly in the Tel Aviv Stock Exchange.

Note 6 - Operating Segments

The Group operates in two reportable segments, as described below, which are the Group's strategic business units. The strategic business unit's allocation of resources and evaluation of performance are managed separately. The operating segments were determined based on internal management reports reviewed by the Group's chief operating decision maker (CODM). The CODM does not examine assets or liabilities for those segments and therefore, they are not presented.

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

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

The accounting policies of the reportable segments are the same as described in Note 3, regarding Significant Accounting Policies.

Information regarding the results of each reportable segment is included below based on the internal management reports that are reviewed by the CODM.

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 6 - Operating Segments (cont'd)

   
Year ended December 31, 2014
 
   
NIS millions
 
   
Cellcom
   
Netvision
   
Reconciliation for consolidation
   
Consolidated
 
                         
External revenues
    3,667       903       -       4,570  
Inter-segment revenues
    50       57       (107 )     -  
                                 
EBITDA*
    967       315       -       1,282  
                                 
Reconciliation of reportable segment EBITDA to profit for the year
                               
Depreciation and amortization
    (475 )     (85 )     (50 )     (610 )
Taxes on income
    (80 )     (44 )     14       (110 )
Financing income
                            100  
Financing expenses
                            (298 )
Other expenses
                            (7 )
Share based payments
                            (3 )
                                 
Profit for the year
    211       189       (46 )     354  
 
 
   
Year ended December 31, 2013
 
   
NIS millions
 
   
Cellcom
   
Netvision
   
Reconciliation for consolidation
   
Consolidated
 
                                 
External revenues
    3,944       983       -       4,927  
Inter-segment revenues
    50       56       (106 )     -  
                                 
EBITDA*
    1,066       269       -       1,335  
                                 
Reconciliation of reportable segment EBITDA to profit for the year
                               
Depreciation and amortization
    (504 )     (96 )     (76 )     (676 )
Taxes on income
    (91 )     (45 )     19       (117 )
Financing income
                            156  
Financing expenses
                            (402 )
Other income
                            1  
Share based payments
                            (9 )
                                 
Profit for the year
    210       135       (57 )     288  
 

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 6 - Operating Segments (cont'd)
 
   
Year ended December 31, 2012
 
   
NIS millions
 
   
Cellcom
   
Netvision
   
Reconciliation for consolidation
   
Consolidated
 
                         
External revenues
    4,861       1,077       -       5,938  
Inter-segment revenues
    30       57       (87 )     -  
                                 
EBITDA*
    1,470       283       -       1,753  
                                 
Reconciliation of reportable segment EBITDA to profit for the year
                               
Depreciation and amortization
    (554 )     (107 )     (104 )     (765 )
Taxes on income
    (190 )     (31 )     26       (195 )
Financing income
                            181  
Financing expenses
                            (440 )
Other income
                            4  
Share based payments
                            (7 )
                                 
Profit for the year
    464       145       (78 )     531  
 
*
EBITDA as reviewed by the CODM, represents earnings before interest (financing expenses, net), taxes, other income (expenses) (except for a one-time expense in the amount of approximately NIS 39 million in respect of voluntary retirement plan for employees, which has been recorded in the second quarter of 2014. See also Note 26, regarding Other Expenses), depreciation and amortization and share based payments, as a measure of operating profit. EBITDA is not a financial measure under IFRS and cannot be compared to other similarly titled measures in other companies.

Note 7 - Subsidiaries

Details in respect of subsidiaries
Presented hereunder is a list of the Group’s significant subsidiaries:

     
The Group’s ownership interest in the subsidiary for the year ended
December 31
 
Principal location of the company's activity
 
2014
 
2013
Name of company
         
           
Netvision Ltd.
Israel
 
100%
 
100%
013 Netvision Ltd.
Israel
 
100%
 
100%

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 8 - Cash and Cash Equivalents

Composition

   
December 31,
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
             
Bank balances
    58       133  
Call deposits
    999       1,025  
      1,057       1,158  

The Group's exposure to interest rate risk and sensitivity analysis for financial assets and liabilities are disclosed in Note 21.

Note 9 - Trade and Other Receivables

Composition

   
December 31,
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
             
Current
           
Trade Receivables*
           
Open accounts
    529       531  
Checks and credit cards receivables
    217       179  
Accrued income
    107       101  
Current maturity of long-term receivables
    878       606  
      1,731       1,417  
Other Receivables
               
Prepaid expenses
    53       57  
Other
    10       8  
      63       65  
      1,794       1,482  
Non-current
               
Trade receivables*
    512       476  
Rights of use of communications lines
    265       272  
Deposits and other receivables
    64       65  
Other
    13       11  
      854       824  
      2,648       2,306  

* Net of allowance for doubtful debts.

The Group is exposed to credit risks and impairment losses related to trade and other receivables as disclosed in Note 21.

Non-current trade receivables balances are in respect of equipment sold in installments (mainly 36 monthly payments) which current amount as of December 31, 2014, is calculated at a 3.9% discount rate (December 31, 2013 - 5.2%).

 
Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 10 - Inventory

 
A. 
Composition

   
December 31,
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
             
Handsets
    63       71  
Accessories
    14       10  
Spare parts
    7       8  
      84       89  

 
B.
In 2014, the Group tested slow moving inventory for impairment and wr o te down inventory to its net realizable value by the amount of NIS 6 million (2013 - NIS 7 million). The write-down is included in cost of sales.

Note 11 - Property, Plant and Equipment, Net

   
Communications
Network
   
Control and
testing
equipment
   
Vehicles
   
Computers,
furniture
and office
equipment
   
Leasehold
improvements
   
Total
 
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
 
                                     
Cost
                                   
                                     
Balance at January 1, 2013
    5,487       141       46       719       182       6,575  
                                                 
Additions
    207       6       -       27       7       247  
Disposals
    (343 )     (3 )     (28 )     (353 )     (34 )     (761 )
Balance at December 31, 2013
    5,351       144       18       393       155       6,061  
                                                 
Additions
    336       4       1       39       11       391  
Disposals
    (135 )     (26 )     (10 )     (116 )     (13 )     (300 )
Balance at December 31, 2014
    5,552       122       9       316       153       6,152  
                                                 
Accumulated Depreciation
                                               
                                                 
Balance at January 1, 2013
    3,774       72       19       522       111       4,498  
Depreciation for the year
    329       21       5       68       17       440  
Disposals
    (338 )     (3 )     (14 )     (353 )     (34 )     (742 )
Balance at December 31, 2013
    3,765       90       10       237       94       4,196  
                                                 
Depreciation for the year
    328       19       2       48       14       411  
Disposals
    (128 )     (28 )     (5 )     (115 )     (13 )     (289 )
Balance at December 31, 2014
    3,965       81       7       170       95       4,318  
                                                 
Carrying amounts
                                               
                                                 
At January 1, 2013
    1,713       69       27       197       71       2,077  
At December 31, 2013
    1,586       54       8       156       61       1,865  
At December 31, 2014
    1,587       41       2       146       58       1,834  
 
In the ordinary course of business, the Group acquires property, plant and equipment in credit. The cost of acquisitions, which has not yet been paid at the reporting date, amounted to NIS 169 million (December 31, 2013 and 2012, NIS 67 million and NIS 96 million, respectively).


Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 12 - Intangible Assets, Net
 
   
Licenses
   
Information Systems
   
Software
   
Deferred Expenses
   
Goodwill
   
Customer Relationship and Other
   
Total
 
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
 
                                           
Cost
                                         
                                           
Balance at January 1, 2013
    534       359       102       8       830       347       2,180  
                                                         
Additions
    -       71       11       1       -       -       83  
Disposals
    (2 )     (88 )     (24 )     (5 )     -       -       (119 )
Balance at December 31, 2013
    532       342       89       4       830       347       2,144  
                                                         
Additions
    -       87       9       -       -       -       96  
Disposals
    -       (75 )     (21 )     (4 )     -       -       (100 )
Balance at December 31, 2014
    532       354       77       -       830       347       2,140  
                                                         
Accumulated Amortization
                                                       
                                                         
Balance at January 1, 2013
    265       175       58       4       -       163       665  
                                                         
Amortization for the year
    29       75       19       4       -       81       208  
Disposals
    (2 )     (88 )     (24 )     (5 )     -       -       (119 )
Balance at December 31, 2013
    292       162       53       3       -       244       754  
                                                         
Amortization for the year
    29       70       16       1       -       55       171  
Disposals
    -       (75 )     (21 )     (4 )     -       -       (100 )
Balance at December 31, 2014
    321       157       48       -       -       299       825  
                                                         
Carrying amounts
                                                       
                                                         
At January 1, 2013
    269       184       44       4       830       184       1,515  
At December 31, 2013
    240       180       36       1       830       103       1,390  
At December 31, 2014
    211       197       29       -       830       48       1,315  
 
In the ordinary course of business, the Group acquires Intangible assets in credit. The cost of acquisitions, which has not yet been paid at the reporting date, amounted to NIS 34 million (December 31, 2013 and 2012, NIS 10 million and NIS 18 million, respectively).

A.
Impairment testing for cash-generating unit containing goodwill

For the purpose of impairment testing, goodwill is allocated to Netvision, which represents the lowest level within the Group, at which goodwill is monitored for internal management purposes, which is not higher than the reported operating segments. See Note 6, regarding Operating Segments.

The aggregate carrying amount of goodwill allocated to Netvision as of December 31, 2014, is NIS 753 million (2013 - NIS 753 million).

The recoverable amount of Netvision was based on its value in use and was determined by discounting the expected future cash flows to be generated from the continuing use. The recoverable amount of Netvision as of December 31, 2014 and 2013, was determined to be higher than its carrying amount and thus, no impairment loss has been recognized.

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 12 - Intangible Assets, Net (cont'd)

B.
Key assumptions used in calculation of recoverable amount
 
Key assumptions used in the calculation of recoverable amounts are discount rate and terminal value growth rate. These assumptions are as follows:
 
(1) 
Pre-tax discount rate and terminal value growth rate

 
Pre-tax discount rate
 
Terminal value growth rate
 
2014
       
Netvision
11.7%
 
1.5%
 
 
·
The discount rate and the terminal value growth rate are denominated in real terms.
 
·
Netvision has cash flows for 5 years, as included in its discounted cash flow model.
 
·
The long-term growth rate has been determined as 1.5% which represents, among  others, the natural population growth rate.
 
·
The pre-tax discount rate is estimated and calculated using several assumptions, among other, Netvision's Cost of Equity, risk premium for normative debt leveraging of the Group and estimates of the normative leverage ratio for the industry.

(2) 
Sensitivity to changes in assumptions

The estimated recoverable amount of Netvision exceeds its carrying amount by approximately NIS 643 million. Management has identified two key assumptions for which there reasonably could be a possible change that could cause the carrying amount to exceed the recoverable amount. The table below shows the amount that these two assumptions are required to change individually in order for the estimated recoverable amount to be equal to the carrying amount.

 
2014
   
Pre-tax discount rate
16.9%
Terminal value growth rate
(7.4%)


Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 13 - Trade Payables and Accrued Expenses

Composition

   
December 31,
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
             
Trade payables
    286       441  
Accrued expenses
    296       332  
      582       773  
 
Note 14 - Provisions

Composition

   
Dismantling
         
Other contractual
   
Provision for
       
   
and restoring sites
   
Litigations
   
obligations
   
warranty
   
Total
 
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
 
                               
Balance as at January 1, 2013
    21       65       106       4       196  
Provisions made during the year
    1       22       17       1       41  
Provisions reversed during the year
    (1 )     (21 )     (7 )     -       (29 )
Balance as at January 1, 2014
    21       66       116       5       208  
Provisions made during the year
    1       17       11       -       29  
Provisions reversed during the year
    (1 )     (36 )     (75 )     (3 )     (115 )
Balance as at December 31, 2014
    21       47       52       2       122  
                                         
Non-current
    21       -       -       -       21  
Current
    -       47       52       2       101  
      21       47       52       2       122  

Dismantling and restoring sites
The Group is required to incur certain costs in respect of a liability to dismantle and remove assets and to restore sites on which the assets were located. These dismantling costs are calculated on the basis of the identified costs for the current financial year, extrapolated for future years using the best estimate of future trends in prices, inflation, etc., and are discounted at a risk-free rate. Forecast of estimated site departures or asset returns is revised in light of future changes in regulations or technological requirements.

Litigations
The Group is involved in a number of legal and other disputes with third parties. The Group's management, after taking legal advice, has established provisions which take into account the facts of each case. The timing of cash outflows associated with legal claims cannot be reasonably determined. For detailed information regarding legal proceedings against the Group, refer to Note 31.

Other contractual obligations
Provisions for other contractual obligations and exposures include various obligations that are derived either from a constructive obligation or legislation for which there is a high uncertainty regarding the timing and amount of future expenditure required for settlement.


Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 15 - Other Payables, Including Derivatives

Composition

   
December 31,
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
             
Employees and related liabilities
    84       102  
Government institutions
    43       40  
Interest payable
    206       167  
Accrued expenses
    12       7  
Deferred revenue
    28       30  
Derivative financial instruments
    25       24  
      398       370  
 
Note 16 - Other Long-term Liabilities

Composition

   
December 31,
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
             
Long-term liabilities to trade payables
    3       1  
Deferred revenue
    2       2  
Derivative financial instruments
    5       8  
Other
    -       1  
      10       12  
 
Note 17 - Debentures and Loans from Banks

This note provides information about the contractual terms of the Group's interest-bearing loans and debentures, which are measured at amortized cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, see Note 21.

   
December 31,
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
Non- current liabilities
           
Debentures
    4,332       3,548  
Loans from banks
    5       -  
      4,337       3,548  
Current liabilities
               
Current maturities of debentures
    1,093       1,092  
Current maturities of long-term loans and short-term credit from banks
    7       -  
      1,100       1,092  

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 17 - Debentures and Loans from Banks (cont'd)

Terms and debt repayment schedule

The terms and conditions of long-term loans and debentures are as follows:

                 
December 31, 2013
   
December 31, 2014
 
                 
NIS millions
   
NIS millions
 
 
 Currency
 
Nominal interest rate
   
Year of maturity
   
Face value
   
Carrying amount
   
Face value
   
Carrying amount
 
                                                 
Loans from banks
 NIS
    6.00 %  
until 2015
      12       12       -       -  
Debentures (Series B) - linked to the Israeli CPI
 NIS
    5.30 %  
until 2017
      740       893       555       668  
Debentures (Series D) - linked to the Israeli CPI
 NIS
    5.19 %  
until 2017
      1,939       2,305       1,454       1,722  
Debentures (Series E) - unlinked
 NIS
    6.25 %  
until 2017
      1,199       1,197       899       897  
Debentures (Series F) - linked to the Israeli CPI
NIS
    4.60 %     2017-2020       715       744       715       741  
Debentures (Series G) - unlinked
NIS
    6.99 %     2017-2019       285       286       285       286  
Debentures (Series H) - linked to the Israeli CPI
NIS
    1.98 %     2018-2024       -       -       106       105  
Debentures (Series I) - unlinked
NIS
    4.14 %     2018-2025       -       -       223       221  
Total interest- bearing liabilities
                      4,890       5,437       4,237       4,640  

In connection with the issuance of Series F and G debentures, the Company has undertaken to comply with certain financial and other covenants. Inter alia:

 
·
a Net Leverage* exceeding 5, or exceeding 4.5 during four consecutive quarters, shall constitute an event of default; As of December 31, 2014, the Net Leverage is 2.3.

 
·
not to distribute more than 95% of the profits available for distribution according to the Israeli Companies law (“Profits”); provided that if the Net Leverage* exceeds 3.5:1, the Company will not distribute more than 85% of its Profits and if the Net Leverage* exceeds 4:1, the Company will not distribute more than 70% of its Profits. Failure to comply with this covenant shall constitute an event of default;

 
·
cross default, excluding following an immediate repayment initiated in relation to a liability of NIS 150 million or less, shall constitute an event of default;

 
·
Negative pledge, subject to certain exceptions. Failure to comply with this covenant shall constitute an event of default;

 
·
an obligation to pay additional interest of 0.25% for two-notch downgrade in the debentures' rating and additional interest of 0.25% for each additional one-notch downgrade and up to a maximum addition of 1%, in comparison to the rating given to the debentures prior to their issuance;

 
·
Failure to have the debentures rated over a period of 60 days, shall constitute an event of default.

* Net Leverage - the ratio of Net Debt to EBITDA, excluding one-time influences. Net Debt defined as credit and loans from banks and others and debentures, net of cash and cash equivalents and current investments in tradable securities. EBITDA defined as in relation to the twelve month period preceding the Group's most updated consolidated financial statements and calculated as profit before depreciation and amortization, other expenses/ income, net, financing expenses/ income, net and taxes on income.

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 17 - Debentures and Loans from Banks (cont'd)

In July 2014, the Company issued to the public in Israel two new series of debentures:

 
a.
Series H debentures to the public in Israel in the aggregate principal amount of NIS 106 million in exchange for net consideration of NIS 105 million. The debentures are payable in seven annual installments: three equal payments of 12% of the principal on July 5 of each of the years 2018 through and including 2020, and four equal annual installments of 16% of the principal on July 5 of each of the years 2021 through and including 2024. The debentures bear annual interest of 1.98%. The interest is to be paid in 20 semi-annual installments on January 5 and on July 5, of each calendar year commencing January 5, 2015 through and including July 5, 2024. The debentures (principal amount and interest) are linked to the CPI which was published on June 15, 2014, for May 2014.

 
b.
Series I debentures to the public in Israel in the aggregate principal amount of NIS 223 million in exchange for net consideration of NIS 221 million. The debentures are payable in eight annual installments: three equal payments of 10% of the principal on July 5 of each of the years 2018 through and including 2020, and five equal annual installments of 14% of the principal on July 5 of each of the years 2021 through and including 2025. The debentures bear annual interest of 4.14%. The interest is to be paid in 22 semi-annual installments on January 5 and on July 5 of each calendar year commencing January 5, 2015 through and including July 5, 2025. The debentures (principal amount and interest) are without any linkage.

The debentures were offered and sold pursuant to a supplemental shelf offering report which was published by the Company in July 2014 and were listed for trading on the Tel Aviv Stock Exchange. The offering was made pursuant to the Company's Israeli shelf prospectus which was published in June 2014.

In relation to Series H and Series I debentures the Company undertook additional undertakings, in addition to those previously undertaken by the Company in its Series F and G indenture (as detailed above), including: (1) in addition to being an event of default, meeting the financial covenants previously undertaken by the Company (a maximum net leverage ratio (Net Debt to EBITDA ratio) in excess of 5.0:1, or in excess of 4.5:1 for four consecutive quarters) would be a condition for dividend distribution; and (2) meeting such financial covenants would also be a condition for the issuance of additional debentures of each of the two new series.

The Series H and Series I Indenture contains substantially similar events of default to those found in the Series F and Series G Indenture, with the exception of certain new events of default that do not appear in the Series F and Series G Indenture as well as certain modifications to the events of default that are found in the Series F and Series G Indenture, including: (1) breach of the above limitation on dividend distributions; (2) the minimum amount required for triggering a cross default shall not apply to a cross default triggered by another series of debentures; (3) the existence of a real concern that the Company shall not meet its material undertakings towards the debenture holders; (4) the inclusion in the Company's financial statements during a period of two consecutive quarters of a note regarding the existence of significant doubt as to the Company's ability to continue as a going concern; and (5) breach of the Company's undertakings regarding the issuance of additional debentures.

As of December 31, 2014, the Group is in compliance with the required covenants.

In January 2015, after the end of the reporting period,   the Group repaid interest and principal of debentures in a total sum of approximately NIS 647 million.


Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 17 - Debentures and Loans from Banks (cont'd)

In February 2015, after the end of the reporting period, pursuant to an exchange offer for the exchange of a portion of the Company's Series D and E debentures with new debentures of the Company's Series H and I, respectively, or the Exchange Offer, under the Company's 2014 shelf prospectus and in a private offering, the Company issued approximately NIS 844 million principal amount of new debentures of Series H and approximately NIS 335 million principal amount new debentures of Series I (in exchange with approximately NIS 555 million principal amount of Series D and approximately NIS 272 million principal amount of Series E, respectively).

Described hereunder is the principal amount of the above mentioned debentures:

   
Before the exchange
   
After the exchange
 
   
NIS millions
 
Series D
    1,454       899  
Series E
    (*) 599       327  
Series F
    106       950  
Series G
    223       558  

(*) In January 2015, after the end of the reporting period, the Company repaid Series E debentures in a principal amount of approximately NIS 300 million.

Note 18 - Liability for Employee Rights Upon Retirement, Net

The obligation of the Group, under law and labor agreements, to pay severance pay employees who are not covered by the pension or insurance plans as mentioned in section A below, is NIS 14 million and NIS 13 million as of December 31, 2014 and 2013, respectively, as included in the consolidated statements of financial position, under Liability for employee rights upon retirement, net.

 
A. 
Post-employment benefit plans - defined contribution plan

The Group’s liability for severance pay for its Israeli employees is calculated pursuant to Israeli Severance Pay Law. The Group’s liability is mostly covered by monthly deposits with severance pay funds, insurance policies and by an accrual on the consolidated statements of financial position. For most of the Group's employees, the payments to pension funds and to insurance companies exempt the Group from any obligation towards its employees, in accordance with Section 14 of the Severance Pay Law-1963. Accumulated amounts in pension funds and in insurance companies are not under the Group's control or management and accordingly, neither those amounts nor the corresponding accrual for severance pay are presented in the consolidated statements of financial position.

 
B. 
Post-employment benefit plans - defined benefit plan

The portion of the severance payments which is not covered by deposits in defined contribution plans, as aforementioned, is accounted for by the Group as a defined benefit plan, according to which a liability for employee benefits is recognized and in respect of which, the Group deposits amounts in central severance pay funds and in appropriate insurance policies. The total liability as at December 31, 2014 is NIS 24 million (2013 - NIS 20 million). The fair value of the plan assets, the severance pay fund, is NIS 21 million (2013 - NIS 18 million). The expense recognized in the consolidated statement of income for the year ended December 31, 2014 in respect of defined benefit plans, is NIS 2 million (2013 - NIS 4 million).

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 18 - Liability for Employee Rights Upon Retirement, Net (cont'd)

 
C.
As of December 31, 2014 the Group's liability for adaptation grants to employees is NIS 11 million (2013 - NIS 11 million).

Note 19 - Capital and Reserves

Share capital

   
2012
   
2013
   
2014
 
   
NIS
 
                   
Issued and paid at January 1
    994,814       994,814       995,316  
Exercise of share options
    -       502       10,529  
                         
Issued and paid at December 31
    994,814       995,316       1,005,845  

The share capital is comprised of ordinary shares of NIS 0.01 par value each.

At December 31, 2014, the authorized share capital was comprised of 300 million ordinary shares (December 31, 2013, 2012- 300 million each). The holders of ordinary shares are entitled to receive dividends as declared.

Basic and diluted earnings per share

The calculation of basic earnings per share was based on the profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding (99,481,487, 99,495,525 and 99,924,306 during the years 2012, 2013 and 2014, respectively). The calculations of diluted earnings per share was based on the profit attributable to ordinary shares and the weighted average number of ordinary shares in the basic earnings per share in addition of 128,235, 824,199 and 781,976 incremental shares (NIS 0.01 par value each) that would be issued resulting from exercise of all options for the years ended December 31, 2012, 2013 and 2014, respectively.

At December 31, 2014, 453 thousand options (2013 and 2012 - 776 thousand and 687 thousand options, respectively) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive.

The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.

Dividends
Dividends paid by the Company during the reported periods are as follows:

   
2014
 
   
NIS millions
 
      -  
         
      2013  
   
NIS millions
 
0.85 NIS per share paid in December 2013
    85  
      85  

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 19 - Capital and Reserves (cont'd)

   
2012
 
   
NIS millions
 
1.90 NIS per share paid in January 2012
    189  
0.72 NIS per share paid in May 2012
    72  
1.31 NIS per share paid in July 2012
    130  
      391  

Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred or exercised.

Note 20 - Share-Based Payments

In September 2006, the Company's Board of Directors approved a share based incentive plan for employees, directors, consultants and sub-contractors of the Company and the Company’s affiliates. The terms of share-based payments include a dividend adjustment mechanism. The options will be exercised at net, with no cash transfer.

   
Number of
     
Contractual
  Adjusted exercise price per share as
   
instruments
     
life of
  of December 31,
Grant date/employees entitled
 
In thousands
 
Vesting conditions
 
options
  2014
                   
                   
Share options granted in August 2009 to senior employees
 
74
 
Four equal installments over four years of employment
 
6 years
   
$15.84
                   
Share options granted in November 2010 to senior employees
 
12
 
Four equal installments over four years of employment
 
6 years
   
$23.15
                   
Share options granted in May 2011 to senior employees
 
1,060
 
Three equal installments over three years of employment
 
4.5 years
   
$28.95
Share options granted in August 2012 to senior employees
 
2,410
 
Two equal installments over two years of employment
 
3.5 years
   
$5.67
Share options granted in March 2013 to senior employees
 
75
 
Two equal installments over two years of employment
 
3.5 years
   
$7.34
Share options granted in December 2013 to senior employees
 
234
 
Three equal installments over three years of employment
 
4.5 years
   
$14.65

The total compensation expense during the year ended December 31, 2014, related to the options granted is NIS 3 million (2013 - NIS 9 million, 2012 - NIS 7 million).

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 20 - Share-Based Payments (cont'd)
 
The changes in the balances of the options were as follows:
         
Weighted average
         
Weighted average
         
Weighted average
 
   
Number of
   
of exercise price
   
Number of
   
of exercise price
   
Number of
   
of exercise price
 
   
options
   
(US Dollars)
   
options
   
(US Dollars)
   
options
   
(US Dollars)
 
   
2012
   
2013
   
2014
 
                                     
Balance as at January 1
    1,056,896       29.10       3,019,152       10.89       2,965,964       10.35  
                                                 
Granted during the year
    2,410,678       5.91       309,000       12.88       -       -  
                                                 
Forfeited during the year
    (448,422 )     24.55       (258,878 )     18.91       (341,006 )     27.01  
                                                 
Exercised during the year*
    -       -       (103,310 )     5.91       (1,986,093 )     5.72  
                                                 
Total options outstanding as at December 31
    3,019,152       10.89       2,965,964       10.35       638,865       15.86  
                                                 
Total of exercisable options as at December 31
    274,953       26.37       1,426,232       11.27       445,365       17.00  


* The weighted average share price at the date of exercise for share options exercised in 2014 was US $12.2. 
The weighted average of the remaining contractual life of options outstanding as at December 31, 2014, is 2.1 years.

   
2012
   
2013
   
2014
 
                   
Fair value of share options and assumptions:
                 
                   
Fair value at grant date
    $1.20       $1.51-$2.89       -  
                         
Fair value assumptions:
                       
                         
Share price at grant date
    $6.14       $7.2-$13.57       -  
                         
Exercise price
    $5.91       $7.58-$14.66       -  
                         
Expected volatility (weighted average)
    33.9 %     37.72%-41.12 %     -  
                         
Option life (expected weighted average life)
 
2.0 years
   
2.3 years
      -  
                         
Risk free interest rate
    0.26 %     0.23%-0.59 %     -  
 
In March 2015, after the end of the reporting period, the Company's board of directors approved a new shared based incentive plan -“2015 Share Incentive Plan” for employees, directors, consultants and sub-contractors of the Company and the Company's affiliates. Under the plan, the Company's board of directors is authorized to determine the terms of the grants, including the identity of grantees, the number of options or restricted stock units (“RSUs”) to be granted, the vesting schedule and the exercise price. The terms of the share based payments include a dividend adjustment mechanism. The options will be exercised at net exercise mechanism, with no cash transfer.
 
In March 2015, after the end of the reporting period, the Company's board of directors resolved to grant 2,795,000 options to certain office holders who are not directors and senior employees of the Company (including 525,000 options to the Company’s CEO subject to shareholders approval), at an exercise price of US$ 5.70 (or, subject to the approval of the Israeli Tax Authority - NIS 22.55) per share. The options granted will be vested in 3 equal installments on each of the first, second and third anniversary of the grant date. The options of the first installment may be exercised within 24 months from their vesting and the second and third installment may be exercised with 18 months from their vesting. The fair value of share options granted was calculated at an estimated average of US$ 0.69 per option. The assumptions upon which the fair value has been calculated: risk free interest rate - 0.9%, expected weighted average life - 2.3 years and expected volatility - 35.5%.



Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 21 - Financial Instruments

Credit risk
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
 
   
December 31,
   
December 31,
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
             
Trade receivables including long-term amounts
    2,243       1,893  
Loans and other receivables including long-term amounts
    74       74  
Investment in debt securities
    509       520  
Cash and cash equivalents in banks
    1 , 057       1,158  
Derivative financial instrument
    4       1  
      3,887       3,646  
 
The maximum exposure to credit risk of financial assets at the reporting date by type of counterparty is:

   
December 31,
   
December 31,
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
             
Receivables from subscribers
    2,071       1,687  
Receivables from distributors and other operators
    172       206  
Investment in government of Israel debt securities
    295       293  
Investment in institutional debt securities
    214       227  
Cash and cash equivalents in banks
    1,057       1,158  
Other
    78       75  
      3,887       3 , 646  

Impairment losses
The aging of financial assets at the reporting date was as follows:

   
Gross
   
Impairment
   
Gross
   
Impairment
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
 
                         
Not past due
    3,771       21       3,553       30  
Past due less than one year
    171       72       143       58  
Past due more than one year
    219       181       181       143  
      4,161       274       3, 877       231  


Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 21 - Financial Instruments (cont'd)

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
             
Balance at January 1
    335       274  
Impairment loss recognized
    (142 )     (74 )
Doubtful debt expenses
    81       31  
Balance at December 31
    274       231  

The allowance accounts in respect of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amount considered irrecoverable is written off against the trade receivable directly.

Liquidity risk
The following are the maturities of contractual of financial liabilities and other non-contractual liabilities, including estimated interest payments and excluding the impact of netting agreements:

December 31, 20 14
 
Carrying
   
Contractual
                           
More than
 
   
amount
   
Cash flows
   
1 st year
   
2 nd year
   
3 rd year
   
4-5 years
   
5 years
 
   
NIS millions
 
                                           
Debentures*
    (4,807 )     (5,295 )     (1,338 )     (1,278 )     (1,345 )     (817 )     (517 )
Trade and other payables
    (882 )     (882 )     (882 )     -       -       -       -  
Forward exchange contracts on CPI
    (31 )     (31 )     (23 )     (4 )     -       (4 )     -  
Long-term liabilities to trade payables
    (1 )     (1 )     -       (1 )     -       -       -  
      (5,721 )     (6,209 )     (2,243 )     (1,283 )     (1,345 )     (821 )     (517 )

 
*
Including accrued interest on debentures. In February 2015, after the end of the reporting period, the Company exchanged a portion of Series D and E debentures with new debentures of the Company's Series H and I, respectively. For further details, see Note 17.


Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 21 - Financial Instruments (cont'd)

Liquidity risk (cont'd)

December 31, 20 13
 
Carrying
   
Contractual
                           
More than
 
   
amount
   
Cash flows
   
1 st year
   
2 nd year
   
3 rd year
   
4-5 years
   
5 years
 
   
NIS millions
 
                                           
Debentures*
    (5,631 )     (6,270 )     (1,388 )     (1,328 )     (1,267 )     (1,735 )     (552 )
Trade and other payables
    (678 )     (678 )     (678 )     -       -       -       -  
Forward exchange contracts on foreign currencies
    (7 )     (7 )     (7 )     -       -       -       -  
Forward exchange contracts on CPI
    (23 )     (23 )     (18 )     (5 )     -       -       -  
Credit and loans from banks
    (12 )     (12 )     (7 )     (5 )     -       -       -  
Long-term liabilities to trade payables
    (3 )     (3 )     -       (3 )     -       -       -  
      (6,354 )     (6,993 )     (2,098 )     (1,341 )     (1,267 )     (1,735 )     (552 )

*
Including accrued interest on debentures.

The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to occur:
 
   
Carrying
   
Contractual
                           
More than
 
   
amount
   
Cash flows
   
1 st year
   
2 nd year
   
3 rd year
   
4-5 years
   
5 years
 
   
NIS millions
 
                                           
December 31, 2014
                                         
Forward exchange
                                         
contracts:
                                         
Assets
    -       -       -       -       -       -       -  
Liabilities
    -       -       -       -       -       -       -  
      -       -       -       -       -       -       -  
 
   
Carrying
   
Contractual
                           
More than
 
   
amount
   
Cash flows
   
1 st year
   
2 nd year
   
3 rd year
   
4-5 years
   
5 years
 
   
NIS millions
 
December 31, 2013
                                         
Forward exchange
                                         
contracts:
                                         
Assets
    -       -       -       -       -       -       -  
Liabilities
    (6 )     (6 )     (6 )     -       -       -       -  
      (6 )     (6 )     (6 )     -       -       -       -  

 
Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 21 - Financial Instruments (cont'd)

Liquidity risk (cont'd)
 
The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to impact profit or loss:
 
   
Carrying
   
Contractual
                           
More than
 
   
amount
   
Cash flows
   
1 st year
   
2 nd year
   
3 rd year
   
4-5 years
   
5 years
 
   
NIS millions
 
                                           
December 31, 2014
                                         
Forward exchange
                                         
contracts:
                                         
Assets
    -       -       -       -       -       -       -  
Liabilities
    -       -       -       -       -       -       -  
      -       -       -       -       -       -       -  
 
   
Carrying
   
Contractual
                           
More than
 
   
amount
   
Cash flows
   
1 st year
   
2 nd year
   
3 rd year
   
4-5 years
   
5 years
 
December 31, 2013
 
NIS millions
Forward exchange
                                         
contracts:
                                         
Assets
    -       -       -       -       -       -       -  
Liabilities
    (6 )     (6 )     (6 )     -       -       -       -  
      (6 )     (6 )     (6 )     -       -       -       -  
 

Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements
 
Note 21 - Financial Instruments (cont'd)

Currency risk and CPI

The Group's exposure to foreign currency risk and CPI is as follows:
 
   
December 31, 2013
     
December 31, 2014
 
   
In or linked
                 
In or linked
             
   
to foreign
                 
to foreign
             
   
currencies
                 
currencies
             
   
(mainly
USD)
   
Linked
to CPI
   
Unlinked
     
(mainly
USD)
   
Linked
to CPI
   
Unlinked
 
   
NIS millions
     
NIS millions
 
Current assets
                                     
Cash and cash equivalents
    13       -       1,044         39       -       1,119  
Current investments, including derivatives
    3       274       236         1       268       252  
Trade receivables
    19       -       1,712         110       -       1,307  
Other receivables, including derivatives
    -       1       6         1       -       6  
                                                   
Non- current assets
                                                 
Long-term receivables
    -       17       562         -       18       525  
                                                   
Current liabilities
                                                 
Current maturities of debentures and long-term loans and short-term credit
    -       (793 )     (307 )       -       (792 )     (300 )
Trade payables and accrued expenses
    (140 )     -       (442 )       (262 )     -       (511 )
Other current liabilities, including derivatives
    (7 )     (140 )     (180 )       (1 )     (120 )     (179 )
                                                   
Non- current liabilities
                                                 
Long-term loans from banks
    -       -       (5 )       -       -       -  
Debentures
    -       (3,149 )     (1,183 )       -       (2,444 )     (1,104 )
Other non- current liabilities
    -       (5 )     (3 )       (1 )     (8 )     -  
      (112 )     (3,795 )     1,440         (113 )     (3,078 )     1,115  

 
Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 21 - Financial Instruments (cont'd)

Currency risk and CPI (cont'd)

The Group's exposure to linkage and foreign currency risk in respect of derivatives is as follows:

 
December 31, 2014
 
 
Currency/
linkage
receivable
 
Currency/
linkage
payable
 
 
Notional Value
   
Fair value
 
     
NIS millions
 
Instruments not used for hedging
               
Forward exchange contracts on foreign currencies
USD
NIS
    19       -  
Forward exchange contracts on CPI
CPI
NIS
    1,925       (31 )
Foreign currency call options
USD
NIS
    97       1  
                     
Instruments used for hedging
                   
Forward exchange contracts on foreign currencies
USD
NIS
    -       -  

 
 
December 31, 2013
 
 
Currency/
linkage
receivable
 
Currency/
linkage
payable
 
 
Notional Value
   
Fair value
 
     
NIS millions
 
Instruments not used for hedging
               
Forward exchange contracts on foreign currencies
USD
NIS
    70       (1 )
Forward exchange contracts on CPI
CPI
NIS
    1,675       (22 )
Foreign currency call options
USD
NIS
    231       1  
                     
Instruments used for hedging
                   
Forward exchange contracts on foreign currencies
USD
NIS
    90       (6 )


Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 21 - Financial Instruments (cont'd)

Currency risk and CPI (cont'd)

Sensitivity analysis
A change of the CPI as at December 31, 2014 and 2013 would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2013.
 
         
Equity
   
Net income
 
   
Change
   
NIS millions
   
NIS millions
 
                   
December 31, 2014
                 
Increase in the CPI of
    2.0 %     (17 )     (17 )
Increase in the CPI of
    1.0 %     (8 )     (8 )
Decrease in the CPI of
    (1.0 %)     8       8  
Decrease in the CPI of
    (2.0 %)     17       17  
                         
December 31, 2013
                       
Increase in the CPI of
    2.0 %     (32 )     (32 )
Increase in the CPI of
    1.0 %     (16 )     (16 )
Decrease in the CPI of
    (1.0 %)     16       16  
Decrease in the CPI of
    (2.0 %)     32       32  
 
Sensitivity of change in foreign exchange rate is immaterial as at December 31, 2014 and 2013.

Interest rate risk

Profile
At the reporting date the interest rate profile of the Group's interest-bearing financial instruments, not including derivatives, was:

   
Carrying amount
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
Fixed rate instruments
           
Financial assets
    1,500       1,541  
Financial liabilities
    (5,435 )     (4,640 )
      (3,935 )     (3,099 )
Variable rate instruments
               
Financial assets
    12       6  
Financial liabilities
    (2 )     -  
      10       6  

 
Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 21 - Financial Instruments (cont'd)

Fair value sensitivity analysis for fixed rate instruments
A change of interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

   
Equity
     
Profit or loss
 
   
1.0% increase
   
1.0% decrease
   
0.5% increase
   
0.5% decrease
     
1.0% increase
   
1.0% decrease
   
0.5% increase
   
0.5% decrease
 
   
NIS millions
     
NIS millions
 
December 31, 2014
                                                 
Fair value sensitivity (net)
    (14 )     14       (7 )     7         (14 )     14       (7 )     7  

   
Equity
     
Profit or loss
 
   
1.0% increase
   
1.0% decrease
   
0.5% increase
   
0.5% decrease
     
1.0% increase
   
1.0% decrease
   
0.5% increase
   
0.5% decrease
 
   
NIS millions
     
NIS millions
 
December 31, 2013
                                                 
Fair value sensitivity (net)
    (12 )     12       (6 )     6         (12 )     12       (6 )     6  
 
Cash flow sensitivity analysis for variable rate instruments
A change of 1% in interest rates at the end of the reporting period would have increased (decreased) equity and profit or loss by immaterial amounts.
 
Fair Values

 
(1)
Financial instruments measured at fair value for disclosure purposes only

The book value of certain financial assets and liabilities, including cash and cash equivalents, trade and other receivables, current investments, including derivatives, short-term credit and loans, trade and other payables, including derivatives, long-term loans from banks and other long-term liabilities, are equal or approximate to their fair value.

The fair values of the remaining financial liabilities and their book values as presented in the consolidated statements of financial position are as follows:

   
December 31, 2013
   
December 31, 2014
 
   
Book value
   
Fair value
   
Book value
   
Fair value *
 
   
NIS millions
   
NIS millions
 
Debentures including current  maturities and accrued interest
    (5,631 )     (6,098 )     (4,807 )     (5,107 )

* The fair value includes principal and interest in a total sum of approximately NIS 647 million, paid in January 2015, after the end of the reporting period.

The fair value of marketable debentures is determined by reference to the quoted closing asking price at the reporting date (level 1).

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements
 
Note 21 - Financial Instruments (cont'd)

 
(2)
  Fair value hierarchy of financial instruments measured at fair value

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

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

   
December 31, 2014
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
 
Financial assets at fair value through profit or loss
                       
Current investments in debt securities
    520       -       -       520  
Long-term receivables
    -       49       -       49  
Derivatives
    -       1       -       1  
Total assets
    520       50       -       570  
                                 
Financial liabilities at fair value through profit or loss
                               
Derivatives
    -       (32 )     -       (32 )
Total liabilities
    -       (32 )     -       (32 )

There have been no transfers during the year between Levels 1 and 2.

   
December 31, 2013
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
   
NIS millions
   
NIS millions
   
NIS millions
   
NIS millions
 
Financial assets at fair value through profit or loss
                       
Current investments in debt securities
    509       -       -       509  
Long-term receivables
    -       47       -       47  
Derivatives
    -       4       -       4  
Total assets
    509       51       -       560  
                                 
Financial liabilities at fair value through profit or loss
                               
Derivatives
    -       (30 )     -       (30 )
Total liabilities
    -       (30 )     -       (30 )


Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 21 - Financial Instruments (cont'd)

 
(3)
Details regarding fair value measurement at Levels 2

     
Financial instrument
 
Valuation method for determining fair value
     
Forward contracts
 
Fair value measured on the basis of discounting the difference between the forward price in the contract and the current forward price for the residual period until redemption using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.
     
Foreign currency options
 
Fair value is measured based on the Black-Scholes formula.

 
(4)
Offset of financial assets and financial liabilities

 
The following table sets out the carrying amounts of recognized financial instruments that were offset in the consolidated statements of financial position:
 
   
December 31, 2014
 
   
Note
   
Gross amounts of recognized financial assets (liabilities)
   
Gross amounts of financial assets (liabilities) recognized and offset in the consolidated statements of financial position
   
Net amounts of financial assets (liabilities) presented in the consolidated statements of financial position
 
         
NIS millions
   
NIS millions
   
NIS millions
 
Financial assets
                       
Trade receivables
    9       342       (238 )     104  
              342       (238 )     104  
Financial liabilities
                               
Trade payables and accrued expenses
    13       (264 )     238       (26 )
              (264 )     238       (26 )


Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 21 - Financial Instruments (cont'd)
 
 
(4)
Offset of financial assets and financial liabilities (cont'd)
 
   
December 31, 2013
 
   
Note
   
Gross amounts of recognized financial assets (liabilities)
   
Gross amounts of financial assets (liabilities) recognized and offset in the consolidated statements of financial position
   
Net amounts of financial assets (liabilities) presented in the consolidated statements of financial position
 
         
NIS millions
   
NIS millions
   
NIS millions
 
Financial assets
                       
Trade receivables
    9       340       (264 )     76  
              340       (264 )     76  
Financial liabilities
                               
Trade payables and accrued expenses
    13       (316 )     264       (52 )
              (316 )     264       (52 )
 
Note 22 - Revenues

Composition

   
Year ended December 31,
 
   
2012
   
2013
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
 
                   
Revenues from equipment
    1,356       942       1,005  
                         
Revenues from services:
                       
Cellular services
    3,279       2,797       2,487  
Land-line services
    599       559       489  
Internet services
    531       483       451  
Other services
    173       146       138  
Total revenues from services
    4,582       3,985       3,565  
Total revenues
    5,938       4,927       4,570  

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 23 - Cost of Revenues

Composition

   
Year ended December 31,
 
   
2012
   
2013
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
 
                   
According to source of income:
                 
Cost of revenues from equipment
    1,013       719       744  
Cost of revenues from services
    2,450       2,271       1,983  
      3,463       2,990       2,727  
According to its components:
                       
Cost of revenues from equipment
    1,013       719       744  
                         
Rent and related expenses
    364       365       310  
Salaries and related expenses
    334       298       260  
Fees to other operators and others
    917       882       761  
Cost of value added services
    186       149       114  
Depreciation and amortization
    435       418       410  
Royalties and fees
    129       91       98  
Other
    85       68       30  
Total cost of revenues from services
    2,450       2,271       1,983  
      3,463       2,990       2,727  
 
Note 24 - Selling and Marketing Expenses

Composition
   
Year ended December 31,
 
   
2012
   
2013
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
 
                   
Salaries and related expenses
    361       305       277  
Commissions
    193       161       197  
Advertising and public relations
    70       62       46  
Depreciation and amortization
    120       86       59  
Other
    121       103       93  
      865       717       672  

Note 25 - General and Administrative Expenses

 
Composition
 
   
Year ended December 31,
 
   
2012
   
2013
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
 
                   
Salaries and related expenses
    138       137       121  
Depreciation and amortization
    210       172       141  
Rent and maintenance
    79       74       62  
Data processing and professional services
    60       48       57  
Allowance for doubtful accounts
    74       81       31  
Other
    68       58       51  
      629       570       463  


Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 26 - Other Expenses

In June 2014, the Company offered its employees a voluntary retirement plan, which included a one-time grant to each employee who chose to participate in this plan. The Company has recorded a one-time expense in the amount of approximately NIS 39 million, in the Statements of Income under "Other Expenses", in respect of the grants for the employees who decided to join the said plan.

Note 27 - Financing Income and Expenses

 
Composition
 
   
Year ended December 31,
 
   
2012
   
2013
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
 
                   
Interest income on deposits
    25       15       6  
Interest income from installment sale transactions
    89       83       61  
Net change in fair value of financial assets measured at fair value through profit or loss
    28       20       15  
Premium amortization
    26       21       18  
Foreign exchange differences and other
    13       17       -  
Financing income
    181       156       100  
                         
Linkage expenses to CPI and interest expenses on long-term liabilities
    (414 )     (385 )     (251 )
Net change in fair value of derivatives
    (14 )     (14 )     (33 )
Foreign exchange differences and other
    (12 )     (3 )     (14 )
Financing expenses
    (440 )     (402 )     (298 )
Net financing expenses recognized in profit or loss
    (259 )     (246 )     (198 )

Note 28 - Income Tax

A. 
Details regarding the tax environment of the Group

Corporate tax rate

 
(a)
Presented hereunder are the tax rates relevant to the Company in the years 2012-2014:
2012 – 25%
2013 – 25%
2014 – 26.5%

On August 5, 2013, the Law for Changes in National Priorities (Legislative Amendments for Achieving Budget Objectives in the Years 2013 and 2014) – 2013 was published in the Official Gazette, by which, inter alia, the corporate tax rate would be raised by 1.5% to a rate of 26.5% as from 2014.

Current taxes for the reported periods are calculated according to the tax rates presented above.


Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 28 - Income Tax (cont'd)

 
(b)
On February 4, 2010, Amendment 174 to the Income Tax Ordinance (New Version) – 1961 (hereinafter – “the Ordinance”) was published in the Official Gazette. The amendment added Section 87A to the Ordinance, which provides a temporary order whereby Accounting Standard No. 29 “Adoption of International Financial Reporting Standards (IFRS)” that was issued by the Israel Accounting Standards Board shall not apply when determining the taxable income for the 2007, 2008 and 2009 tax years even if this standard was applied when preparing the financial statements (hereinafter – “the Temporary Order”). On January 12, 2012, Amendment 188 to the Ordinance was issued, by which the Temporary Order was amended so that Standard 29 shall not apply also when determining the taxable income for 2010 and 2011. On July 31, 2014 an amendment no. 202 to the Ordinance was issued, by which the Temporary Order was extended to the 2012 and 2013 tax years, effective retroactively as from January 1, 2012.
 
B. 
Composition of income tax expense (income)

   
Year ended December 31,
 
   
2012
   
2013
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
 
                   
Current tax expense (income)
                 
Current year
    201       128       96  
Adjustments for prior years, net
    11       (1 )     (5 )
      212       127       91  
                         
Deferred tax expense (income)
                       
Creation and reversal of temporary differences
    (17 )     (17 )     19  
Change in tax rate
    -       7       -  
      (17 )     (10 )     19  
                         
Income tax expense
    195       117       110  
 
C.
Income tax in respect of other comprehensive income
 
   
Year ended December 31, 2014
 
   
Before tax
   
Tax expenses
   
Net of tax
 
   
NIS millions
   
NIS millions
   
NIS millions
 
                   
Other comprehensive income items
    12       (3 )     9  

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 28 - Income Tax (cont'd)

C.
Income tax in respect of other comprehensive income (cont'd)

   
Year ended December 31, 2013
 
   
Before tax
   
Tax benefit
   
Net of tax
 
   
NIS millions
   
NIS millions
   
NIS millions
 
                   
Other comprehensive income items
    (3 )     1       (2 )
 
   
Year ended December 31, 2012
 
   
Before tax
   
Tax benefit
   
Net of tax
 
   
NIS millions
   
NIS millions
   
NIS millions
 
                         
Other comprehensive income items
    (26 )     6       (20 )

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

   
Year ended December 31,
 
   
2012
   
2013
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
 
                   
Profit before taxes on income
    726       405       464  
Primary tax rate of the Group
    25 %     25 %     26.5 %
                         
Tax calculated according to the Group’s primary tax rate
    182       101       123  
                         
Additional tax (tax saving) in respect of:
                       
                         
Non-deductible expenses
    8       6       3  
Taxes in respect of previous years
    11       (1 )     (5 )
Effect of change in tax rate
    -       7       -  
Tax exempt income
    -       (2 )     (6 )
Other differences
    (6 )     6       (5 )
                         
Income tax expenses
    195       117       110  
 

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 28 - Income Tax (cont'd)

E. 
Deferred tax assets and liabilities

(1) 
Recognized deferred tax assets and liabilities

Deferred taxes are calculated according to the tax rate anticipated to be in effect on the date of reversal as stated above.

The movement in deferred tax assets and liabilities is attributable to the following items:
 
   
Allowance for doubtful debts
   
Property, plant and equipment and intangible assets
   
Hedging transactions
   
Carry forward tax deductions and losses
   
Other
   
Total
 
   
NIS
 millions
   
NIS
millions
   
NIS
 millions
   
NIS
 millions
   
NIS millions
   
NIS millions
 
Balance of deferred tax asset (liability) as at January 1, 2014
    73       (205 )     5       15       12       (100 )
Changes recognized in profit or loss
    (12 )     (6 )     -       (4 )     3       (19 )
Changes recognized in other comprehensive income
    -       -       (4 )     -       -       (4 )
                                                 
Balance of deferred tax asset (liability) as at December 31, 2014
    61       (211 )     1       11       15       (123 )
                                                 
Deferred tax asset
    61       36       1       11       18       127  
Offset of balances
                                            (110 )
                                                 
Deferred tax asset in the consolidated statements of financial position as at December 31, 2014
                                            17  
                                                 
Deferred tax liability
    -       (247 )     -       -       (3 )     (250 )
Offset of balances
                                            110  
                                                 
Deferred tax liability in the consolidated
statements of financial position as at
December 31, 2014
                                            (140 )

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 28 - Income Tax (cont'd)

   
Allowance for doubtful debts
   
Property, plant and equipment and intangible assets
   
Hedging transactions
   
Carry forward tax deductions and losses
   
Other
   
Total
 
   
NIS
 millions
   
NIS
millions
   
NIS
 millions
   
NIS
 millions
   
NIS millions
   
NIS millions
 
Balance of deferred tax asset (liability) as at January 1, 2013
    84       (251 )     4       26       26       (111 )
Changes recognized in profit or loss
    (11 )     46       -       (11 )     (14 )     10  
Changes recognized in other comprehensive income
    -       -       1       -       -       1  
                                                 
Balance of deferred tax asset (liability) as at December 31, 2013
    73       (205 )     5       15       12       (100 )
                                                 
Deferred tax asset
    73       61       5       15       20       174  
Offset of balances
                                            (152 )
                                                 
Deferred tax asset in the consolidated statements of financial position as at December 31, 2013
                                            22  
                                                 
Deferred tax liability
    -       (266 )     -       -       (8 )     (274 )
Offset of balances
                                            152  
                                                 
Deferred tax liability in the consolidated
statements of financial position as at
December 31, 2013
                                            (122 )
 
(2) 
Unrecognized deferred tax liability

As at December 31, 2014 and 2013, a deferred tax liability for temporary differences related to an investment in a subsidiary was not recognized because the decision as to whether to sell the investment rests with the Group and it is satisfied that it will not be sold in the foreseeable future.

F.
Tax assessments

The Company and Netvision have received final tax assessments up to and including the year ended December 31, 2011 (2011 fiscal year).

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 29 - Operating Leases

Non-cancelable operating lease rentals are payable as follows:

   
December 31,
 
   
2014
 
   
NIS millions
 
       
Less than one year
    250  
Between one and five years
    623  
More than five years
    254  
      1,127  

During the year ended December 31, 2014, NIS 258 million was recognized as expenses in respect of operating leases in the consolidated statements of income (2013 and 2012, NIS 276 million and NIS 320 million, respectively).

Major operating lease and service agreements:

 
a.
Office buildings and warehouses- there are lease agreements for periods of up to 14 years and 10 months.

 
b.
Switching stations- there are lease agreements for switching station locations for periods of up to 18 years and 7 months.

 
c.
Cell sites- there are lease agreements for cell sites for periods of up to 21 years and 7 months.

 
d.
Service centers, retail stores and stands - there are lease agreements for service and installation centers and stands for periods of up to 13 years and 8 months.

 
e.
Motor vehicles - lease for a period of 3 years.

Note 30 - Commitments

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

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

 
b.
The Company's shareholders' joint equity, combined with the Company's equity, shall not amount to less than US $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 Group is in compliance with the above conditions.

In February 2015, after the end of the reporting period, as a result of a rights offering effected by IDB, the structure of control in IDB, and consequently in the Company, has changed and will require the Ministry of Communications approval, including due to the Israeli holding requirements included in the Company's licenses. The Company has already approached the Ministry of Communications and intends to file a formal request with the Ministry of Communications for its approval of such change, which may include a request to amend the Company's communications licenses, including with regards to the Israeli holdings requirement in the Company as per such licenses. As of the financial statements signing date, such changes are contested by one of the controlling shareholders.

 
Cellcom Israel Ltd. and Subsidiaries
 
Notes to the Consolidated Financial Statements

Note 30 - Commitments (cont'd)

 
2.
In January 2015, the Company was awarded additional 1800 3MHz by the Israeli Ministry of Communications, in a 1800MHz frequencies tender, for 4G technologies (such as LTE, LTE Advanced), for a period of 10 years, for the sum of NIS 6.5 million per 1MHz.
 
 
3.
As at December 31, 2014, the Group has commitments to purchase equipment for the communications networks, end user equipment, systems and software maintenance, and content and related services, in a total amount of approximately NIS 995 million.

 
4.
During 2013, the Group renewed an agreement with Amdocs for the provision of operation, maintenance, management and development services for its billing and customer care system of Cellcom and Netvision, until February 2024. The Group may terminate the agreement after August 2016, subject to termination payment. In addition, the Group entered into another agreement with Amdocs for the development of a new version for its billing system which will serve Cellcom and Netvision. In March 2014, the Company entered into an additional agreement with Amdocs for the provision of a new CRM system that shall replace Cellcom's and Netvision's current CRM systems and will serve both companies. Under the agreement, the Company is obligated to purchase maintenance services for one year from the launch of the system and has an option to purchase maintenance services for seven years thereafter. As of December 31, 2014, the commitments of the Group according to those agreements, is estimated at NIS 108 million.
 
 
5.
In December 2013, the Company entered into an agreement with Golan Telecom Ltd, or Golan, granting Golan Indefeasible Right of Use ("IRU") in the Company's 2G and 3G radio networks which will replace Golan's current national roaming agreement with the Company. Golan shall continue to operate its own core network.
 
In May 2014, subsequent to the publication of a network sharing policy by the Ministry of Communications, the Company entered into a network sharing agreement with Golan, for the construction and operation of a shared 4G radio network. Both Golan and the Company will provide the required frequencies for the operation of the 4G radio network and each of the parties will purchase and operate its own core network.
 
Both agreements were updated in September 2014, following the publication of additional requirements regarding network sharing by the Ministry of communications, and are generally for a period of at least 10 years. The 4G agreement includes stipulations as to ownership and mutual IRU in the 4G radio equipment as well as the establishment of a Joint Venture for the joint operation of the 4G radio network. Upon termination of the 4G sharing agreement, each party may purchase IRU rights in the passive infrastructure of the other party.
 
Effectiveness of the agreements is subject to regulatory approvals to all the agreements. The Company can provide no assurance that such approvals will be granted.
 
The Company expects, if these agreements will be approved, its revenues from Golan to be at annual levels similar to those in 2013 and 2014, for the duration of the agreements term.

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 30 - Commitments (cont'd)
 
 
6.
In September 2014, the Company and Pelephone Communications Ltd, or Pelephone, entered a co-operation agreement regarding maintenance services for passive elements of cell sites, including unifying passive elements and streamlining costs, through a common contractor. The contractor to be selected by RFP process will enter a separate agreement with each of the Company and Pelephone, generally for a period of at least 5 years. The agreement is subject to regulatory approvals. There is no assurance that such approval will be granted.
 
 
7.
Between 2003 and 2013, Netvision entered into a number of agreements with Mediterranean Nautilus Ltd. and Mediterranean Nautilus (Israel) Ltd., or together Med Nautilus, for the purchase of rights of use of certain telecommunications capacities on Med Nautilus' communication cables, as well as maintenance and operation services relating to these cables. The 2013 agreement includes an option pursuant to which Netvision may expand the purchased capacity. The term of the agreement with respect the capacity purchased from Med Nautilus is in effect until May 2032. Netvision has the option to terminate agreements with respect to parts of the capacity in 2022 and 2027. The remainder of the obligation under all existing agreements as of December 31, 2014 is NIS 343 million.

 
8.
In March 2012 and May 2013, the Company entered agreements with Apple Sales International, for the purchase and distribution of iPad and iPhone products, respectively, in Israel. Under the terms of the agreements, the Company has committed to purchase a minimum quantity of iPad and iPhone products, respectively, over a period of three years, which have and is expected to continue to represent a significant portion of the Company's expected total tablets and cellular handsets purchase amounts, respectively, over that period. The total amount of the purchases will depend on the iPad and iPhone products respective purchase price at the time of purchase.

 
9.
In April 2014, the Company entered an agreement with Nokia Solutions and Networks Israel Ltd., or NSN, of Nokia Solutions and Networks group, a worldwide leading network manufacturer, for the supply of its 4G network, which also supports LTE Advanced technology and related services. The agreement is a framework agreement and the total commitment amount depends on the amount of sites which will be supplied. This agreement will also govern the purchase and services provided under the Company's previous agreement with NSN, in relation to the Company's GSM/GPRS and EDGE networks, UMTS core network and a UMTS/HSPA radio access network and related   products and services. The Company has an option to purchase maintenance services on an annual basis for 15 years from final acceptance of the initial phase of the LTE network. As of the financial statements signing date, the aggregate commitments under the agreement amounts to approximately NIS 37 million.

 
10.
In February 2015, after the end of the reporting period, the Company entered a collective employment agreement with its employees' representatives and the Histadrut (an Israeli union labor) for a term of 3 years (2015-2017). The agreement applies to the Company's and 013 Netvision Ltd.'s (the Company's indirect wholly owned subsidiary) employees, excluding certain managerial and specific positions. The agreement defines employment policy and terms in various aspects, including: minimum wages, annual salary increase, incentives, benefits and other one time or annual payments to the employees, as well as a welfare budget and procedures relating to manning a position, change of place of employment and dismissal, including management and employees' representative respective authority with regards to each. The agreement includes terms, whereby the employees are entitled to participate in the Company's operational income over a certain threshold and enjoy additional payments, under certain conditions. The estimated cost of the agreement over the next three years is approximately NIS 200 million, before tax, based on the Group's forcasts.
 

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 31 - Contingent Liabilities

In the ordinary course of business, the Group is involved in various lawsuits against it. The costs that may result from these lawsuits are only accrued for when it is more likely than not that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. The amount of the provisions recorded is based on a case-by-case assessment of the risk level, while events that occur in the course of the litigation may require a reassessment of this risk. The Group’s assessment of risk is based both on the advice of its legal counsels and on the Group's estimate of the probable settlements amounts that are expected to be incurred, if such settlements will be agreed by both parties. The provision recorded in the consolidated financial statements in respect of all lawsuits against the Group amounted to NIS 47 million (see also Note 14, regarding provisions).

Described hereunder are the outstanding lawsuits against the Group, classified into groups with similar characteristic. The amounts presented below are calculated based on the claims amounts as of the date of their submission to the Group.

1.
Consumer claims

In the ordinary course of business, lawsuits have been filed against the Group by its customers. These are mostly purported class actions, particularly concerning allegations of illegal collection of funds, unlawful conduct or breach of license, or a breach of agreements with customers, causing monetary and non-monetary damage to them. As of December 31, 2014, the amounts claimed from the Group by its customers sum up to NIS 2,761 million (including a class action as detailed below). In addition, there are other purported class actions against the Group, in which the amount claimed has not been quantified if certified as class actions and in respect of which the Group has an additional exposure to the above mentioned. In addition, there are other purported class actions for approximately NIS 958 million, that have been filed against the Group and other defendants together without specifying the amount claimed from the Group, which the Group has an additional exposure to the above mentioned and there are other purported class actions, that have been filed against the Group and other defendants together in which the amount claimed has not been quantified if certified as class actions and in respect of which the Group has an additional exposure to the above mentioned. In addition, an appeal was filed challenging the dismissal with prejudice of a purported class action against the Group for a total amount of at least hundreds of millions of NIS.

In November 2013, the District Court of Central Region approved a request to certify a lawsuit filed against the Group in September 2011 as a class action, relating to an allegation that the Group breached the agreements with its subscribers by failing to provide them with the full rebates they are entitled to under their agreements. The total amount claimed was estimated by the plaintiff to be approximately NIS 15 million.

Of all the consumer purported class actions, there are purported class actions in the amount of NIS 780 million, and a purported class action, in which the amount claimed has not been quantified if certified, which at this early stage it is not possible to assess their chances of success.

Of all the consumer purported class actions, in five purported class actions in a total amount estimated by the plaintiffs to be approximately NIS 253 million and in additional purported class action for approximately NIS 28 million that has been filed against the Group and other defendant together without specifying the amount claimed from the Group, and in additional purported class that has been filed against the Group without specifying the amount claimed from the Group, settlement agreements or dismissal arrangements were filed with the court and the procedures are still pending.

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 31 - Contingent Liabilities (cont'd)

During the reporting period, the Supreme Court annulled the previously reported District Court judgment from December 2011 against the Company in a class action, and approved a settlement agreement according to which the Company shall repay the sum of approximately NIS 11 million plus interest and CPI linkage differences. An additional 12.5% of the sum will be paid to the plaintiffs and their attorneys. As of December 31, 2014, the Company fully executed the settlement agreement. The class action was filed against the Company in March 2008, for an estimated sum of NIS 440 million and alleged that the Company breached the agreements with its subscribers by charging them for a call detail service that was previously provided free of charge, without obtaining their consent.

After the end of the reporting period, three purported class actions have been filed against the Group. Two of these purported class actions are in a total amount of approximately NIS 16 million and another purported class action is for NIS 15 billion (see additional details below). At this early stage it is not possible to assess their chances of success.

After the end of the reporting period, six purported class actions against the Group, in the total sum estimated by the plaintiffs to be approximately NIS 178 million, a purported class action, in which the amount claimed has not been quantified if certified as class action and a purported class action for approximately NIS 98 million, that has been filed against the Group and other defendants together without specifying the amount claimed from the Group, were dismissed.

After the end of the reporting period, in a purported class action filed against the Group in which the amount claimed has not been quantified, a settlement agreement was filed with the court and the procedures are still pending.

After the end of the reporting period, an appeal was filed challenging the dismissal with prejudice of a purported class action against the Group for approximately NIS 220 million. At this early stage it is not possible to assess the chances of success of the appeal.

Described hereunder are the outstanding consumer class actions and purported class actions against the Group broken down by amount claimed if the lawsuit is certified as class action, as of December 31, 2014:

Claim amount
Number of claims
Total claims amount (NIS millions)
Up to NIS 100 million
34
885
NIS 100-500 million
7
1,263
NIS 500-1 billion
1
606
Unquantified claims
8
-
Against the Group and other defendants together
7
958
Unquantified claims Against the Group and other defendants
4
-
 
Described hereunder is a purported class action against the Group, in which the amount claimed was NIS 1 billion or more:

After the end of the reporting period, a purported class action in a total amount estimated by the plaintiffs to be approximately NIS 15 billion, if the lawsuit is certified as class action, was filed against the Company, by plaintiffs alleging to be subscribers of the Company, claiming compensation for non monetary damages in connection with allegations that the Company unlawfully violated the privacy of its subscribers.
 
Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 31 - Contingent Liabilities (cont'd)

 
2.
Environmental claims

In the ordinary course of business, lawsuits have been filed against the Group in issues related to the environment, including lawsuits regarding non-ionizing radiation from cellular handsets and lawsuits in connection with the Company's sites. These are mostly purported class actions, relating to allegations for unlawful conduct or breach of license causing monetary and non-monetary damage (including claims for future damages).
 
As of December 31, 2014, there are two purported class actions against the Group in which the original total amounts claimed from the Group were approximately NIS 4.7 billion. In July 2014, the Court dismissed the motion to certify the class actions with prejudice except in respect of three issues that were detailed in settlements of similar class action claims made against Pelephone and Partner and approved by the court, which the Company was willing to adopt as well. These three issues relate to the cellular operators undertaking to provide certain information regarding non-ionizing radiation, sell certain accessories at a discount and conduct certain tests to handsets at certain circumstances, the execution of such undertakings is estimated by the Group in an immaterial amounts to the Group. In October 2014, after the end of the reporting period, the plaintiffs filed an appeal in respect of the settlements approved by court with Pelephone and Partner, inter alia, with respect to the tests to be conducted as aforesaid.

 
3.
Employees, subcontractors, suppliers, authorities and others claims

In the ordinary course of business, lawsuits have been filed against the Group by employees, subcontractors, suppliers, authorities and others which deal mostly in claims for breach of provisions of the law governing termination of employment and obligatory payments to employees, claims for breach of agreements, copyright and patent infringement and compulsory payments to authorities.

As of December 31, 2014, the amounts that are claimed from the Group under the said claims total approximately NIS 85 million. In addition, a lawsuit has been filed against the Company and two other cellular operators, for an alleged patent infringement in iPhone handsets, for non-monetary remedies. After the end of the reporting period, an additional lawsuit has been filed against the Group for approximately NIS 2 million. At this early stage it is not possible to assess its chances of success.

Liens and guarantees

As part of issuance of the Series B, F ,G, H and I debentures, the Company committed not to create liens on its assets, subject to certain exceptions.

The Group has given bank guarantees as follows:

 
a. 
To the Government of Israel (to guarantee performance of the License) - US $10 million.

 
b.
To the Government of Israel (to guarantee performance of the Licenses of the Group) - NIS 44 million.
 
 
c. 
To suppliers, government institutions and other - NIS 49 million.

Liens (Netvision)

During 2014 the Group repaid all its loans from the banks and thus removed all the floating pledges on the equipment, financial assets, property and rights, and the fixed pledges on the equipment, share capital and goodwill of Netvision, in favor of the banks.

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 32 - Regulation and Legislation

 
1.
Under an interim order issued by the Supreme Court in September 2010, the Company is unable to rely on the exemption from obtaining building permit for the construction of radio access devices in cellular networks, other than to replace existing radio access devices in certain conditions, until regulations limiting such reliance are enacted or a different decision by the court is made. Draft regulations submitted to the Economy Committee of the Israeli Parliament in March 2010 for approval, include significant limitations on the exemption which will render the construction of radio access devices based on the exemption to practically impossible. In September 2014 the court suggested the parties shall come to an agreement, based on the 2010 draft   regulation and the parties are discussing such an arrangement.

 
2.
  In May 2012, the Israeli Minister of Communications published a policy document regarding wireline wholesale services, which mainly provides for: (1) the creation of an effective wholesale telecommunications access market in Israel, as Bezeq and Hot will allow other operators that do not own an infrastructure, to use their infrastructure in order to provide services to end users; (2) The wholesale market's tariffs and terms of agreement shall be agreed through negotiations between the owners of the wireline infrastructure (Bezeq and Hot) and the other operators and once agreed will be offered on the same terms, to all other operators, including the owner's affiliates; (3) the annulment of the structural separation between an owner of wireline infrastructure and its international landline operator and internet service provider affiliates and replacement thereof with an accounting separation within nine months from the date of execution of an agreement between the owner and another operator with a significant market share, unless the Minister of Communications finds that such annulment may considerably harm competition or the public. The Minister of Communications shall consider providing leniencies in relation to or annulment of the structural separation between an owner of wireline infrastructure and its cellular operator affiliate according to the pace of development of a wholesale market and the state of competition in the market. In case an effective wholesale market does not develop within twenty four months from the date of the policy document, the Ministry of Communications shall act to impose a structural separation in the owners of the wireline infrastructure between the infrastructure and the services provided through this infrastructure;(4) the annulment by the Minister of Communications of the structural separation in relation to television broadcasting services if there is a reasonable possibility of providing a basic package of television services through the internet by providers without a national landline infrastructure. The Minister of Communications shall consider imposing a requirement to provide television broadcasting services for the same price within a package of telecommunications services and separately; and (5) a change of the supervision on Bezeq retail tariffs to maximum tariffs rather than the current setting of fixed tariffs within six months from the date of execution of an agreement between Bezeq and another operator.
 
In January and November, 2014, the Ministry of Communications set the types of landline services that shall be offered through the wholesale landline market, which include internet infrastructure services and wholesale landline telephony services and the use of certain of their physical infrastructure by operators who do not own such infrastructure, and the terms for their provision, and the maximum tariffs of the wholesale landline services to be provided by Bezeq. Bezeq filed a petition with the Israeli Supreme Court against the Ministry of Communications decisions. The wholesale landline market was formally launched in Israel in February 2015.

 
Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 32 - Regulation and Legislation (cont'd)

 
3.
In August 2012, the Communications Law was amended so as to set gradual financial sanctions on communication operators, for breach of their licenses, the sum of which shall be calculated as a percentage of the operator's income and based on the gravity of the breach. The maximum amount per violation that may be imposed is approximately NIS 1.6 million plus 0.225% of the Company's annual revenue for the preceding year. The Ministry of Communications published criteria to be used for determining the sum of the imposed sanctions, including the impact on the competition, the duration of the violation, the number of subscribers affected, the benefit to the operator from the violation and prior violations. Following the publication of the guidelines, the MOC has substantially increased its supervision activities and imposed monetary sanctions, including on the Company (in immaterial sums).
 
 
4.
In August 2013, the Communications law was amended so as to authorize the Minister of Communications to give instructions and to set interconnect tariffs and usage of another operator's network rates and supervised services prices, based not only on previous method of cost (according to a calculation method determined by the Minister of Communications) plus reasonable profit, but also on the basis of one of the following: (1) payment for services provided by a licensee; (2) payment for a comparable service; or (3) comparison to such services or interconnect tariffs in other countries. In addition, the Minister of Communications was authorized to give instructions in relation to structural separation for the provision of different services, including between services provided to a licensee and services provided to a subscriber.
 
 
5.
In May 2014, the Ministry of Communications published a network sharing policy and later in July 2014, as part of the 4G frequencies tender documents, a draft license amendment which sets certain specific requirements for the approval of such sharing (some of which were amended during the tender process). The policy, as complemented by the draft license includes the following principles: (1) sharing of passive elements of cell sites and active sharing of antennas among all cellular operators are encouraged; (2) active sharing of radio networks using shared equipment and frequencies will be allowed only between an operator with a partial 3G network deployment and an operator with a full 3G network deployment, whereas such sharing will not be allowed for two operators with full 3G network deployment. Active sharing of radio networks in which the operators will use separate frequencies is possible in particular circumstances; (3) sharing of transmission from cell sites among operators sharing frequencies is generally allowed; (4) Investing in a 4G network will be considered as meeting an operator's undertaking to deploy a 3G network under certain conditions; (5) active sharing of radio networks using shared equipment and frequencies and certain other sharing agreements require the prior approval of the Ministry of Communications. Approval of active sharing of radio networks using shared equipment and frequencies is conditioned upon the following:
 
 
●
There will be at least 3 independent cellular radio networks in Israel;
 
 
●
The sharing operators must allow other operators to join at equal terms to those awarded to the operator with the smallest market share;
 
 
●
Each sharing operator may host a Mobile Virtual Network Operator without the other operator's consent;
 

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 32 - Regulation and Legislation (cont'd)
 
 
●
Each sharing operator will be responsible for the provision of cellular services under its license. An indefeasible right of use for the duration of the sharing may be considered as meeting this principle;
 
 
●
Approvals will be granted for a limited period and may be extended;
 
 
●
The shared radio network will be operated through a joint entity held equally by the sharing operators but structurally separated from each of them, which will be required to obtain a license from the MOC but will not be allocated frequencies and each of the sharing operators shall enter into a usage agreement with it. The shared network shall use the frequencies allocated to the sharing operators;
 
 
●
The radio elements of the shared network will be held in equal parts by the sharing operators; each of the sharing partners will have a right of use in the other partner's passive infrastructure following termination of the agreement;
 
 
●
Additional principles relating to the execution of such sharing and its termination.
 
 
6.
In July 2014, the Israeli Ministry of Communications published an 1800MHz frequencies tender, for 4G technologies (such as LTE, LTE Advanced). Participation in the tender was open for all current MNOs, MVNOs and other entities meeting certain condition and bands were awarded to the highest bidders. All existing MNOs and Marathon won bands in the tender and Marathon is expected to be awarded an MNO license. Under the tender terms, Marathon, Golan and Hot Mobile are eligible for up to 50% discount, 10% discount for each 1% addition to their market share, obtained over the next 5 years. See also Note 30(2).
 
 
7.
Under the Communications Law, 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, and if the Ministry of Communications together with the Ministry of Finance determine that the failure to reach an agreement is due to unreasonable conditions imposed by the cellular operator, the Ministry of Communications may intervene in the terms of the agreement, including by setting the price of the service. In November 2014 the Ministry of Communications published the principles for reviewing the reasonability of MVNO hosting agreements, including existing agreements which the MVNO request to update if the existing agreement hinders its ability to compete and the parties fail to reach an agreement as to its update, to be carried out in light of the best offer made by the cellular operator to a business customer.
 

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 33 - Related Parties
 
A. 
Balance sheet
 
   
December 31,
   
December 31,
 
   
2013
   
2014
 
   
NIS millions
   
NIS millions
 
             
Current assets
    190       5  
Current liabilities
    2       1  
Long-term liability - debentures (including current maturity)*
    157       136  
 
 
*
Debentures balance held by related parties, which includes debentures held for the benefit of the public, through, among others, provident funds, mutual funds and pension funds, as of December 31, 2014 and 2013, is NIS 179 million par value linked to the CPI and NIS 184 million par value linked to the CPI, respectively.

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

   
Year ended December 31,
 
   
2012
   
2013
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
 
                   
Income:
                 
                   
Revenues
    8       8       12  
                         
Expenses:
                       
                         
Cost of revenues and other
    28       26       24  
 
In the ordinary course of business, from time to time, the Group 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 Group has examined said transactions and believes them to be on commercial terms comparable to those that the Group could obtain from/ provide to unaffiliated parties.

C. 
Key management personnel compensation

In addition to their salaries, the Group also provides non-cash benefits to executive officers (such as a car, medical insurance, etc.), and contributes to a post-employment defined benefit plan on their behalf.

The Group has undertaken to indemnify the Group'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 such indemnification letters is limited to the amounts the Group receives from the Group’s insurance policy plus 30% of the Group’s shareholders’ equity as of December 31, 2001 or NIS 486 million, adjusted for changes in the Israeli CPI.

Executive officers also participate in the Group’s share option program (see Note 20, regarding share-based payments).

Cellcom Israel Ltd. and Subsidiaries
 
 
Notes to the Consolidated Financial Statements

Note 33 - Related Parties (cont'd)

Key management personnel compensation is comprised of:

   
Year ended December 31,
 
   
2012
   
2013
   
2014
 
   
NIS millions
   
NIS millions
   
NIS millions
 
Short-term employee benefits
    3       4       3  
Share-based payments
    1       1       -  
                         
      4       5       3  

D.
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 linked to the Israeli CPI for June 2006. This agreement is for a term of one year and is automatically renewed for one-year terms (however the extension thereof after January 2015 requires the approvals of the parties organs according to the Israeli Companies Law), unless either party provides 60 days prior notice to the contrary.

E.
Agreements with Med Nautilus

As from January 2014, Netvision's agreements with Med Nautilus (see Note 30(7)), are no longer transactions in which a controlling owner has a personal interest.

 
 
F-71
 

 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Exhibit 4.8
 
 
 

 
 
INDENTURE FOR SERIES H AND SERIES I DEBENTURES
 
 
 
Made and executed in Tel Aviv, on June 23, 2014
 
As amended and restated on June 26, 2014
 
Between
 
Cellcom Israel Ltd. and Mishmeret Trust Company Ltd.
 
 
 
 

TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Table of Contents
 
Section
Subject
Page
The Indenture
 
1
Interpretation and Definitions
5
2
General
8
3
Issuance of Debentures
8
4
Appointment of the Trustee; Duties of the Trustee
10
5
Expansion of the Debenture Series and Issuance and Allocation of Additional Debentures and Securities
10
6
Negative Pledge Undertaking
13
7
Limitations on Distributions
16
8
Purchase of Series H Debentures and Series I Debentures by the Company and/or by a Subsidiary of the Company and/or by a Corporation Controlled by the Company
17
9.1
Early Redemption Initiated by TASE
18
9.2
Early Redemption Initiated by the Company
19
10
Acceleration
21
11
Claims and Proceedings by the Trustee
27
12
Trust for the Proceeds
29
13
Authority to Withhold Distribution of Funds
29
14
Notice of Distribution
30
15
Refrainment from Payment for a Reason Which is Beyond the Company's Control
30
16
Receipt from the Debenture Holders
32
17
Application of the Securities Law
32
18
Investment of Funds
32
19
The Company’s Undertakings vis-à-vis the Trustee
33
20
Additional Undertakings
34
21
Other Agreements
34
22
Trustee’s Fees
35
23
Special Authorities
36
24
Trustee’s Authority to Engage Proxies
37
25
Indemnification of the Trustee
38
26
Reports and Notices
42
27
Waivers, Compromises and/or Changes in the Indenture
43
28
The Debenture Holders’ Register
45
29
Appointment of a New Trustee and Expiration of the Trustee’s Office
45
30
Holders’ Meetings
46
31
Reporting to the Trustee
46
32
Rating
48
33
Applicable Law and Jurisdiction
48
34
Authorization for MAGNA
49
First Schedule of the Indenture – Series __ Debenture Certificate
50
The Terms and Conditions Overleaf
51
1
General
51
2
The Debentures
54
3
Payments of the Principal and Interest of the Debentures
59
4
Refrainment from Payment for a Reason which is Beyond the Company's Control
60
5
The Debenture Holders' Register
60
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
6
Transfer and Split of Debentures
61
7
Early Redemption
62
8
Waivers, Compromises and/or Changes in the Indenture
62
9
Debenture Holders’ Meetings
62
10
Replacement of Debenture Certificates
62
11
Applicable law and Jurisdiction
62
12
Notices
62
13
Urgent Representative Body of the Debenture Holders
63
Second Schedule of the Indenture – Debenture Holders’ Meetings
67
 

 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
I N D E N T U R E
 
Made and executed in Tel Aviv, on July 23, 2014
 
Between:
     
 
Cellcom Israel Ltd.
   
 
of 10 HaGavish St., Netanya
   
 
Telephone: 052-9989595
   
 
Fax: 09-8607986
   
 
(the “ Company ” or “ Cellcom ”)
 
of the First Part;
       
And :
     
 
Mishmeret Trust Company Ltd.
   
 
of 48 Menahem Begin St., Tel Aviv
   
 
Telephone: 03-6374351
   
 
Fax: 03-6374344
   
 
(the “ Trustee ”)
   
     
of the Second Part;
 
Whereas
On June 22, 2014,   the Company’s board of directors approved the publication of a shelf prospectus (the “ Prospectus ” or the “ Shelf Prospectus ”) according to which the Company might issue, in the framework of Shelf Offering Reports, inter alia , series of debentures that are not convertible into shares of the Company; and
   
Whereas
The Trustee represents that it is a private company that is limited in shares, incorporated in Israel, the main purpose of which is to engage in trusts, and that it complies with all of the requirements and terms of qualification under any law, including under the Securities Law, 5728-1968, to act as a trustee for the Debentures contemplated by this Indenture; and
   
Whereas
The Trustee declares that it is under no impediment according to any law or agreement by which it is bound against in its engagement with the Company in this Indenture, including in respect to conflicts of interests which prevent its engagement with the Company as aforesaid; and the Company represents that there is no impediment under any law or agreement against effecting an issuance of the Debentures and/or against its engagement with the Trustee in this Indenture; and
   
Whereas
The Trustee has agreed to operate as a trustee of the Holders of the Debentures contemplated by this Indenture, according to the terms and conditions of the trust specified in this Indenture below;
 
NOW, THEREFORE, it has been agreed, declared and stipulated between the parties as follows:
 
1.
Interpretation and Definitions
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
1.1.
The preamble of this Indenture and the schedules thereto constitute an integral part hereof.
 
 
1.2.
The division of this Indenture into sections as well as the provision of headings to sections, were done for purposes of convenience and as reference only, and may not be used for interpretation.
 
 
1.3.
Anywhere in this Indenture stating “subject to any law” (or a similar expression), the intention is it being subject to any mandatory law.
 
 
1.4.
Anything stated in this Indenture in the plural shall also imply the singular and vice versa, and anything stated in the masculine shall also imply the feminine and vice versa, and anything referring to a person, shall also imply to a corporation, and all when there is no other explicit or implicit provision herein or if the content of matters or context thereof does not mandate otherwise.
 
 
1.5.
The Company undertakes that the Series H and Series I Debentures which shall be initially issued by virtue of the shelf offering report pursuant to which the Series H and I Debentures shall be initially offered, shall be registered for trade on TASE.
 
 
1.6.
The terms specified below shall have in this Indenture the meaning stated alongside them, unless another intention is implicated from the content of matters or the context thereof, or if explicitly stated otherwise:
 
This or the “ Indenture ” -
 
This Indenture, including the schedules attached thereto, constituting an integral part thereof, in their form as amended from time to time.
     
The “ Debentures ” or the “ Relevant Series ” -
 
Series H Debentures or Series I Debentures, as applicable.
     
The “ Series H Debentures ” -
 
Registered Series H Debentures of the Company, the terms of which will be according to the Debenture Certificate (the form of which is attached in the First Schedule hereof), which shall be issued from time to time by the Company, according to its sole discretion.
     
The “ Series I Debentures ” -
 
Registered Series I Debentures of the Company, the terms of which will be according to the Debenture Certificate (the form of which is attached in the First Schedule hereof), which shall be issued from time to time by the Company, according to its sole discretion.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
The “ Trustee ” -
 
Mishmeret Trust Company Ltd. and/or anyone who shall serve from time to time as a trustee of the Debenture Holders pursuant to this Indenture.
     
The “ Register ” -
 
The register of the Debenture Holders, as set forth in Section 28 of this Indenture.
     
“ Debenture Certificate ” -
 
A debenture certificate, the form of which appears in the First Schedule of this Indenture and which shall be issued according to the terms of this Indenture.
     
The “ Law ” or the “ Securities Law ” -
 
The Securities Law, 5728-1968 and the regulations promulgated thereunder, as in effect from time to time.
     
“ TASE ” -
 
The Tel Aviv Stock Exchange Ltd.
     
“ TASE Clearinghouse ” -
 
The Tel Aviv Stock Exchange Clearing House Ltd.
     
The “ Debenture Holders ” and/or the “ Debenture Owners ” and/or the “ Holders ” -
 
Shall bear the meaning ascribed to the terms “Holder” and “Holder of Certificates of Indebtedness” in Section 35A of the Securities Law.
     
“ Business Day ” -
 
Any day on which the TASE Clearinghouse and most of the banks in Israel are open for the performance of transactions.
     
“ Trading Day ” -
 
Any day on which trade is carried out on the Tel Aviv Stock Exchange Ltd.
     
“ Special Resolution ” -
 
A resolution adopted at a general meeting of the Debenture Holders, in which a legal quorum was present as specified in Section 14 of the Second Schedule of the Indenture, and which was adopted (whether in the original meeting or the adjourned meeting) by a majority of at least seventy five percent (75%) of the overall votes of the participants counted in the vote, not including abstainers.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
“ TASE Directives ”
 
The provisions of the TASE rules, the regulations thereunder and bylaws of the TASE Clearinghouse (as applicable).
 
It is clarified, that the Debentures, their terms and the terms of this Indenture, shall be subject to the TASE Directives in their form as in effect from time to time, for as long as the Debentures are traded on TASE.
     
The “ Companies Law ”
 
The Companies Law, 5759-1999, in its form as in effect from time to time.
     
The “ Transfer Agent ”
 
Israel Discount Bank Nominees Ltd. or any other nominee company with which the Company shall engage, at its sole direction, provided that all of the Company’s series of securities shall be registered in the name of the same nominee company
     
“ Rating Agency ”
 
Means as such term is defined in the Securities Regulations (Details of the Prospectus and Draft Prospectus – Structure and Form), 5729-1969, and which was approved by the Capital Market Commissioner.
 
2.
General
 
 
2.1.
The provisions of this Indenture shall apply only to the Debentures of the Relevant Series.
 
 
2.2.
The Trustee’s execution of this Indenture shall not constitute an expression of its opinion as to the quality of the Debentures of the Relevant Series or the advisability of investment therein.
 
 
2.3.
The Series H Debentures shall equally rank, pari passu , among themselves in respect of the Company’s undertakings pursuant to the Series H Debentures, and without any preference or priority of one over the other.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
2.4.
The Series I Debentures shall equally rank, pari passu , among themselves in respect of the Company’s undertakings pursuant to the Series I Debentures, and without any preference or priority of one over the other.
 
3.
Issuance of the Debentures
 
The Company will be entitled to issue under the terms and conditions of this Indenture:
 
 
3.1.
An aggregate nominal value of up to NIS 5,000,000,000 of registered Series H Debentures, of NIS 1 par value each, linked (principal and interest) to the Consumer Price Index (pursuant to the linkage terms specified in Section 2 of the Terms and Conditions Overleaf), which shall mature (principal) in 7 (seven) unequal annual payments which shall be paid on the 5 th of July of each of the years 2018 to 2024 (inclusive), as follows: (1) 3 (three) equal payments of 12% of the amount of the principal of the Series H Debentures on the 5 th of July of each of the years 2018 to 2020; and (2) 4 (four) equal payments of 16% of the amount of the principal of the Series H Debentures on the 5 th of July of each of the years 2021 to 2024. The principal of the Series H Debentures shall bear an annual interest at a rate which shall be determined in a tender that shall be held in connection with their initial offering. The interest on the unpaid balance of the principal of the Series H Debentures shall be paid in semiannual payments on the 5 th of January and the 5 th of July of each of the years 2015 to 2024 (inclusive) for the interest period ending on the payment date. The first interest payment shall be paid for the period commencing on the Trading Day transpiring after the day of the tender and ending on the first interest payment date transpiring after the day of the tender (inclusive), calculated on the basis of 365 a year according to the number of days in the aforesaid period.
 
 
3.2.
An aggregate nominal value of up to NIS 5,000,000,000 of registered Series I Debentures, of NIS 1 par value each, which shall mature (principal) in 8 (eight) unequal annual payments which shall be paid on the 5 th of July of each of the years 2018 to 2025 (inclusive), as follows: (1) 3 (three) equal payments of 10% of the amount of the principal of the Series I Debentures on the 5 th of July of each of the years 2018 to 2020; and (2) 5 (five) equal payments of 14% of the amount of the principal of the Series I Debentures on the 5 th of July of each of the years 2021 to 2025. The Series I Debentures shall not be linked (principal and interest) to any index or currency whatsoever. The principal of the Series I Debentures shall bear an annual interest at a rate which shall be determined in a tender that shall be held in connection with their initial offering. The interest on the unpaid balance of principal of the Series I Debentures shall be paid in semiannual payments on the 5 th of January and the 5 th of July of each of the years 2015 to 2025 (inclusive) for the interest period ending on the payment date. The first interest payment shall be paid for the period commencing on the Trading Day transpiring after the day of the tender and ending on the first interest payment date transpiring after the day of the tender (inclusive), calculated on the basis of 365 a year according to the number of days in the aforesaid period.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
3.3.
For additional details, including in respect of an adjustment mechanism of the interest rate as a result of a change in rating of the Debentures of the Relevant Series, see Sections 2 and 3 of the Terms and Conditions Overleaf. For details regarding the Company’s entitlement to effect an early redemption and regarding an early redemption initiated by TASE of the Debentures of the Relevant Series, see Section 9 below.
 
 
If after the date of the initial issuance of the Debentures of the Relevant Series by the Company, the Relevant Series shall be expanded by the Company, the Holders of Debentures of the Relevant Series which will be issued within the framework of the expansion of such series, shall not be entitled to receive payment on account of principal and/or interest and/or linkage differentials, to the extent applicable, for the Debentures of the Relevant Series in respect of which the effective date for payment shall occur prior to their date of issuance as aforesaid.
 
 
3.4.
The Company hereby undertakes to pay all of the amounts of the principal, interest (including arrears interest, and adjusted interest in the event of a downgrade beyond the Downgraded Rating as defined in Section 2.7 of the First Schedule – the Terms and Conditions Overleaf, to the extent applicable, and including the arrears interest, to the extent applicable) and including the linkage differentials pursuant to the terms of the Debentures and to comply with all of the other conditions and undertakings imposed thereon pursuant to the terms of the Debentures and this Indenture.
 
4.
Appointment of the Trustee;   Duties of the Trustee
 
 
4.1.
The Company hereby appoints the Trustee as a first trustee for the Holders of the Debentures of the Relevant Series, in accordance with the provisions of Section 35B of the Securities Law.
 
 
4.2.
The term of appointment of the first trustee and its reappointment or the appointment of another trustee upon its termination thereof, shall be in accordance with the provisions of the law. Should the first trustee be replaced, the provisions of Sections 29.2 to 29.4 below shall apply; all – subject to the provisions of any law.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
4.3.
The duties of the Trustee shall be in accordance with any law and this Indenture.
 
5.
Expansion of the Debenture Series and Issuance and Allocation of Additional Debentures and Securities
 
 
5.1.
The Company shall be entitled, from time to time, without requiring an approval from the Trustee and/or the Holders of the Debentures of the Relevant Series existing at the time, to expand the Debenture Series of the Relevant Series and to issue additional Debentures of the Relevant Series (whether through a private offering, through the framework of a Prospectus, according to a Shelf Offering Report or otherwise), including to an Affiliated Holder as defined in Section 8 below, at any price and in any manner that the Company shall deem fit, including at a discount or a premium rate (including with no discount or premium) different than those that prevailed (if any) in other issuances which were carried out for Debentures of the Relevant Series, if any were made, provided that it shall provide prior notice to the Trustee in respect thereof. The Trustee shall serve, subject to the provisions of any law and the Indenture, as a trustee for the Debentures of the Relevant Series, as they shall be from time to time in circulation, also in the case of an expansion of a series and the consent of the Trustee to the service as aforesaid for the expanded series, will not be required. Series H Debentures which will be in circulation and additional Series H Debentures, which will be issued (if any) as stated in this Section above, shall constitute (commencing on the date of issuance thereof) one series for all intents and purposes, and this Indenture shall apply also in respect of all of such additional Series H Debentures. The Series I Debentures which will be in circulation and additional Series I Debentures, which will be issued (if any) as stated in this Section above, shall constitute (commencing on the date of issuance thereof) one series for all intents and purposes, and this Indenture shall apply also in respect of all of such additional Series I Debentures. It shall be clarified that in any event of an expansion of a Debenture Series, should the discount rate that shall be determined in the context of a Debenture issuance be higher than the series’ discount rate immediately prior to the expansion thereof (including without discount), there may be cases where tax shall be withheld for discount fees at a rate that is higher than the discount fees determined for the Debenture Holder prior to the expansion of the Series, whether or not the approval of the Tax Authority for the determination of a uniform discount rate for the series shall have been obtained.
 
Should the discount rate that shall be determined for the Debentures of the Relevant Series due to an expansion of the series be different to the discount rate of the Debentures of the Relevant Series existing in circulation at such time, the Company shall file a request, prior to the
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
expansion of the series, to the Tax Authority in order to receive its approval whereby in respect of the tax withholding from the discount fees for the Debentures of the Relevant Series, a uniform discount rate shall be determined for the Debentures of the Relevant Series, according to a weighted formula taking into account the various discount rates of the same series, if any. In case such approval is obtained, the Company shall calculate the weighted discount rate for all of the Debentures of the Relevant Series prior to the date of expansion of the series, and shall publish the uniform weighted discount rate for the entire Series in an immediate report, prior to the expansion of the series as aforesaid, and shall withhold tax at the maturity dates of the Debentures of such series according to such weighted discount rate and pursuant to the provisions of the law. Should such approval not be obtained, the Company shall announce in an immediate report, prior to the issuance of the Debentures as a result of the expansion of the series of the failure to obtain such approval, and that the uniform discount rate shall be the highest discount rate created for the series. The Company shall withhold tax upon the maturity of the Debentures of the Relevant Series, according to the discount rate that shall be reported as aforesaid. Therefore, there may be cases where the Company shall withhold tax for discount fees at a rate higher than the discount fees determined for a Debenture Holder prior to the expansion of the Series. In such event, a Holder holding the Debentures prior to the expansion of the series and until the maturity of the Debentures, shall be entitled to file a tax report with the Tax Authority and be refunded for the tax withheld from the discount fees, to the extent he is entitled to such refund under law.
 
Notwithstanding the foregoing, an additional issuance of additional Debentures by way of expansion of the Relevant Series, shall be effected subject to the following: (1) the additional issuance of such Debentures in itself (and not any other reason or circumstance existing prior to such issuance) shall not derogate from the rating of such Debenture Series in a manner such that, after effectuation of the expansion of the Relevant Series, the Relevant Series shall be rated A (or a parallel rating thereto) or lower. In any event of such additional issuance, the Company shall inform the Trustee in writing, prior to the additional issuance as aforesaid, that such additional issuance complies with said condition. The Company shall attach the notice of the Rating Agency to the notice to the Trustee. The Trustee shall rely on the notice of the Rating Agency and shall not be required to perform additional examinations. It is clarified that the Company’s undertaking as set forth in this Section shall apply only to additional issuances of Debentures of the Relevant Series by way of a series expansion, and not in respect of the issuance of other series of debentures existing in circulation at such time by way of a series expansion, nor in respect of the issuance of other new securities, whether rated or not; (2)
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
at the date of the additional issuance the Company shall comply with the financial covenant specified in Sections 10.1.17 and 10.1.18 of this Indenture in accordance with its financial statements last published prior to the date of the additional issuance, and after the effectuation of the additional issuance. In addition, the Company shall provide the Trustee, at least 7 days prior to the actual effectuation of the additional issuance, with a written approval, signed by the senior financial officer at the Company, that the Company shall comply with the financial covenant, as aforesaid.
 
 
5.2.
In addition and without derogating from the aforesaid, the Company reserves the right to issue at any time additional series of debentures and/or other securities, of any type and kind whatsoever, without requiring the approval from the Trustee and/or the Holders existing at the time, whether or not they shall confer a conversion right in the Company’s securities, and under terms of maturity, interest, linkage, collateral and other terms as it shall deem fit, whether they are preferable to the terms of the Debentures of any Relevant Series in circulation, equal thereto or inferior thereof.
 
 
5.3.
The Company undertakes not to issue series of new debentures having a preferred maturity rank to that of the Series H and I Debentures, other than debentures which shall be secured by way of a specific pledge or as specified in Section 6.1 and 6.2 below.
 
 
5.4.
Nothing stated in this Section above shall derogate from any rights of the Trustee and/or the Holders of the Debentures of the Relevant Series pursuant to this Indenture, if any.
 
6.
Negative   Pledge   Undertaking
 
 
6.1.
Subject to Section 6.2 below, as long as the Debentures of the Relevant Series are yet to be fully discharged, the Company shall not create and shall not agree to create in favor of any third party whatsoever, any pledges of any type and kind whatsoever at any rank, on its assets and rights, for securing any debt or undertaking whatsoever, unless it shall address the Trustee in writing prior to the creation of the pledge and inform it thereof, and in addition to such notice: (1) shall obtain the prior consent of the Debenture Holders, by Special Resolution, permitting the Company to create the pledge in favor of the third party; or, alternatively – (2) the Company shall create, in coordination with the Trustee, in favor of the Debenture Holders, concurrently with the creation of the pledge in favor of the third party, a pledge of the same kind, on the same asset and ranking equally, pari passu , with the third party for securing the full debt toward the Holders, and that such pledge shall be in force and effect for as long as the Debentures of the Relevant Series are yet to be fully discharged. The Company shall provide the Trustee with an original attorney certification whereby the pledge that the Company intends to create in favor of the Debenture Holders of the Relevant Series complies with said condition. The Company’s undertaking specified in this Section above shall be referred to as the “ Negative Pledge Undertaking ”.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
6.2.
Notwithstanding the foregoing, it is clarified, that the Negative Pledge Undertaking shall not apply to each of the following actions and pledges:
 
 
6.2.1.
Creation of a fixed pledge on assets that shall be purchased by the Company after the initial issuance of the Relevant Series (“ Said Assets ”), if the undertakings which are secured by such pledges were created for the purpose of purchasing Said Assets and/or for securing loans or credit received thereby for the discharge of loans or credit received for the purpose of purchasing Said Assets, provided that no pledges on additional assets over and above Said Assets be created as a result thereof.
 
 
6.2.2.
Creation of a fixed pledge on those parts of the Company’s assets that shall be expanded for the purpose of securing loans or credit received for the purpose of expansion of such assets.
 
 
 
6.2.3.
Pledge of assets or rights that were purchased (or that shall be purchased) under a pledge that was created prior to the purchase thereof.
 
 
 
6.2.4.
Rights of set-off, lien, collateral provided in the context of financial assets (derivatives etc.), that are provided to banks or financial institutions in the ordinary course of business therewith, and transfers for exposure hedging regulated under the Financial Asset Agreement Law, 5766-2006.
 
 
 
6.2.5.
A symbolic pledge (such as a deposit pledged at a nominal amount for securing debentures).
 
 
 
6.2.6.
A pledge or lien created by virtue of the law.
 
 
 
6.2.7.
Pledge of assets which were sold by the Company and were fully paid for prior to the date of creation of the pledge, but the registration of the change of ownership therein in the name of the purchaser is yet to be completed.
 
 
 
6.3.
In the context of the annual report to be delivered to the Trustee as specified in Section 31.3 of the Indenture, the Company shall declare that it has complied with the undertaking set forth in Section 6.1 above, such affidavit bearing the signature of the senior financial officer at the Company, while specifying relevant explanations (to the extent necessary), and shall attach an updated pledge printout of the Company. The Trustee shall rely on the Company’s confirmation and shall not be required to perform any further examination.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
6.4.
Whenever the Company shall create a pledge in favor of the Holders as set forth in sub-section (2) of Section 6.1 above, and such pledge requires registration in the pledge register maintained with the Registrar of Companies or any other register maintained under any law, including for the purpose of perfecting the pledge, the pledge shall be deemed duly registered only after the Company have provided the Trustee with all of the following documents: (1) a pledge document whereby the pledge was registered in favor of the Trustee, bearing the Company’s original signature and originally stamped as “received” by the official stamp of the bureau of the Registrar of Companies or any other bureau or registrar as shall be required under any law, bearing a date which is no later than twenty one (21) days of the date of execution of the pledge document; (2) details of mortgages and pledges notice (Form 10), originally stamped as “received” by the bureau of the Registrar of Companies or any other bureau or registrar as shall be required under any law, bearing a date which is no later than twenty one (21) days of the date of creation of the notice; (3) an original certificate of pledge registration from the Registrar of Companies or any other bureau or registrar as shall be required under any law; (4) a pledges printout from the Registrar of Companies or any other bureau or registrar as shall be required under any law under which the aforesaid pledge was registered; (5) an affidavit by a senior officer of the Company whereby there is no pledge contradicting or conflicting with the Company’s undertakings toward third parties, all in a form which shall be acceptable to the Trustee pursuant to its reasonable discretion; (6) a legal opinion issued by the Company’s legal advisor, inter alia , in respect of the nature of the rights of the pledger in the pledged asset, the manner of registration of the pledge, its validity, creditor priority, legality and the fact that it is exercisable and enforceable against the pledging entity under the law applying in Israel, in a form acceptable to the Trustee, pursuant to its reasonable discretion.
 
Unless expressly provided otherwise in this Indenture, the Company shall be entitled to sell, lease, deliver and/or transfer in any other manner, its property, in whole or in part, in any manner whatsoever, in favor of whom it deems fit, without requiring any consent by the Trustee and/or Debenture Holders of the Relevant Series.
 
Other than the Negating Pledge Undertaking specified above, Debentures of the Relevant Series are not secured by any collateral, pledge or otherwise.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
For the avoidance of doubt it is clarified, that the Trustee is not obligated to examine, and de-facto the Trustee did not examine, the need to provide collateral for securing the payments to the Holders of Debentures of the Relevant Series. The Trustee was not requested to perform and de-facto did not perform a financial, accounting or legal due diligence review as to the financial position of the Company or its subsidiaries. By engaging in this Indenture, and by the Trustee’s consent to serve as trustee for the Holders of Debentures of the Relevant Series, the Trustee does not opine, whether expressly or implicitly, as to the Company’s ability to fulfill its undertakings towards the Holders of Debentures of the Relevant Series. The foregoing shall not derogate from the Trustee’s duties under any law and/or the Indenture, and in such context shall not derogate from the Trustee’s duty (to the extent that such duty applies to the Trustee under any law) to examine the influence of changes in the Company from the date of issuance of the Series H Debentures and the Series I Debentures onwards, to the extent that they may adversely affect the Company’s ability to fulfill its undertakings towards the Holders of Debentures of the Relevant Series.
 
7.
Limitations on Distributions
 
The Company undertakes, that as long as the Debentures of the Relevant Series are yet to be fully discharged, it shall not be entitled to effect a distribution (as such term is defined in the Companies Law), including a distribution of a dividend to its shareholders, in an amount exceeding 95% of the Company’s amount of profit, as defined in Section 302 of the Companies Law (the “ Maximal Distribution Rate ”) at the date of the resolution of the board of directors in respect of such distribution. Notwithstanding the foregoing, if the Debt to EBITDA Ratio (as such term is defined in Section 10.1.17 of the Indenture) shall exceed 3.5, the Maximal Distribution Rate shall be 85% of the Company’s amount of profit, as defined in Section 302 of the Companies Law, and if the Debt to EBITDA Ratio (as such term is defined in Section 10.1.17 of the Indenture) shall exceed 4, the Maximal Distribution Rate shall be 70% of the Company’s amount of profit, as defined in Section 302 of the Companies Law.
 
The distribution of a dividend shall be conditional upon the Company's compliance with the financial covenant described in Sections 10.1.17 and 10.1.18 of this Indenture and also that the effectuation of the distribution shall not result in a breach of such financial covenant at the date of the distribution. It is clarified, that an increase in the Debt to EBITDA Ratio causing a change in the Maximal Distribution Rate, shall not prevent the Company from distributing dividends and it will be entitled to carry out the distribution up to the Maximal Distribution Rate.
 
It is clarified that as of the date of execution hereof, other than its aforesaid undertaking, the Company is not subject to any limitation whatsoever on effecting a distribution (as such term is defined in Section 302 of the Companies Law) other than as specified below: (1) limitations similar to the limitations set forth in this Section 7 as aforementioned, which were included in the indenture by virtue of which the Company’s Series F Debentures and Series G Debentures which issued and which apply to the Company for as long as such debentures are yet to be fully discharged; (2) limitations applying to the Company by virtue of the Companies Law in respect of the effectuation of a distribution; (3) limitations originating from the Company’s license to provide cellular communication services as specified in the Company’s 2013 Annual Report which was filed on Form F-20 (which was submitted to the Israel Securities Authority on March 6, 2014 (reference No. 2014-01-007197)) under Item 8 - Dividend Policy.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
It shall be clarified that the afore-described limitations are limitations applying to the Company in connection with a distribution, as of the date of execution of this Indenture. In such context it shall be noted that the scope of limitations applying to the Company as aforesaid, including the foregoing limitations, may be updated and/or may change from time to time and the Company does not undertake to individually update the Debenture Holders and/or the Trustee in specific respect of any such update or change. It shall be further clarified that the description of such limitations as aforesaid shall not create an undertaking of the Company toward the Debenture Holders in any manner whatsoever.
 
8.
Purchase of Series H Debentures and Series I Debentures by the Company and/or by a Subsidiary of the Company and/or by a Corporation Controlled by the Company
 
 
8.1.
The Company reserves, subject to any provision of law, the right to purchase at any time and at any price and terms it deems fit (on TASE and/or outside thereof) Debentures of the Relevant Series that will be in circulation from time to time, without derogating from the discharge obligation by which it is bound  and subject to any law, from sellers who shall be elected according to its discretion and without a duty of approaching all of the Debenture Holders of the Relevant Series. The Company shall announce any such purchase by the Company in an immediate report. Debentures of the Relevant Series that were purchased by the Company shall be cancelled and delisted from trade on TASE (to the extent they are registered for trade thereon) and the Company shall not be entitled to re-issue them. In case that the Debentures of the Relevant Series will be purchased in the framework of their trading on TASE, the Company shall apply to the TASE Clearinghouse with an application to withdraw the Debenture Certificates thereof. The foregoing shall not derogate from the Company’s right for early redemption of the Debentures of the Relevant Series in the cases stated in this Indenture.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
8.2.
A subsidiary of the Company, a corporation controlled by the Company, a controlling shareholder of the Company, its relative (as such term is defined in the Securities Law) and/or a corporation controlled by any one of them (but other than a company to which the provisions of Section 8.1 above shall apply) (an “ Affiliated Holder ”), may purchase and/or sell from time to time on TASE or outside thereof (including in case of an issuance by the Company), Debentures of the Relevant Series according to their discretion and at any price they may deem fit (subject to any law). The Debentures which will be so held by an Affiliated Holder, will be deemed as its assets, will not be delisted from trade on TASE and will also be transferrable as the other Debentures of the Relevant Series. The Debentures of the Relevant Series that will be held by an Affiliated Holder shall not be counted for the purpose of determining the existence of a legal quorum at Holders’ meeting and shall not confer the Affiliated Holder with voting rights at such meetings.
 
 
8.3.
Nothing stated in this Section above shall derogate from the provisions of any law (including directives of the Israel Securities Authority) which apply to the Company, including in connection with the approvals required for effecting transactions with controlling shareholders (or in which the controlling shareholder has a personal interest) and/or in connection with the sale of securities to a subsidiary of the Company and public distribution thereof.
 
9.
Early Redemption of Debentures
 
 
9.1.
Early Redemption Initiated by TASE
 
In the event that the TASE shall decide on the delisting from trade of a Relevant Series of Debentures in circulation, because the value of the Relevant Series of Debentures had decreased below the amount prescribed in the TASE Directives regarding the delisting from trade of such Debenture Series, the Company shall effect an early redemption of such Debenture Series, as follows:
 
 
(a)
Within forty five (45) days from the date of the resolution of the board of directors of TASE regarding the delisting from trade as aforesaid, the Company shall announce an early redemption date on which a Holder of Debentures may redeem such Debentures. The notice of the early redemption date will be published in an immediate report and in two (2) daily newspapers with a wide distribution, published in Israel in Hebrew.
 
 
(b)
The early redemption date shall occur no earlier than seventeen (17) days from the date of publication of the notice and no later than forty five (45) days after such date, but not in the period between the effective date for payment of interest and the date of actual payment thereof.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
(c)
On the early redemption date the Company shall redeem the Debentures which the Holders had sought to redeem. The redemption consideration shall not be less than the nominal value of the Debentures plus linkage differentials, if any, and interest accrued until the date of actual payment, as set forth in the terms of the Debentures.
 
 
(d)
Determination of an early redemption date as aforesaid shall not prejudice the redemption rights prescribed in the Debentures of any of the Debenture Holders who shall not redeem them on the early redemption date as aforesaid, but such Debentures shall be delisted from the trade on TASE and, inter alia , the tax implications deriving therefrom shall apply to such Debentures.
 
 
(e)
Early redemption of the Debentures as aforesaid, shall not confer upon a Holder of Debentures which shall be so redeemed, the right to payment of principal and/or interest for the period after the redemption date.
 
 
9.2.
Early Redemption Initiated by the Company
 
The Company may, but shall not be obligated, according to its sole discretion, exercise an early redemption of Debentures of the Relevant Series, in full or in part, and in such case the following provisions shall apply, all subject to the directives of the Israel Securities Authority and the TASE Directives, as in effect at the relevant date.
 
The frequency of early redemptions shall not exceed one redemption per quarter. In the event that an early redemption is scheduled for a quarter during which an interest payment date or a partial redemption payment date or a final redemption payment date is also scheduled, the early redemption shall be effected on the date prescribed for such payment. For such purpose, a “ quarter ”, means any of the following periods: January-March, April-June, July-September, October-December.
 
The minimal scope of each early redemption shall not be less than NIS 1 million. Notwithstanding the foregoing, the Company may effect an early redemption at a scope lower than NIS 1 million, provided that the frequency of redemptions shall not exceed one redemption per year. The first possible date for early redemption shall be determined in the shelf offering report pursuant to which the Debentures shall be initially offered. Any amount discharged by way of early redemption by the Company, shall be discharged in respect of all of the Debenture Holders, pro rata , according to the nominal value of the held Debentures.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
Upon the adoption of a resolution by the Company’s board of directors in respect of the effectuation of an early redemption as aforesaid, the Company shall issue an immediate report of the early redemption to the Debenture Holders, in which the effective date for the effectuation thereof shall be determined in the immediate report and shall take place no less than seventeen (17) days and no more than forty five (45) days prior to the early redemption date.
 
The early redemption date shall not take place in the period between the effective date for payment of interest for the Debentures and the date of actual payment thereof. In the immediate report as aforesaid, the Company shall publish the amount of the principal to be discharged through early redemption as well as the interest accrued in respect of the said amount of principal until the early redemption date, according to the provisions below.
 
Early redemption for part of the Debenture Series shall not be effected if the amount of the last redemption was less than NIS 3.2 million. On a partial early redemption date, if any, the Company shall announce in an immediate report: (1) the rate of partial redemption in terms of the unpaid balance; (2) the rate of the partial redemption in terms of the original series; (3) the interest rate on the redeemed part in the partial redemption; (4) the interest rate to be paid in the partial redemption, calculated in respect of the unpaid balance; (5) an update of the partial redemption rates remaining, in terms of the original series; (6) the effective date for entitlement to receive the early redemption of the Debenture principal, which will take place twelve (12) days prior to the date scheduled for the early redemption.
 
The amount which will be paid to the Holders of Debentures of the Relevant Series in case of an early redemption initiated by the Company, will be the highest amount among the following: (1) the market value of the balance of the Debentures of the Relevant Series that are subject to early redemption, which will be determined according to the average closing price of the Debentures of the Relevant Series in the thirty (30) Trading Days preceding the adoption date of the board resolution regarding effectuation of the early redemption; (2) the liability value of the Debentures of the Relevant Series that are subject to early redemption, namely, principal plus interest and linkage differentials (if any), until the actual early redemption date; (3) the cash flow balance of the Debentures of the Relevant Series subject to early redemption (principal plus interest) (and linkage differentials (if any)) which is discounted according to the Government Debentures Yield (as defined below) plus interest at a rate of 1.5%. The discounting of Debentures of the Relevant Series that are subject to early redemption will be calculated commencing from the early redemption date until the last discharge date determined in respect of the Debentures of the Relevant Series that are subject to early redemption.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
For such purpose: the “ Government Debentures Yield ” means the average return (gross) for redemption, during a period of seven Business Days, ending two Business Days prior to the date of announcement of the early redemption, of three series of index linked government debentures or NIS government debentures, at a fixed or variable interest, all as the case may be (such that their terms shall be as similar as possible to the Debentures of the Relevant Series), and of which average lifetime is the closest to the average lifetime of the Debentures of the Relevant Series on the relevant date.
 
10.
Acceleration
 
 
10.1.
Upon the occurrence of one or more of the events specified below, the provisions of Section 10.2 below shall apply:
 
 
10.1.1.
If a material deterioration occurred in the Company’s business compared to its condition at the issuance date of the Debentures, and there is a real concern that the Company will not be able to repay the Debentures when due.
 
 
10.1.2.
If the Company failed to discharge any amount due therefrom to the Debenture Holders pursuant to the terms of the Debentures or pursuant to this Indenture.
 
 
10.1.3.
If the Company materially breached terms of the Debentures or the Indenture or if a material undertaking in favor of the Holders was not fulfilled, provided that the Trustee notified the Company thereof and demanded its rectification and the Company failed to rectify such breach within fourteen (14) days of the provision of the notice or if it is found that a material representation of the Company in the Debenture documents or in the Indenture is false and/or partial.
 
 
10.1.4.
The Company failed to publish a financial report which it is obligated to publish under any law, within 30 days of the last date on which it is obligated to publish such report.
 
 
10.1.5.
If a temporary liquidator had been appointed to the Company by a Court or a temporary liquidation order was issued or if the Company shall adopt a resolution for dissolution of the Company (except for dissolution for reasons of merger, as defined below, with another company and/or a restructuring of the Company), and such appointment or order or resolution had not been revoked within the earlier of forty five (45) days or thirty (30) Business Days from the date of appointment or order or resolution, as the case may be and if a permanent liquidator was appointed for the Company by the Court, or if a permanent liquidation order was issued, and the appointment or order as aforesaid had not been revoked within seven (7) days of the date of the appointment or the order, as applicable. For such purpose – a “ merger ” means – a merger executed after receipt of a prior approval of the Debenture Holders, unless the Company or the surviving entity, as applicable, has declared toward the Debenture Holders, including through the Trustee, at least ten (10) Business Days prior to the merger date, that there is no reasonable concern that due to such merger the Company or the surviving company, as applicable, will be unable to fulfill its undertakings toward the Debenture Holders or in the event of a merger between companies included in the Cellcom Group, as such term is defined in Section 10.1.10 of the Indenture, including the Company, whereas in such event no such declaration or prior approval of the Debenture Holders be required. It is hereby clarified that no grace period shall be afforded in respect of motions and/or orders submitted or issued by the Company or at its consent.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
10.1.6.
If an attachment shall be imposed, a pledge be exercised or execution actions be carried out, all on a Majority of the Company’s Assets, and such attachment or exercise had not been removed or the action have not been canceled within the earlier of forty five (45) days or thirty (30) Business Days after the attachment had been imposed or the pledge was exercised or the action was carried out. It is hereby clarified that no grace period shall be afforded in respect of motions and/or orders submitted or issued by the Company or at its consent.
 
 
10.1.7.
If a motion or an appointment of a temporary receiver  for a Majority of the Company’s Assets, which had not been dismissed or removed within forty five (45) days from the date of their filing or issuance, as the case may be, or thirty (30) Business Days, the earlier thereof or if an order for the appointment of a permanent receiver of a Majority of the Company’s Assets was issued, which had not been not revoked within seven (7) days of the date of the appointment thereof. It is hereby clarified that no grace period shall be afforded in respect of motions and/or orders submitted or issued by the Company or at its consent.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
10.1.8.
If the Company shall cease or shall announce its intention to cease the payment of debts thereof.
 
 
10.1.9.
If the Company shall cease to continue its business and/or to conduct its business as it shall be from time to time and/or shall notify the Trustee of its intention to cease from continuing to engage in the business thereof as it shall be from time to time and/or to conduct it and/or shall intend to cease from continuing in its business, as it shall be from time to time.
 
 
10.1.10.
If a third party that is a lender of the Company (except for a supplier of the Company) has accelerated the Company’s debts toward itself and the demand for acceleration has not been removed or delayed or settled within 35 days of the date of acceleration thereof. The foregoing in this sub-section shall not apply if the aggregate amount of debt in respect of which an acceleration right was created and triggered, is equal to NIS 150 million or less, other than Debenture Series issued by the Company and accelerated by the Trustee or by a Holders’ meeting in accordance with a resolution as specified in Section 10.2 below, in respect of which such limitation shall not apply.
 
For such matter it shall be clarified that non-recourse loans shall not be deemed as debt of the Company as set forth in this Section.
 
 
10.1.11.
If the Cellcom Group ceased to engage in the field of cellular communication and/or ceased to hold a license for the provision of cellular communication services for a period exceeding 60 (sixty) days. For such purpose – the “ Cellcom Group ” means – the Company and the companies held thereby.
 
 
10.1.12.
If trade of the Debentures of the Relevant Series was suspended by TASE pursuant to the provisions of Part Four of the TASE Rules, except for suspension in the cause of uncertainty as specified in the provisions of Part Four of the TASE Rules and forty five (45) days had passed since the suspension date, during which the cause for the suspension of trade was not rectified or removed, or if the Debentures of the Relevant Series were delisted from trade on TASE.
 
 
10.1.13.
If the Company shall carry out a distribution (as defined in the Companies Law) which does not comply with the conditions of Section 7 above.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
10.1.14.
If for a period of 60 consecutive days, the Debentures of the Relevant Series are not rated by any Rating Agency, provided that at least one Rating Agency is active in Israel at such time, and that the rating was terminated due to reasons and/or circumstances that were exclusively controlled by the Company.
 
 
10.1.15.
If the Company shall file a motion for a stay of proceedings or if such order is issued at the Company’s request or if the Company shall file a motion for a compromise or arrangement with its creditors pursuant to Section 350 of the Companies Law, or if the Company shall otherwise propose such compromise or settlement to its creditors, on the background of the Company’s inability to fulfill its undertakings when due (other than for the purpose of a merger (as such term is defined in Section 10.1.5 above) with another company and/or a restructuring of the Company or a split that are not prohibited under the terms of this Indenture, and other than arrangements between the Company and its shareholders which are not prohibited under the terms of this Indenture and which do not affect the Company’s ability to discharge the Debentures or – if a motion pursuant to Section 350 of the Companies Law be filed against the Company (without its consent) which had not been dismissed or removed within the later of 45 days or thirty (30) Business Days from the filing date thereof.
 
 
10.1.16.
If a Majority of the Company’s Assets was Sold to Another, as such terms are defined below, and the prior written consent of the Trustee for such sale was not obtained, which shall be provided after receipt of the consent of the Debenture Holders; but except for a sale the consideration therefrom was used or is expected to be used by the Company (according to its notice) for the purchase of an asset or other assets having characteristics befitting the Company’s fields of activity, as being at the date of such sale.
 
For such purpose, a “ Sale to Another ” means a sale to any third party whatsoever (including the Company’s controlling shareholders and/or corporations controlled thereby) but except for corporations included in the Cellcom Group (as such term is defined in Section 10.1.11 above) and provided that in the event of a sale to corporations included in the Cellcom Group (as such term is defined in Section 10.1.11 above) the Company has declared toward the Debenture Holders, including through the Trustee, at least ten (10) Business Days prior to the date of the sale, that there is no reasonable concern that due to such sale the Company shall be unable to fulfill its undertakings toward the Debenture Holders.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
10.1.17.
If the net debt to EBITDA ratio, excluding one-time effects (the “ Debt to EBITDA Ratio ”) shall exceed 5.
 
For such purpose: “ net debt ” means credit from banks and others and loans from banks and others and liabilities for the Debentures excluding cash and cash equivalents and current investments in tradable securities; and “ EBITDA ” – shall mean, in respect of the 12 month period preceding the Company’s latest financial statements - as income before depreciation and amortization, other net expenses/revenues, net financing expenses/revenues and taxes.
 
Within three (3) Business Days of the date of publication of the Company’s financial statements, the Company shall provide the Trustee with a certification signed by the senior financial officer of the Company, in which it shall indicate the net Debt to EBITDA Ratio, based on such financial statements. The Trustee shall rely on the Company’s certification and shall not be required to further examine such matter.
 
 
10.1.18.
If the Company shall not comply with the Debt to EBITDA Ratio (as such term is defined in Section 10.1.17 of the Indenture) which shall not exceed 4.5 during four consecutive quarters.
 
 
10.1.19.
If a merger was effected without receipt of the prior approval of the Debenture Holders, unless the Company or the surviving entity, as applicable, has declared toward the Debenture Holders, including through the Trustee, at least ten (10) Business Days prior to the merger date, that there is no reasonable concern that due to such merger the Company or the surviving company, as applicable, will be unable to fulfill its undertakings toward the Debenture Holders of the Relevant Series.
 
For the purpose of this Section 10.1.19: “ merger ” within its meaning in the Companies law, other than a merger between companies included in the Cellcom Group, as such term is defined in Section 10.1.11 of this Indenture, including the Company, whereas in such event no declaration of the Company or of the surviving company as aforesaid or a prior approval of the Debenture Holders as aforesaid be required.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
10.1.20.
If the Company breached its Negative Pledge Undertaking as set forth in Section 6.1 hereof and has not cancelled the pledges registered under such breach, within 30 days of the date of receipt of a warning thereof by the Trustee.
 
 
10.1.21.
There is a real concern that the Company shall not fulfill its material undertakings toward the Debenture Holders.
 
 
10.1.22.
A “going concern” note was recorded in the Company’s financial statements for a period of two consecutive quarters.
 
 
10.1.23.
If the Company issued additional Debentures through a series expansion while breaching its undertaking regarding series expansions set forth in Section 5.1 of this Indenture.
 
In this Section 10.1, a “ Majority of the Company’s Assets ” means assets of which overall amounts constitutes most of the overall amount of all of the assets as recorded in the consolidated report on the financial position according to the consolidated financial reports last issued by the Company prior to a relevant event as aforesaid.
 
 
10.2.
Without derogating from any right of the Trustee and/or of the Holders by virtue of the provisions of the Securities Law in respect of the acceleration of the Debentures, upon the occurrence of the events specified in Section 10.1 above, the following provisions shall apply:
 
 
[a]
The Trustee shall be entitled to convene a meeting of the Debenture Holders, on the agenda of which shall be a resolution to accelerate the balance of the Debentures of the Relevant Series in circulation, and it shall be obligated to do so at the demand of Holders of the Debentures of the Relevant Series.
 
 
The date of convening of such meeting shall be upon the expiration of twenty one (21) days of the date of its notice, however, the Trustee will be entitled, at its discretion, to shorten such period to a reasonable period in the circumstances of the matter, if the Trustee shall be of the opinion that holding of the meeting at such date shall prejudice the possibility of accelerating the Debenture. The Trustee shall not do so unless it first provided a prior notice to the Company in which it specified the reasons for shortening such notice period;
 
 
[b]
The Holders’ resolution to accelerate the Debentures of the Relevant Series shall be adopted at the Holders’ meeting, in which Holders of at least fifty percent (50%) of the balance of the nominal value of the Debentures of the Relevant Series were present, by a majority of the Holders of the balance of the nominal value of the Debentures represented at the vote or by such majority at an adjourned Holders’ meeting in which Holders of at least twenty percent (20%) of such balance were present;
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
[c]
In the event that until the date of adoption of the resolution at a Holders’ meeting for the acceleration of the balance of the Debentures as aforesaid, any of the events specified in Section 10.1 above have not been cancelled or removed, and a Holders’ resolution was adopted as aforesaid, the Trustee will be obligated to accelerate all of the unpaid balance of the Debentures of the Relevant Series;
 
 
[d]
The Trustee or the Holders shall not accelerate the Debentures unless they first delivered a notice to the Company of their intention to do so; however the Trustee or the Holders are not obligated to provide the Company with such notice, if there is a reasonable concern that the provision of such notice shall prejudice the possibility to accelerate the indebtedness;
 
 
[e]
It is clarified, that upon the occurrence of any of the events and/or causes specified in Sections 10.1.4, 10.1.5 to 10.1.7 (inclusive), 10.1.10, 10.1.12 and 10.1.20 above, or if another cause for acceleration of the Debentures was   established by law, which includes a reasonable period during which the Company is permitted to take an action or adopt a resolution which may result in the removal of such cause, the right of the Trustee and/or of the Holders to accelerate the Debentures as aforesaid in this Section 10, shall arise only if the grace period prescribed in such Sections or such law (as applicable) had lapsed, and the cause was not removed in the duration thereof. Notwithstanding, the Trustee may shorten the grace period as aforesaid if it believed that it may materially prejudice the rights of the Holders.
 
 
10.3.
It is hereby clarified that the Trustee’s duties according to this Section 10, are subject to the actual knowledge thereof of the occurrence of the facts, cases, circumstances and events specified therein, whether by virtue of public announcements released by the Company, notifications sent to the Trustee by the Company pursuant to the terms of this Indenture, or by virtue of information which otherwise has reached it in the context of its service as Trustee of the Debenture. This is not to derogate from the duties of the Trustee according to any law.
 
11.
Claims and Proceedings by the Trustee
 
 
11.1.
At any time after the Debentures of the Relevant Series have been accelerated, as set forth in Section 10 above, the Trustee shall be entitled, according to its discretion, to initiate any such proceedings, including legal proceedings and motions for instructions, as the Trustee shall deem fit, and subject to the provisions of any law, for the enforcement of the Company’s undertakings pursuant to this Indenture and for the exercise of the rights of the Debentures Holders under this Indenture.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
Subject to the provisions of this Section, after the Debentures of the Relevant Series have been accelerated, as set forth in Section 10 above, the Trustee shall be obligated to act as aforesaid in this Section if it shall be required to do so by a Special Resolution adopted at a meeting of the Holders of Debentures of such Series, pursuant to this Indenture, unless the Trustee determines that in the circumstances of the matter it is not just and/or reasonable to do so, and it filed with the competent court a motion for instructions on the subject matter at the first possible date.
 
 
11.2.
The Trustee may, prior to initiating proceedings as aforesaid, convene a meeting of the Debenture Holders pursuant to the provisions hereof, in order for such Holders to decide by way of a Special Resolution what proceedings to initiate in order to exercise their rights pursuant to this Indenture, provided that the meeting shall be convened at the first possible date pursuant to this Indenture, and the delay of the proceedings shall not risk the rights of the said Holders. Also, the Trustee will be entitled to reconvene meetings of Holders as aforesaid, for the purpose of receiving instructions in all matters pertaining to the conduct of such proceedings according to the aforesaid.
 
 
11.3.
It is clarified, that nothing in the provisions of this Section 11 shall derogate from the Trustee’s authority to convene, at any time, a general meeting of the Debenture Holders in order to discuss and/or receive the instructions thereof in respect of any matter concerning the Indenture.
 
 
11.4.
The Trustee may, according to its sole discretion, delay the performance of any action thereby according to the Indenture, for the purpose of referring to a meeting of the Debenture Holders and/or the Court until it receives instructions from the meeting of the Debenture Holders and/or from the Court as to how to act, provided that the convening of the meeting or application to the Court shall be carried out at the first possible date pursuant to the terms of this Indenture. The convening of a meeting of Debenture Holders by the Trustee in order to receive instructions as to how to act, shall not be deemed a breach of its duty under Section 35H of the Securities Law, provided that the convening of the meeting in itself shall not materially prejudice the rights of the Holders.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
11.5.
For avoidance of doubt it is hereby clarified that none of the provisions specified above may prejudice and/or derogate from the right of the Trustee, hereby conferred upon the Trustee, to apply, according to its sole discretion, to legal proceedings, even before the Debentures shall be accelerated, and thereafter, for the purpose of issuance of any order in respect of all matters regarding the trust.
 
 
11.6.
It is clarified, that the right to accelerate the Debentures shall arise only in accordance with and in the manner prescribed in Section 10 of the Indenture, and the provisions of this Section 11 shall not supplement such causes and rights of acceleration of the Debenture.
 
12.
Trust for the Proceeds
 
All of the proceeds held by the Trustee in connection with the Debentures of the Relevant Series, other than its fees, shall be held thereby in trust for the Holders of Debentures of the Relevant Series and shall serve in the hands thereof for the purposes and according to the order of priorities as follows:
 
First, for clearing expenses, payments, levies and liabilities expended by the Trustee, charged thereon, or incurred through or as a result of the actions of performing the trust or in another manner in connection with the terms of the Indenture, including the fee thereof, all in respect of the Debentures, and will use the balance, first - to pay sums under the “Indemnification Undertaking” as defined in Section 25 below; second - to pay the Debentures Holders the arrears in interest (including the arrears interest if any) due thereto according to the terms of the Debentures and subject to the linkage terms in the Debentures (if any),   pari passu and pro rata to the amount of the arrears in interest, owing to each of them with no preference or right of priority in respect of any of them; third - to pay the Debenture Holders the amounts of the principal due thereto according to the Debentures and subject to the linkage terms in the Debentures (if any), pari passu and pro rata to the amounts due thereto, with no preference regarding priority in time of issuance of the Debentures by the Company or otherwise; fourth -  in order to pay the Debenture Holders the interest amounts yet to mature and to which they are entitled under the Debentures held thereby, p ari passu and subject to the linkage terms in the Debentures (if any), pro rata to the amounts due thereto, with no preference regarding priority in time of issuance of the Debentures by the Company or otherwise; fifth - in order to pay the Debenture Holders the amounts of the principal yet to mature and to which they are entitled under the Debentures held thereby, p ari passu and subject to the linkage terms in the Debentures (if any), pro rata to the amounts due thereto, with no preference regarding priority in time of issuance of the Debentures by the Company or otherwise. The excess, if any, shall be paid by the Trustee to the Company or its successors. Withholding tax shall be deducted from the payments to the Debenture Holders, to the extent that such withholding is mandated under any law.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
Payment of the amounts by the Trustee to the Debenture Holders shall be effected according to the provisions of law.
 
13.
Authority to Withhold Distribution of Funds
 
Notwithstanding the provisions of Section 12 above, should the monetary amount received as a result of the initiation of the proceedings specified in Section 11 above and which will be available for distribution at any time to the Debenture Holders as aforesaid, will be less than NIS 1 million (the “ Minimal Amount ”), the Trustee shall not be obligated to distribute such and will be entitled to invest the said amount, in whole or in part, in investments permitted under the Indenture.
 
Once the aforesaid investments including the profits thereof, together with other funds which shall reach the Trustee for the payment thereof to the Debenture Holders, if any, shall amount to the Minimal Amount, or at the next date prescribed for effecting payment on account of the principal and/or interest under the Debentures (the earlier thereof), even if the amount accrued by the Trustee is less than the Minimal Amount, the Trustee shall be obligated to distribute said amount accrued thereby as aforesaid to the Debenture Holders. Notwithstanding the provisions of this Section above, the Debenture Holders may, pursuant to an ordinary resolution adopted thereby, instruct the Trustee to pay them the funds received by the Trustee and are available for distribution as stated in Section 12 above, even if the amount thereof is less than the Minimal Amount and even if the payment date of principal and/or interest under the terms of the Debentures has yet to arrive.
 
Nothing stated in this Section above shall derogate from the provisions of Section 12 above regarding the order to priorities of distribution of funds received by the Trustee and it shall be clarified, that payments which precede payment to the Holders in the order of priorities, as set forth in Section 12 above, shall be distributed and/or paid, as the case may be, immediately after receipt thereof, even if the amount accrued by the Trustee is lower than the Minimal Amount.
 
14.
Notice of Distribution
 
 
14.1.
The Trustee shall notify the Holders of the date and place on and in which any payment of the payments stated in Sections 12 and 13 above shall be made, by an advance notice of fourteen (14) days which will be delivered in the manner prescribed in Section 26 below.
 
 
14.2.
After the date specified in the notice, the Holders will be entitled to interest according to the rate set forth in the Debenture, only for the balance of the principal (if any) after deduction of the amount paid, or proposed to be paid to them, as aforesaid.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
15.
Refrainment from Payment for a Reason which is Beyond the Company's Control
 
 
15.1.
Any sum payable to a Debenture Holder and which was not actually paid on the due date for the payment thereof for a reason beyond the Company’s control, even though the Company was ready and able to pay the sum in full (the “ Impediment ”), shall cease to bear interest and linkage differentials, if any, from the aforesaid date and the said Holder shall be entitled only to those sums to which he was entitled on the maturity date of that payment on account of the principal and/or linkage differentials and/or interest (as applicable).
 
 
15.2.
If such sum as aforesaid has not been paid within fourteen (14) days of the due date for the payment thereof, then on the first Business Day after the due date for payment of such sum, the Company shall remit such sum to the Trustee, who shall hold the sum in trust for the Debenture Holder, and the transfer of the sum to the Trustee as aforesaid shall be deemed payment of such sum to such Holder. If the aforesaid sum is the last payment – the deposit of said sum in trust in the hands of the Trustee shall be deemed a redemption of the aforesaid Debentures. The Trustee shall deposit any sum held thereby in trust for Holders in the bank in investments permitted under the Indenture. After receiving from the Holder a notice of the removal of the Impediment, the Trustee shall remit to the Holder the funds accrued on the deposit and which resulted from the liquidation of the investment of the same, net of all of the expenses and management fees of the escrow account and net of any tax under law. The payment shall be made against the presentation of such evidence as shall be acceptable to the Trustee concerning the Holder’s right to receive the same.
 
 
15.3.
Upon the expiration of one year after the final date for discharge of the Debentures of the Relevant Series, the Trustee shall remit the sums accrued in its hands to the Company, net of expenses incurred pursuant to the terms of this Indenture, and the Company shall hold the same in trust and invest the same as provided in Section 15.2 above, for the Holder until the expiration of three (3) years after the date of the final discharge of the Debentures of the Relevant Series, and it shall make no use of the same during such period. With respect to the sums that shall be remitted to the Company by the Trustee as aforesaid, they shall be subject to the provisions of this Section 15, mutatis mutandis . After remitting the sums to the Company, the Trustee shall not owe to the Holders of Debenture of the Relevant Series any payment in respect of the sums held thereby as aforesaid.
 
 
15.4.
The Company shall confirm to the Trustee in writing that such sums were remitted thereto and the receipt of the same in trust for the Debenture Holders as aforesaid, and it shall undertake to indemnify the Trustee for any damage of any kind that the Trustee shall suffer for the remittance of the funds as aforesaid, provided that it acted in a reasonable manner and not in bad faith and/or malice and/or negligence. Funds as aforesaid which shall not be demanded from the Company by the Debenture Holder as aforesaid upon the expiration of three (3) years after the final discharge date of the Debentures, shall become the Company’s property and it shall be entitled to use the remaining funds for any purpose whatsoever. It is clarified, that the foregoing shall not derogate from the rights of the Debenture Holders under the law.
 
 
 
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
16.
Receipt from the Debenture Holders
 
 
16.1.
A receipt from a Holder or evidence from the transferring bank regarding the execution of the transfer or the execution of the transfer via the TASE Clearinghouse for the amounts of principal and/or interest and/or linkage differentials (as applicable) paid to such Holder by the Trustee and/or the Company for the Debentures, shall release the Trustee and/or the Company (as the case may be) entirely in respect of anything related to the payment of the amounts stated therein.
 
 
16.2.
A receipt from the Trustee concerning the deposit of the amounts of principal and/or interest and/or linkage differentials (as applicable therewith in favor of the Debenture Holder shall be deemed a receipt from the Debenture Holder.
 
 
16.3.
The funds distributed as provided in Section 15 above shall be deemed as made on account of the discharge of the Debentures.
 
 
16.4.
The Trustee shall be entitled to demand that a Debenture Holder  present to it, upon payment on account of the principal and/or interest and/or linkage differentials (as applicable), the Debenture Certificate for which the payments are made, or in the alternative, any other formal document signed by the Transfer Agent and/or a TASE member, attesting to the holding of the Debentures by him.
 
17.
Application of the Securities Law
 
 
In any matter not mentioned herein as well as in any case of conflict between the mandatory provisions of the Securities Law regarding Debentures of the Relevant Series and this Indenture, the parties shall act in accordance with the provisions of the Securities Law, with no necessity to amend the provisions of this Indenture.
 
18.
Investment of Funds
 
 
All of the funds which the Trustee may invest according to this Indenture shall be invested thereby solely in bank deposits with one of the five large banks in Israel or in governmental bonds, all subject to the terms of the Indenture and to the provisions of any law. If the Trustee invested funds as aforesaid, then in respect of such amounts, the Trustee shall owe the entitled parties only the consideration received from the realization of the investments, net of its fee and expenses, the commissions and expenses related to the investment as aforesaid and the management of the trust accounts, and net of the mandatory payments which apply to the trust accounts, and the Trustee shall act with respect to the balance of the funds in accordance with the provisions of the Indenture, as applicable.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
19.
The Company’s Undertakings vis-à-vis the Trustee
 
 
The Company assumes, vis-à-vis the Trustee, the following undertakings, for as long as the Debentures of the Relevant Series have not yet been fully paid-up:
 
 
19.1.
To continue managing the Company’s businesses in an orderly and proper manner.
 
 
19.2.
To keep and maintain its assets (as being from time to time) in good and functioning condition.
 
 
19.3.
To provide and instruct its accountants to provide the Trustee and accountants, attorneys or other consultants on its behalf any information that shall be reasonably required for protecting the Holders with respect of all of the data related to the Company’s business or assets (subject to the provisions of any law and to their execution of an undertaking of confidentiality in favor of the Company as specified below). Without derogating from the generality of the foregoing, the Company shall deliver to the Trustee documents held solely by the Company within 5 Business Days of the date of the Trustee’s request. Such documents shall be delivered to consultants on behalf of the Trustee only after the Company shall have received a confidentiality undertaking signed by such consultants.
 
 
19.4.
To keep regular account books in accordance with acceptable accounting principles and to keep the books, including the documents serving as evidence thereof, at its offices, as required under law.
 
 
19.5.
To allow the Trustee to attend the general meetings of the Company’s shareholders (without a right to participate or to vote).
 
 
19.6.
To deliver to the Trustee the reports and notices as specified in Section 31 below.
 
 
19.7.
To provide to the Trustee, at its request, an affidavit and/or statements and/or details and/or information, as required by the Trustee pursuant to its sole discretion, for the purpose of implementing and exercising the authorities, powers and authorizations of the Trustee and/or its representatives under the Indenture, provided that they are reasonable. Without derogating from the generality of the foregoing, the Company shall deliver to the Trustee documents held solely by the Company within 5 Business Days of the date of the Trustee’s request. Such documents shall be delivered to consultants on behalf of the Trustee only after the Company shall receive a confidentiality undertaking signed by such consultants.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
 
19.8.
To promptly report by way of an immediate report, in the Trustee’s name, any report in such language as shall be delivered thereto in writing by the Trustee with respect to the Debentures and/or the trust thereof according to this Indenture, to the extent so requested by the Trustee.
 
 
The Trustee hereby undertakes to maintain under confidentiality, and to obligate any person acting on its behalf to maintain under confidentiality, any information that it shall receive from the Company as aforesaid and that it shall receive under any law as in effect from time to time, and not to use such information unless its disclosure or use is required for the purpose of fulfilling the Trustee’s duty under the Securities Law, this Indenture or a court order, provided that such disclosure shall be limited to the minimal degree and scope required in order to comply with the requirements of the law and that the Trustee shall coordinate with the Company in advance, to the extent possible and permissible, the content and time of disclosure, in a manner affording the Company reasonable time to apply to legal proceedings to the extent necessary for the purpose of preventing such disclosure of information.
 
20.
Additional Undertakings
 
 
After and insofar as Debentures of the Relevant Series shall be accelerated, as set forth in Section 10 above, the Company shall perform from time to time and at any time that it shall be required to do so by the Trustee, all of the reasonable actions in order to allow the exercise of all of the authorities vested in the Trustee, and in particular, the Company shall take the following actions:
 
 
20.1.
It shall transfer and remit to the Trustee the consideration for the Debentures due, according to the terms thereof. In the event that the Company has remitted the full amount of the principal and/or interest and/or linkage differentials pursuant to this Section, the Company shall be deemed to have fully fulfilled its undertakings toward the Debenture Holders in relation to the relevant payment of the principal and/or interest and/or linkage differentials.
 
 
20.2.
It shall deliver statements and/or shall execute all of the documents and/or shall take and/or cause the taking of all of the actions necessary or required under the law for validating the exercise of the authorities, powers and authorizations of the Trustee and/or its representatives.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
20.3.
It shall provide all of the notices, orders and instructions that the Trustee shall deem useful and shall demand.
 
21.
Other Agreements
 
 
Subject to the provisions of the law, neither the fulfillment of the Trustee’s duties hereunder, nor its mere status as a trustee, shall prevent the Trustee from engaging with the Company in various contracts or from performing transactions therewith in its ordinary course of business, provided that such engagement with the Company shall not prejudice the rights of the Holders of the Debentures of the Relevant Series, and provided further that such engagement shall not place the Trustee in a conflict of interests toward the Holders of the Debentures of the Relevant Series.
 
22.
Trustee’s Fees
 
 
The Company shall pay to the Trustee a fee for its services as a trustee for the Debentures under the Indenture, as follows:
 
 
22.1.
For the first year of trust, immediately after the issuance of Debentures of the Relevant Series, the Trustee shall be paid an annual fee of NIS 28,000 (per series), and for each additional year during which the Trustee shall act as a trustee for the Debentures of the Relevant Series (and for as long as the Debentures of the Relevant Series, which are yet to be paid-up, are in circulation), the sum of NIS 24,000 per each series (all linked to the Consumer Price Index known on the  execution date of this Indenture but in any event shall be no less than the sum prescribed above). Such fee shall be paid at the beginning of each year of trust. In the event that collateral shall be provided in favor of the Holders of the Debentures of the Relevant Series in accordance with the Indenture, the parties shall negotiate an update of the fee. No payment shall be charged for the expansion of a Debenture Series.
 
 
22.2.
For the Trustee’s presence at meetings of the Company’s shareholders, the Trustee shall be paid an additional fee of NIS 1,000 per meeting (linked to the Consumer Price Index as aforesaid).
 
 
22.3.
If the Trustee’s term expired with respect to the Debentures of the Relevant Series as provided in the Indenture and/or if it ended in accordance with the terms of the Debentures, the Trustee shall not be entitled to payment of a fee for the period commencing on the date on which a substitute trustee has commenced its service and any overpayment made to the Trustee for such period shall be reimbursed thereby to the Company.
 
 
22.4.
For special actions and special works performed by the Trustee, beyond the regular activity of the Trustee, such as the performance of an action resulting from a breach of the Indenture by the Company and/or due to the need to take actions due to the non-fulfillment by the Company of its undertakings toward the Debenture Holders and/or for an acceleration of the Debentures, and including the participation in various meetings (such as meetings with the Securities Authority), the Company shall pay the Trustee a fee according to the hours actually invested thereby, in the sum of NIS 550.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
22.5.
VAT as prescribed by law shall be added to all of the aforesaid sums payable to the Trustee and they shall be linked to the index published on May 15, 2014, but shall not be less than the nominal amount prescribed above.
 
 
22.6.
For actions performed by the Trustee prior to the execution of this Indenture, the Company shall pay the Trustee a one-time amount in the sum of 7,500 NIS plus VAT.
 
Without derogating from the foregoing, in the event of the appointment of a Trustee in substitution of a Trustee whose service had ended pursuant to the provisions of this Indenture and/or the provisions of the law, the Debenture Holders shall bear the difference by which the fee of the appointed Trustee surpassed the fee paid under this Section 22 above to the Trustee whose service had ended as aforesaid, if any, and to the extent that such difference is unreasonable.
 
23.
Special Authorities
 
 
23.1.
The Trustee shall be entitled to deposit all of the notes and documents that attest to, represent and/or determine its right with respect to any asset found at that time in its hands, in a safe and/or any other place of its choice, with any banker and/or banking company and/or attorney.
 
 
23.2.
In the framework of performing the matters of the trust hereunder and subject to the provisions of any law and the Indenture, the Trustee may commission the opinion and/or advice of any expert, including any lawyer, accountant, assessor, appraiser, surveyor, broker or other expert, and act in accordance with the conclusions thereof, whether such opinion and/or advice were prepared at the request of the Trustee and/or of the Company, and the Trustee shall not be liable for any loss or damage suffered as a result of any act and/or omission committed thereby in reliance on such advice or opinion as aforesaid, unless it was determined in a final and conclusive judgment that the Trustee acted with malice or bad faith or negligence (in respect of which the Trustee is not exempted). The Trustee shall make available to the Company, at its request, a copy of any opinion or advice as aforesaid, provided that it shall not prejudice the rights of the Holders.
 
 
23.3.
Subject to the provisions below, the Company shall bear the entire cost of engaging such consultants, provided that, to the extent that the terms below shall not prejudice the rights of the Debenture Holders, the Trustee shall deliver to the Company, reasonable time in advance, a notice of its intention to receive an expert opinion or advice as aforesaid, together with a specification of the representative’s fees and the purpose of appointment thereof, and that such opinion or advice shall be not provided by a person found in a conflict of interests and/or competition with the Company’s business (including material held companies of the Company). At the Company’s request, and to the extent that it will not prejudice the rights of the Debenture Holders, the Trustee shall examine and present to the Company, prior to such engagement, a reasonable number of alternatives for such engagement. The Company shall choose one of such offers, and shall be entitled to negotiate the offer with such experts. The aggregate sums to be borne by the Company for the foregoing shall not exceed a reasonable and acceptable amount in the circumstances of the matter.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
23.4.
Any advice and/or opinion as aforesaid may be provided, sent or received by letter, telegram, fax and/or any other electronic medium for the transfer of information in writing.
 
 
23.5.
Subject to the provisions hereof, the Trustee may, but is not obligated to, convene at any time, if deemed necessary thereby, a general meeting of Holders of Debenture of the Relevant Series, in order to discuss and/or receive its instructions in any matter concerning this Indenture and it may reconvene the same.
 
 
23.6.
The Trustee shall not be required to notify any party of the execution of this Indenture and it may not intervene in any manner whatsoever in the management of the Company’s business or affairs, other than in accordance with the authorities granted thereto herein. Nothing in this Section shall limit the Trustee in any action that it is obligated to perform in accordance with the provisions of this Indenture.
 
 
23.7.
The Trustee shall faithfully exercise the powers, authorizations and authorities granted thereto hereunder at its absolute discretion, in a reasonable manner and in accordance with the provisions of any law.
 
24.
Trustee’s Authority to Engage Proxies
 
 
The Trustee may, in the framework of managing the business of the trust under this Indenture, appoint a proxy, or proxies, to act in its place, whether an attorney or another person, in order to take or participate in taking special actions that are required in connection with the trust, and without derogating from the generality of the aforesaid, institute legal proceedings, provided that the Trustee gave notice to the Company of the appointment of a proxy as aforesaid and such representative shall have assumed a confidentiality undertaking toward the Company as set forth in Section 19 hereof. The Trustee may also pay, at the Company’s expense, the reasonable fees of any such representative for proceedings for the purpose of or after the acceleration of the Debentures, and the Company shall reimburse the Trustee, immediately at its first demand, for such expenses, provided that the Trustee acted in accordance with Section 23.3 above, mutatis mutandis , in connection with the appointment of such representatives. The appointment of a representative as aforesaid shall not release the Trustee from any liability that would have applied thereto if not for said appointment and/or derogate from the Trustee’s liability for its actions and the actions of its representatives. The Company may object to the appointment of a certain proxy as aforesaid on any reasonable ground, including if the proxy is a competitor or is found in a conflict of interests, whether directly or indirectly, with the Company’s businesses.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
25.
Indemnification of the Trustee
 
 
25.1.
The Trustee and all of its officers, employees, shareholders, proxies or experts appointed and/or shall be appointed thereby pursuant to the provisions hereof (the “ Indemnitees ”) shall be entitled to receive indemnification from the Debenture Holders and/or the Company, as the case may be, for reasonable expenses that they incurred and/or shall incur and for a monetary charge under a final and conclusive judgment (in respect of which a stay of execution order was not issued) or pursuant to a settlement that has been concluded (and to the extent that the settlement pertains to the Company and/or to payments that it is to bear, subject to the Company’s consent), all - in connection with actions concerning the Debentures which they took or are to take by virtue of their duties under the terms hereof and/or under law and/or under any instruction of a competent authority and/or under any statute and/or at the demand of the Debenture Holders and/or at the demand of the Company, as specified in this Section below. Nothing in this Section 25 shall derogate from the provisions of Sections 23.2 and 24 regarding the Trustee’s mode of action in connection with the engagement of consultants and representatives thereby.
 
 
25.2.
Notwithstanding the aforesaid:
 
 
[a]
The Indemnitees shall not be entitled to demand indemnification in advance in respect of an urgent matter (without derogating from their right to retroactive indemnification for such matter, if and insofar as such right is afforded thereto).
 
 
[b]
The Indemnitees shall be entitled to indemnification for liability in torts in case that they shall be charged with such liability under a final and conclusive judgment or a concluded settlement vis-à-vis a third party, who is not one of the Debenture Holders, provided that they did not act in negligence and/or bad faith and/or malice.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
25.3.
The aforesaid right of indemnification is subject to the following conditions:
 
 
[a]
The expenses are reasonable.
 
 
[b]
The Indemnitees acted in good faith and such action was taken in the framework of the performance of their duties, according to the provisions of the law and this Indenture.
 
 
[c]
If determined in a final and conclusive judicial decision that the Indemnities acted in negligence and/or bad faith and/or malice and/or acted in negligence that is not exempted under any law or this Indenture, the Indemnitees shall repay the Indemnification Undertaking amounts paid thereto (together with linkage differentials).
 
 
25.4.
Without derogating from the rights of compensation and indemnification under the law and/or the commitments of the Company and the Debenture Holders hereunder, the Indemnitees shall be entitled to receive out of the funds received by the Trustee from the proceedings instituted thereby and/or otherwise under the Indenture, indemnification with respect to the undertakings assumed by them, with respect to expenses incurred by them in the course of performing the trust or in connection with such actions, which at the Trustee’s opinion were required for the performance of the same and/or with respect to the exercise of authorities and authorizations granted by virtue of the Indenture as well as with respect to all kinds of legal proceedings, opinions and consultation with attorneys and other experts, negotiations, exchange, expenses, claims and demands with respect to any matter and/or issue which were done and/or not done in any matter, and all with respect to the Debentures, and the Trustee may withhold the funds held thereby and pay therefrom the sums required for the payment of the indemnification as aforesaid. All of said sums shall have preference over the rights of the Debenture Holders, subject to the provisions of any law, provided that the Trustee acted in good faith and in accordance with the duties imposed thereon under any law and hereunder.
 
 
25.5.
Whenever the Trustee shall be required under the terms of the Indenture and/or under the law and/or an instruction by a competent authority and/or any statute and/or at the demand of the Debenture Holders and/or at the demand of the Company, to take any action with respect to the Debentures, including, without limitation, instituting proceedings or filing claims at the request of the Debenture Holders, as provided in the Indenture, the Trustee may refrain from taking any such action until it receives to its satisfaction a letter of indemnification from the Company and/or from all or any of the Debenture Holders with respect to expenses and/or damage that may be suffered thereby and/or by the Indemnitees and/or by the Company (as the case may be) due to taking such action as aforesaid, for any liability for damage and/or expenses that may be suffered by any of them, due to taking such action. It is clarified that the aforesaid does not exempt the Trustee from taking an urgent action which is required in order to prevent a material breach of the rights of the Debenture Holders.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
25.6.
Notwithstanding the aforesaid in this Section 25, whenever the Trustee deems fit, for the purpose of protecting and/or exercising the rights of the Debenture Holders and/or whenever it shall be obligated, according to the terms of the Indenture and/or under law and/or an instruction of a competent authority and/or any statute and/or at the demand of the Company and/or the Debenture Holders, to institute legal proceedings, the Company shall deposit in the Trustee’s hands a sum that shall be reasonably determined by the Trustee as the expected sum of expenses of the Trustee and/or the Indemnitees in connection with such proceedings (the “ Financing Cushion ”). In case that the Company does not deposit the Financing Cushion on the date that it was requested to do so by the Trustee, and in the Trustee’s opinion there shall be doubt as to the Company’s ability to cover the expenses involved in instituting proceedings by the Trustee and/or by the Indemnitees, the Trustee shall immediately convene a meeting of the Holders of Debenture of the Relevant Series with a request that they shall deposit in its hands the amount of the Financing Cushion, each in accordance with its Pro Rata Portion (as such term is defined below) for covering the expenses involved in the proceedings which the Trustee intend to institute. In the event that the Debenture Holders refuse to bear the expenses involved in instituting the proceedings by the Trustee, the Trustee shall be under no obligation to institute proceedings as aforesaid. It shall hereby be clarified, that the Debenture Holders’ consent as aforesaid shall not release the Company from its undertakings to bear and cover all of the reasonable expenses involved in instituting said proceedings, to the extent that such undertakings apply thereto under any law and this Indenture. In addition, all of the funds that shall be received from enforcement proceedings shall also be used for reimbursement and covering of expenses which the Debenture Holders undertook to bear as aforesaid. It is clarified that the foregoing does not exempt the Trustee from taking an urgent action required for preventing a material breach of rights of the Debenture Holders.
 
The Trustee is authorized to determine the amount of the Financing Cushion and shall be entitled to repeatedly act to create an additional Financing Cushion as aforesaid, from time to time, all subject to the provisions of this Section 25. To the extent that regulations under Section 35E1 of the Securities Law shall enter into effect (and apply to the Company) in respect of depositing a deposit by the Company in favor of the Debenture Holders, such deposit shall serve in lieu of the Financing Cushion, and the provisions of this Section shall apply to such deposit, mutatis mutandis , subject to the provisions of any law.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
For the purpose of this Section 25, its “ Pro Rata Portion ” means: the pro rata portion of Debentures held by the Holder on the relevant effective date out of the aggregate nominal value in circulation at such date. It is clarified that the calculation of the Pro Rata Portion shall remain unchanged, even if after such date, the nominal value of the Debentures held by the Holder shall have changed.
 
 
The indemnification undertakings under this Section 25 shall be referred to as the “ Indemnification Undertaking ”.
 
 
25.7.
The ‘Indemnification Undertaking’:
 
 
[a]
Shall apply to the Company in any case of (1) actions that were taken and/or required to be taken according to the terms hereof or in order to protect the rights of the Debenture Holders (including due to a Holder’s demand which is required for such protection); and (2) actions that were taken and/or required to be taken at the Company’s demand.
 
 
[b]
Shall apply to the Holders who held the Debentures on the effective date (as defined below) in any case of (1) actions that were taken and/or required to be taken at the demand of the Debenture Holders (except for such actions that were taken at demand of the Debenture Holders in order to protect the rights of the Debenture Holders); and (2) the Company’s failure to pay the sum of the ‘Indemnification Undertaking’ that applies thereto under subsection [a] above (subject to the provisions of Section 25.9 below).
 
 
For the purpose of such matter, the effective date for determining the liability of a Holder for the ‘Indemnification Undertaking’ is as follows: (1) in any event in which the ‘Indemnification Undertaking’ is required due to an urgent resolution or action which is necessary in order to prevent a material adverse impairment of the rights of the Debenture Holders, without a prior resolution of the meeting of the Debenture Holders – the effective date for the liability shall be the closing of the Trading Day on the day on which the action is taken or the resolution is adopted (the earlier thereof) and if that day is not a Trading Day, the preceding Trading Day; (2) in any event in which the ‘Indemnification Undertaking’ is required according to a resolution of the meeting Debenture Holders – the effective date for the liability shall be the date stated in the proof of ownership (as specified in Section 8 of the Second Schedule hereto) and it shall also apply to a Holder who did not attend or participate in the meeting.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
25.8.
In any event where: (a) the Company fails to pay the amounts required to cover the Indemnification Undertaking and/or fails to deposit the amount of the Financing Cushion, as the case may be; and/or (b) the Indemnification Undertaking applies to the Holders under the provisions of Section 25.7[b] above and/or the Holders were called to deposit the amount of the Financing Cushion under Section 25.6 above and they have failed to deposit said amount in full, the following provisions shall apply:
 
 
25.8.1.
First – the amount shall be financed out of the sums of interest and/or principal that the Company is to pay the Debenture Holders after the date of the required action, and the provisions of Section 12 of the Indenture shall apply.
 
 
25.8.2.
Second – if the Trustee believes that the amounts deposited under the Financing Cushion shall not suffice to cover the Indemnification Undertaking, the Holders holding on the effective date (as defined in Section 25.7 above) shall deposit in the hands of the Trustee, each in accordance with its Pro Rata Portion (as such term is defined in Section 25.6 above) the missing amount. The sum to be deposited by each Holder shall bear an annual interest at a rate equal to the interest determined for the Debentures and shall be paid in priority as set forth in Section 12 of the Indenture.
 
 
25.9.
The payment by the Holders in the Company’s stead of any sum imposed on the Company pursuant to this Section 25 shall not release the Company from its obligation to bear the said payment.
 
 
25.10.
It is clarified, that the Company and/or the Debenture Holders shall not be required to pay under this Section 25 any funds actually paid to the Trustee and/or any of the Indemnitee, in any manner whatsoever, in the framework of insurance purchased by the Trustee and/or the Indemnitees. For the avoidance of doubt it shall be clarified, that the indemnification amount hereunder shall apply over and above (and in addition to) an amount paid in the framework of such insurance.
 
26.
Reports and Notices
 
 
Any notice on behalf of the Company and/or Trustee to the Debenture Holders shall be provided by way of an immediate report on the MAGNA system only, and in the following cases only, including as required under any law, the Company shall also publish an announcement in two (2) newspapers of broad circulation, which are published in Israel in Hebrew: (a) an arrangement or settlement pursuant to Section 350 of the Companies Law; (b) a merger; provided that a newspaper publication is required under law. Any notice that was provided as aforesaid shall be deemed to have been delivered to the Debenture Holders at the date of publication on the MAGNA system or newspaper, as applicable and according to the earlier thereof.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Any notice or demand on behalf of the Trustee to the Company or on behalf of the Company to the Trustee may be given by way of a letter that shall be sent by registered mail or by courier (according to the address specified in the Indenture or according to a different address of which a party shall give a written notice to the other), or – by transmitting it by fax or by e-mail. Any notice or demand that shall be sent by registered mail shall be deemed to have been received by the other party three (3) Business Days after postal dispatch thereof. Any notice or demand that shall be sent by courier shall be deemed to have been received by the other party upon its delivery by the courier to the addressee or upon the tender thereof to the addressee, as the case may be. Any notice or demand that shall be sent by fax or e-mail (in addition to telephone confirmation of receipt thereof) shall be deemed to have been received by the other party one Business Day after the transmission thereof.
 
 
Copies of notices that shall be provided by the Company to the Debenture Holders shall be sent by the Company also to the Trustee (and for such purpose – the issuance of an immediate report by the Company on the MAGNA system shall also be deemed a dispatch of a copy of such notice to the Trustee), and copies of notices that shall be provided by the Trustee to the Debenture Holders shall be sent by the Trustee also to the Company.
 
To the extent that the Trustee wishes to deliver a report or notice via the MAGNA system, the Trustee shall update the Company in advance prior to any report or notice filed thereby pursuant to the provisions of the Securities Law and its regulations and the provisions of this Section 26.
 
As long as no other written notice was provided by the Trustee to the Company, the Trustee’s contact person in connection with this Indenture is Rami Sebty, V.P., e-mail: office@mtrust.co.il.
 
27.
Waivers, Compromises and/or Changes in the Indenture
 
 
27.1.
Subject to the provisions of any law, the Company and the Trustee may, whether before or after the principal of the Debentures of the Relevant Series is due, change the Indenture and/or the terms of the Debentures of the Relevant Series, if one of the following applies:
 
 
[a]
If the Trustee was convinced that the change does not prejudice the Holders of the Debentures of the Relevant Series. The provisions of this sub-section shall not apply to changes in payment terms under the Debentures (including payment dates, the interest rate and the linkage terms of the Debenture (if any)), causes for acceleration, reports that the Company is obligated to provide to the Trustee, and in respect of a change of the Trustee’s identity or its fees under the Indenture, for the purpose of appointing a Trustee in substitution of a Trustee whose service has ended.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
[b]
Holders of Debentures of the Relevant Series have agreed to the change in a resolution adopted at a meeting of the Holders of Debentures of the Relevant Series, in which Holders of at least fifty percent (50%) of the balance of the nominal value of the Debentures of the Relevant Series in circulation were present, or an adjourned meeting of such meeting, in which Holders of at least twenty percent (20%) of such balance were present, by a majority of Holders of at least two thirds of the balance of the nominal value of Debentures of the Relevant Series represented at the vote.
 
 
27.2.
In addition to the provisions of sub-section 27.1 above and subject to the provisions of any law:
 
 
[a]
Other than in respect of the matters specified in Section 27.1[a] above, the Trustee may, from time to time and at any time, if it does not prejudice the rights of the Holders of the Relevant Series, waive any breach or non-performance of any of the terms of the Indenture by the Company.
 
 
[b]
The Trustee shall be entitled, with a prior approval that shall be provided by a meeting of Holders of Debenture of the Relevant Series in the manner set forth in Section 27.1[b] above, settle with the Company with respect to any of their rights or claims, and to waive any of their rights or claims vis-à-vis the Company pursuant to the Indenture and the Debentures. If the Trustee settled with the Company after it received a prior approval of the Debenture Holders as aforesaid, the Trustee shall be exempt from any liability for this action, provided it did not act in malice, bad faith or negligence or in contradiction of the provisions hereof.
 
 
27.3.
The Company and/or Trustee shall deliver to the Debenture Holders a notice of any change and/or waiver as aforesaid in sub-sections 27.1[a] or 27.2[a] above, promptly after the execution thereof.
 
 
27.4.
In any case of exercise of the Trustee’s right under this Section above with respect to the Debentures, the Trustee may demand the Debenture Holders to deliver to it or to the Company the Debenture Certificates, for the purpose of registering a note concerning any waiver, settlement, change or amendment as aforesaid, and at the Trustee’s demand the Company shall register such a note on the Debenture Certificates delivered thereto.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
27.5.
In addition to the aforesaid, the terms of the Debentures may be changed in the framework of an arrangement or settlement that was approved by the Court, pursuant to Section 350 and the provisions of the Third Chapter of Part Nine of the Companies Law.
 
 
27.6.
To the extent that for the purpose of exchanging Debentures for debentures of another traded company, in the framework of a merger, split, re-organization of the Company or an exchange tender offer, the approval of the Debenture Holders shall be required under law, such approval shall be rendered by way of the adoption of a Special Resolution of the Debenture Holders, or in another manner permitted under law on the relevant date.
 
28.
The Debenture Holders’ Register
 
 
The Company shall keep, at is registered office, the Register (as defined in Section 1.5 of the Indenture) which shall be open to the inspection of any person (during reasonable activity hours and upon prior coordination) in which all of the registered Holders of the Debentures of the Relevant Series, as being from time to time, shall be registered, as well as additional details, as set forth in Section 35H3 of the Securities Law. In addition, the Register shall record other Holders, insofar as such Holders shall exist due to a split or a transfer of ownership of the Series H Debentures or the Series I Debentures, in the event that actions are taken in accordance with Section 6 of the Terms and Conditions Overleaf. The Company may close the Register from time to time for a period or periods of time that shall not exceed thirty (30) cumulative days per year.
 
 
The Company shall not be required to record in the Register any notice concerning a pledge or charge of any kind or any right in equity, claim or setoff or any other right with respect to the Debentures. The Company shall only acknowledge the ownership of the person in whose name the Debentures were registered. The legal heirs, administrators or executors of said Holder and any person who shall be entitled to the Debentures due to the bankruptcy of any registered Holder (and if it is a corporation – due to its dissolution) shall be entitled to be registered as the Holders thereof after providing evidence which in the Company’s opinion shall suffice to prove their right to be registered as Holders thereof. The foregoing shall not derogate from the provisions of Section 35H3(b) of the Securities Law regarding the registration of a holder of debentures in trust.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
29.
Appointment of a New Trustee and Expiry of the Trustee’s Office
 
 
29.1.
The Trustee’s office shall terminate in the cases specified in Section 35N of the Securities Law and according to the terms thereof as well as in any event of a prevention under any other statute (including under the directives of the Israel Securities Authority), applying to its office as Trustee for the Series H Debentures and/or the Series I Debentures.
 
 
29.2.
In case of termination or expiry of the Trustee’s office as aforesaid, the Company shall act to appoint a new trustee which shall be a trust company of one of the six (6) large banks in Israel, or any other trustee that is a company registered in Israel, that is engaged in trusts, meets the qualification requirements prescribed by the Securities Law, and is approved at the meeting of the Debenture Holders by a   simple majority pursuant to the provisions of Section 35N of the Securities Law.
 
 
29.3.
Notwithstanding the provisions of this Section above, a resolution of Holders regarding the termination of office of the Trustee and its replacement by another, shall be carried out in a meeting in which at least two Holders holding at least fifty percent (50%) of the balance of the nominal value of the Debentures of the Relevant Series are present, or an adjourned meeting in which at least two Holders holding at least ten percent (10%) of such balance are present, and by such majority at the vote as required for a Special Resolution.
 
 
29.4.
The Trustee shall hand-over to the new trustee all of the documents and sums accrued therewith in connection with the trust bound by this Indenture, and shall execute any document required therefor. Any new Trustee shall have the same powers, obligations and authorities and it shall be able to act for all intents and purposes as if it had been initially appointed as Trustee.
 
 
29.5.
The Company shall issue an immediate report in any event of the Trustee’s resignation and/or appointment of another Trustee in its place.
 
30.
Holders’ Meetings
 
 
The meetings of the Holders shall be conducted as provided in the Second Schedule hereto.
 
31.
Reporting to the Trustee
 
 
The Company shall deliver to the Trustee, as long as the Debentures are in circulation and have not yet been paid-up in full, the following reports and notices:
 
 
31.1.
Audited annual financial statements of the Company and reviewed quarterly financial statements of the Company, immediately upon the publication thereof.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
31.2.
Within fourteen (14) Business Days after making any payment to the Debenture Holders, the Company shall deliver to the Trustee a duly executed letter, confirming the performance of that payment to the Debenture Holders, specifying the manner of its calculation and the balance of the nominal value of the Debentures still in circulation as of the confirmation date.
 
 
31.3.
Up to fourteen (14) Business Days from the end of each calendar year, the Company shall deliver to the Trustee a written and duly executed certification, whereby, to the best of its knowledge, in the period commencing on the execution date of the Indenture and/or from the date of the last certification provided to the Trustee, the later thereof, and until the date of the delivery of the certification, the Company did not breach this Indenture, including a breach of the terms of the Debentures.
 
 
31.4.
No later than the lapse of ten (10) days after the issue date of Debentures, the Company shall submit to the Trustee a payment schedule for the Debentures (principal and interest), summarized in an Excel file.
 
 
31.5.
The Company shall notify the Trustee immediately and in writing of any reasonable concern of the Company that any or all of the events specified in Section 10.1 above is reasonably likely to occur and of the occurrence of any or all of the events specified in the aforesaid Section.
 
 
31.6.
The Company shall notify the Trustee of any change, to the best of its knowledge, in the rating of the Debenture, or a termination thereof.
 
 
31.7.
The Company shall notify the Trustee of the purchase of Debentures by the Company and/or by a subsidiary of the Company.
 
 
31.8.
The Company shall notify the Trustee in the event that the Company becomes aware of a breach of a material provision of the Indenture, immediately and in writing.
 
 
31.9.
The Company shall notify the Trustee of new pledges on the Company’s property that the Company shall register with the Registrar of Companies and/or the Registrar of Pledges, immediately and in writing.
 
 
31.10.
In the event that the Company is a Non-Reporting Corporation (as defined below), or became such after the date of issuance of the Debentures by virtue of this Indenture, the Company shall deliver to the Trustee, in addition to the stated in this Section 31 above, annual, quarterly and immediate reports as specified in Schedules D, E and F of the Institutional Entity Circular 2013-9-17 issued by the Capital Market, Insurance, and Savings Department , with the necessary changes to the Company’s reporting format prior to it becoming a Non-Reporting Corporation.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
In this Section: a “ Non-Reporting Corporation ” means – a corporation that is not a “Reporting Corporation” as defined in the Securities Law, and that is not a corporation traded on a foreign stock exchange, as specified in the Second or Third Schedule of the Securities Law.
 
 
31.11.
The Company shall inform the Trustee, by no later than forty eight (48) hours of the Company first becoming aware thereof, of the appointment of a liquidator (temporary or permanent) for the Company and of the appointment of a receiver (temporary or permanent) for the Company.
 
 
The issuance by the Company of documents as set forth in this Section on the MAGNA system, shall be deemed a delivery of the documents required above to the Trustee (it is clarified, that the foregoing does not obligate the Company to issue such documents on such systems).
 
32.
Rating
 
To the extent under its control, the Company undertakes to act to cause the Debentures to be subject to a rating watch of at least one Rating Agency. In respect of such matter, it is clarified, that the transfer of the Debentures to a watch list or any other action performed by the Rating Agency shall not be deemed a termination of rating.
 
The Company may, at its sole discretion, replace the Rating Agency throughout the entire lifetime of the Debentures, provided that the new rating agency shall be a Rating Agency, as defined in Section 1 above. The Company shall not require an approval of the Trustee or the Debenture Holders for replacing the Rating Agency as aforesaid.
 
In the event of a replacement of the Rating Agency, the Company shall issue an immediate report specifying the grounds for the replacement of the Rating Agency, within one Trading Day of the occurrence thereof. In the event that the Debentures shall no longer be rated (i.e. shall not be rated by any Rating Agency), the Company shall notify the Trustee in writing of the grounds for the termination of rating, immediately and by no later than one Business Day of the date of the termination of rating.
 
33.
Applicable Law and Jurisdiction
 
 
The exclusive law governing the Indenture and the Debentures is the Israeli law. The Courts in the city of Tel Aviv-Jaffa shall have a unique and exclusive jurisdiction in any conflict regarding the Indenture and the Debentures.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
34.
Authorization for MAGNA
 
For the purpose of registering the Debentures for trade on TASE, by signing this Indenture the Trustee authorizes any of the Company’s electronic authorized signatories to report in its name of its engagement herein and its execution hereof on the MAGNA system.
 
 
In witness whereof the parties have hereunto set their hands:

 
     
Cellcom Israel Ltd.
 
Mishmeret Trust Company Ltd. 
     
Signed by: Liat Menahemi Stadler
                  Vice President of Legal Affairs and Corporate Secretary
 
Ram Sabty and Giora Luftig
Managers

 
 
Attorney’s Certification
 
 
I, the undersigned, Adv. Tamar Enav, hereby certify that this Indenture was duly executed by the authorized signatories of Cellcom Israel Ltd., Ms. Liat Menahemi Stadler.
 
 
 
     
 
Tamar Enav, Adv.
 
 
 
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
Cellcom Israel Ltd.
 
First Schedule
 
Series ____ Debenture Certificate
 
 
Registered Debentures
 
Certificate no. ____________
 
Par value of this certificate: NIS ________________________.
 
The registered Holder of this Debenture: ________________________.
 
1.
This certificate attests that Cellcom Israel Ltd. (the “ Company ”) shall pay to the Holders of the Series ____ Debentures principal, interest and linkage differential payments on such dates, pursuant to such payment terms and in accordance with such other terms and conditions as set forth in the Terms and Conditions Overleaf in the Indenture dated _________ ___, 2014 (the “ Indenture ”), between the Company, of the first part, and Mishmeret Trust Company Ltd., of the second part, by virtue of which the Debentures contemplated herein were issued, all of which constitute an integral part of this Debenture.
 
2.
This Debenture is issued as part of a series of Debentures pursuant to identical terms to the terms of this Debenture. The Debentures of the same series in circulation shall rank pari passu with each other, without any preference or priority of the one over the other.
 
3.
It is clarified that the provisions of the Indenture shall constitute an integral part of the provisions of this Debenture, and shall bind the Company and the Holders of the Series __ Debentures.
 
4.
This Debenture is issued subject to the Terms and Conditions Overleaf and the terms of the Indenture, constituting an integral part of the Debenture.
 
 
Signed by the Company on: ________
 
_____________________________
 
Cellcom Israel Ltd.
 
Signed by: ________________________________
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
The Terms and Conditions Overleaf
 
The Terms and Conditions Overleaf, as specified in this part below, constitute an integral part of the Indenture (as defined below).
 
1.
General
 
In this Debenture, the following expressions shall bear the following meanings, unless another intention is implicated from the content of matters or the context thereof, or if explicitly stated otherwise:
 
The “ Company ” -
 
Cellcom Israel Ltd.
     
This or the “ Indenture ” -
 
The Indenture executed between the Company and the Trustee on June 23, 2014,  including the schedules attached thereto, constituting an integral part thereof, in their form as in effect from time to time.
     
The “ Debentures ” -
 
Series H Debentures or Series I Debentures, as applicable.
     
The “ Series H Debentures ” -
 
Registered Series H Debentures of the Company, the terms of which will be according to the Debenture Certificate (the form of which is attached in the First Schedule of this Indenture), which shall be issued from time to time by the Company, according to its sole discretion.
     
The “ Series I Debentures ” -
 
Registered Series I Debentures of the Company, the terms of which will be according to the Debenture Certificate (the form of which is attached in the First Schedule of this Indenture), which shall be issued from time to time by the Company, according to its sole discretion.
     
The “ Trustee ” -
 
Mishmeret Trust Company Ltd. and/or anyone who shall serve from time to time as a trustee of the Debenture Holders pursuant to this Indenture.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
The “ Register ” -
 
The register of the Debenture Holders, as set forth in Section 28 of the Indenture.
     
“ Debenture Certificate ” -
 
A debenture certificate, the form of which appears in the First Schedule of the Indenture and which shall be issued according to the terms of the Indenture.
     
The “ Law ” or the “ Securities Law ” -
 
The Securities Law, 5728-1968 and the regulations promulgated thereunder, as in effect from time to time.
     
“ TASE ” -
 
The Tel Aviv Stock Exchange Ltd.
     
“ TASE Clearinghouse ” -
 
The Tel Aviv Stock Exchange Clearing House Ltd.
     
The “ Consumer Price Index ” or the “ Index ”-
 
The price index which is known by the name "consumer price index" which includes vegetables and fruit and is published by the Central Bureau of Statistics and Economic Research in Israel, and including such index also if published by a different official institute or body, and including any other official index which will replace the same, whether or not it will be based on the same data on which the existing index is based. If a different index which will be published by a body or an institute as aforesaid will replace the same, and such body or institute shall not have determined the ratio between it and the replaced index, such ratio shall be determined by the Central Bureau of Statistics, and in the event that such ratio shall not have been determined as aforesaid, then it shall be determined by the Trustee, in consultation with economic experts who will be chosen thereby.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
The “ Known Index ” on any date -
 
The last known Index which was published before such date.
     
The “ Base Index ” -
 
The Known Index on a specific date, which will be detailed in the first offering report of the Series H Debentures.
     
The “ Payment Index ” -
 
The Known Index on the date which is scheduled for any payment on account of principal and/or interest.
In the event that the Known Index on the date scheduled for the relevant payment shall be lower than the Base Index, the Payment Index shall be the Base Index.
     
The “ Debenture Holders ” and/or the “ Debenture Owners ” and/or the “ Holders ” -
 
Shall bear the meaning ascribed to the terms “Holder” and “Holder of Certificates of Indebtedness” in Section 35A of the Securities Law.
     
“ Business Day ” -
 
Any day on which the TASE Clearinghouse and most of the banks in Israel are open for the performance of transactions.
     
“ Trading Day ” -
 
Any day on which trade is carried out on the Tel Aviv Stock Exchange Ltd.
     
“ Special Resolution ” -
 
A resolution adopted at a general meeting of the Debenture Holders, in which a legal quorum was present as specified in Section 14 of the Second Schedule of the Indenture, and which was adopted (whether in the original meeting or the adjourned meeting) by a majority of at least seventy five percent (75%) of the overall votes of the participants counted in the vote, not including abstainers.
     
“ TASE Directives ”
 
The provisions of the TASE rules, the regulations thereunder and bylaws of the TASE Clearinghouse (as applicable).
 
It is clarified, that the Debentures, their terms and the terms of the Indenture, shall be subject to the TASE Directives in their form as in effect from time to time, for as long as the Debentures are traded on TASE.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
The “ Transfer Agent ”
 
The Israel Discount Bank Nominees Ltd. or any other nominee company with which the Company shall engage, at its sole direction, provided that all of the Company’s series of securities shall be registered in the name of the same transfer agent.
     
“ Rating Agency ”
 
Shall mean as such term is defined in the Securities Regulations (Details of the Prospectus and Draft Prospectus – Structure and Form), 5729-1969.
 
2.
The Debentures
 
 
2.1.
Registered Series H Debentures, of NIS 1 par value each, linked (principal and interest) to the Consumer Price Index, which shall mature (principal) in 7 (seven) unequal annual payments which shall be paid on the 5 th of July of each of the years 2018 to 2024 (inclusive), as follows: (1) 3 (three) equal payments of 12% of the amount of the principal of the Series H Debentures on the 5 th of July of each of the years 2018 to 2020; and (2) 4 (four) equal payments of 16% of the amount of the principal of the Series H Debentures on the 5 th of July of each of the years 2021 to 2024. The principal of the Series H Debentures shall bear an annual interest at a rate which shall be determined in a tender that shall be held in connection with their initial offering. The interest on the unpaid balance of the Series H Debentures shall be paid in semiannual payments on the 5 th of January and the 5 th of July of each of the years 2015 to 2024 (inclusive) for the interest period ending on the payment date (the “ Interest Period ”). For details of an adjustment mechanism of the interest rate as a result of a change of the rating of the Debentures, see Section 2.6 below.
 
The Series H Debentures’ linkage to the Consumer Price Index shall be effected such that if it shall be found on any payment date on account of the principal and/or interest for the Series H Debentures, that the Payment Index is higher than the Base Index, the Company shall pay such principal and/or interest payment being proportionately increased to the increase in the Payment Index versus the Base Index. In the event that the Payment Index is lower than the Base Index, see definition of “Payment Index” in Section 1 above.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
According to TASE Directives, the linkage method shall not be changed throughout the entire term of the Debentures.
 
 
2.2.
Registered Series I Debentures, of NIS 1 par value each, which shall mature (principal) in 8 (eight) unequal annual payments which shall be paid on the 5 th of July of each of the years 2018 to 2025 (inclusive), as follows: (1) 3 (three) equal payments of 10% of the amount of the principal of the Series I Debentures on the 5 th of July of each of the years 2018 to 2020; and (2) 5 (five) equal payments of 14% of the amount of the principal of the Series I Debentures on the 5 th of July of each of the years 2021 to 2025. The Series I Debentures shall not be linked (principal and interest) to any index or currency whatsoever. The principal of the Series I Debentures shall bear an annual interest at a rate which shall be determined in a tender that shall be held in connection with their initial offering. The interest on the unpaid balance of the principal of the Series H Debentures shall be paid in semiannual payments on the 5 th of January and the 5 th of July of each of the years 2015 to 2025 (inclusive) in respect of Interest Periods. For details of an adjustment mechanism of the interest rate as a result of a change of the rating of the Debentures, see Section 2.6 below.
 
 
2.3.
The first interest payment shall be paid for the period commencing on the Trading Day transpiring after the day of the tender and ending on the first interest payment date transpiring after the day of the tender (inclusive), calculated on the basis of 365 days a year according to the number of days in the aforesaid period. Each additional Interest Period of the Debentures, shall commence on the first day after the end of the preceding Interest Period, and shall conclude at the end of the Interest Period (i.e., on the next payment date after the commencement date thereof).
 
 
2.4.
The interest rate for the first Interest Period of Series H and Series I Debentures, the annual interest rate and the interest rate for the period on the basis of which it shall be determined, shall be specified in an immediate report to be issued by the Company in respect of the results of the tender pursuant to which the initial offering of the Series H and Series I Debenture is to be effected.
 
 
2.5.
The last installment of interest on the principal of the Debentures shall be paid together with the last payment on account of the principal of the Debentures, against the delivery of the Debenture Certificates to the Company, at the Company's registered office or at any other location of which the Company will inform at least five (5) Business Days before the last payment date.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
2.6.
If after the date of the initial issuance of the Series H Debentures and/or the Series I Debentures, the series shall be expanded by the Company, the Holders of Debentures of the relevant series which will be issued within the framework of the expansion of such series, will not be entitled to receive payment on account of principal and/or interest and/or linkage differentials for the Debentures of the relevant series, the effective date for payment of which occurs prior to the date of issuance as aforesaid.
 
 
2.7.
Adjustment mechanism to the interest rate as a result of a change of rating
 
 
2.7.1.
If the rating of the Debentures by Standard and Poor’s Maalot or any other Rating Agency that shall replace it (the “ Rating Agency ”) shall be updated in the course of any Interest Period, such that the rating determined for the Debentures shall be two or more ranks lower (the “ Downgraded Rating ”) than an A+ rating (or a parallel rating in lieu thereof as shall be determined by another Rating Agency, to the extent it shall substitute the aforesaid Rating Agency) (the “ Base Rating ”), the annual interest rate borne by the unpaid balance of the Debentures shall be increased by a rate of 0.25% over and above the annual interest rate borne by the Debentures (the “ Base Interest ”) for the period commencing on the next Interest Period (i.e. the Interest Period commencing immediately after the period during which the relevant rating change transpired), and until the full discharge of the unpaid balance of the Debentures or alternatively, until the Downgraded Rating shall rise back to the Base Rating, the earlier thereof (in which case the provisions of Section 2.6.5 below shall apply). It is clarified that no additional interest shall be received for the period from the downgrading of the rating and until the end of the Interest Period during which the Debentures’ rating was updated and that the interest shall not be decreased for the period commencing as of the date on which the rating was raised back to the Base Rating (or a higher rating) and until the end of the Interest Period during which the Debentures’ rating was updated (for example, if the Interest Period commences on January 6 th and ends on July 5 th , and during the month of April a change of rating transpired which triggered a decrease or increase of the interest on the Debentures pursuant to the terms specified below, then no change shall be made (increase or decrease) in the interest on the Debentures until the end of the Interest Period ending on July 5 th , but only commencing from the Interest Period beginning on July 6 th ).
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
2.7.2.
The interest rate borne by the Debentures shall be updated also in case of additional rating downgrade(s) beyond the Downgraded Rating (collectively, the “ Additionally Downgraded Rating ”) such that: (a) in the event that the rating determined is one rank lower than the Downgraded Rating – the annual interest rate borne by the unpaid balance of the Debentures of the relevant series shall increase by an additional rate of 0.25%, such that it shall equal the Base Interest plus 0.5%; (b) in the event that the rating determined is two ranks lower than the Downgraded Rating – the annual interest rate borne by the unpaid balance of the Debentures of the relevant series shall increase by an additional rate of 0.25%, such that it shall equal the Base Interest plus 0.75%; (c) in the event that the rating determined is three ranks or more lower than the Downgraded Rating – the annual interest rate borne by the unpaid balance of the Debentures of the Relevant Series shall increase by an additional rate of 0.25%, such that it shall equal the Base Interest plus 1.00%.
 
For the avoidance of doubt, the provisions of Section 2.6.1 regarding the period in respect of which the additional interest shall be paid, shall also apply to the additional interest pursuant to this Section 2.6.2.
 
It is clarified, that in any event, the Base Interest shall not be increased by more than 1% as a result of a downgrading of the rating compared to the Base Rating.
 
 
2.7.3.
By no later than one Business Day of receipt of the notice of the Rating Agency regarding the downgrading of the Debentures’ rating to the Downgraded Rating, as defined in Section 2.6.1 above, or to the Additionally Downgraded Rating, the Company shall issue an immediate report in which it shall state: (a) the fact that the rating was downgraded, the Downgraded Rating (or the Additionally Downgraded Rating) and the commencement date of rating the Debentures pursuant to such rating (the “ Rating Downgrading Date ”); (b) the updated annual interest rate that shall be borne by the principal of the Debentures of the Relevant Series for the period commencing on the next interest date (i.e. that commencing immediately after the period during which the relevant change of rating occurred).
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
Is shall be clarified that in any event of a change in the interest rate due to the aforementioned change of rating set forth under this section, no change shall be made in regard of the payment dates (principal or interest) or the effective date.
 
 
2.7.4.
It is clarified that the replacement of the Rating Agency (if and to the extent that the Company decides to replace it, as set forth in Section 32 of the Indenture), shall not affect the interest rate as provided in Sections 2.6.1 and/or 2.6.2 above and the provisions of this Section 2.6 shall not apply in any event, provided that the rating by the new Rating Agency shall be parallel to the rating of the current Rating Agency at the replacement date.
 
 
2.7.5.
It shall be clarified, that in the event that after the downgrading of the rating in a manner affecting the interest rate borne by the Debentures as aforesaid, the Rating Agency shall upgrade the Debentures’ rating, to a rating that is higher than the Downgraded Rating (and respectively, to a rating higher than the Additionally Downgraded Rating) (the “ Upgraded Rating ”), then the annual interest rate payable by the Company to the Debenture Holders shall be decreased by an annual rate of 0.25% for each rank up to a rating exceeding the Downgraded Rating, in which case the annual interest rate borne by the unpaid balance of the principal of the Debentures shall be the Base Index rate without any addition, for the period commencing on the beginning of the next Interest Period (i.e. the period commencing immediately after the period during which the relevant rating change transpired), and until the full discharge of the unpaid balance of the principal of the Debentures or until a change in the rating of such Debentures in accordance with and subject to the provisions of this Section 2.6.
 
 
2.7.6.
For the avoidance of doubt, it is clarified that a change in the rating outlook of the Debentures shall not cause a change in the interest borne by the Debentures as set forth in this Section above.
 
In addition, and notwithstanding the provisions of this Section 2.6, a rating downgrade of the Debentures, effected in the context of a rating update of all of the companies in Israel that are engaged in one or more of the Company’s business segments, solely as a result of a change of the methodology of the Rating Agency, shall not cause a change of the interest rates borne by the Debentures.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
2.7.7.
The Company undertook, in Section 32 of the Indenture, that insofar under its control, it shall act to cause the Debentures to be subject to a rating coverage by at least one Rating Agency, for as long as Debentures of that series are in circulation.
 
3.
Payments of the Principal and Interest of the Debentures
 
 
[a]
The payments on account of the interest and/or principal of the Series H Debentures shall be made to the persons whose names will be registered on the Register (as defined in Section 1 above) on the 23 rd day of June, for payments that will be made on July 5 th , as applicable, and on the 24 th day of December for payments that will be made on January 5 th , as applicable, and the payments on account of the interest and/or principal of the Series I Debentures shall be made to the persons whose names will be registered on the Register (as defined in Section1 above) on the 23 rd day of June for payments that will be made on July 5 th , as applicable, and on the 24 th day of December for payment that will be made on January 5 th , as applicable (the “ Effective Date ”), other than the final installment of the principal and interest which will be paid against the delivery of the Debenture Certificates to the Company on the payment date, at the Company's registered office or at any other location of which the Company will inform at least five (5) Business Days before the last payment date.
 
 
[b]
It is clarified that anyone who is not registered on the Register on the Effective Date shall not be entitled to an interest payment for the Interest Period which commenced prior to such date.
 
 
[c]
In any event that the date of payment of the installment on account of the principal and/or interest will fall on a day which is not a Business Day, the payment date shall be postponed to the first Business Day thereafter, for no added payment, and the "Effective Date" for the purpose of determination of the entitlement to redemption or interest shall not change as a result thereof.
 
 
[d]
All installments on account of a principal and/or interest which will be paid in an arrears of more than fourteen (14) Business Days from the date scheduled for the payment thereof pursuant to the terms of the Debentures, for reasons within the Company's control, shall bear arrears interest, commencing from the date which is scheduled for the payment thereof until the actual date of payment thereof. In this regard, arrears interest shall mean an annual interest rate of 3% which shall be added to the interest borne by the Debentures at such time. In the event of arrears as aforesaid, the Company shall notify of the exact total interest rate to be paid and the new payment date, in an immediate report, at least two (2) Trading Days prior to the actual payment of the principal and interest which were not paid as aforesaid.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION

 
[e]
The payment to entitled persons shall be performed by way of check or wire transfer to the credit of the bank account of the persons whose names will be registered on the Register and which will be specified in the details which will be delivered to the Company in advance, according to the provisions of sub-section [f] below. If the Company will be unable to pay any amount to those who are entitled thereto, for a reason beyond its control, the provisions of Section 15 of the Indenture shall apply.
 
 
[f]
A registered Debenture Holder shall inform the Company of the details of the bank account to be credited with the payments pursuant to the Debentures as aforesaid, or of a change in the details of such account or his address, as the case may be, in a written notice which he will dispatch via registered mail to the Company. The Company shall be obligated to act according to the notice of a registered Holder pertaining to such change after the lapse of fifteen (15) Business Days from the date on which his notice shall have reached the Company.
 
 
[g]
If a registered Holder of the Debentures who is entitled to payment as aforesaid shall not have delivered details pertaining to his bank account to the Company in advance, each payment on account of the principal and interest shall be performed by way of check which shall be dispatched via registered mail to his last address registered on the Register. The dispatch of a check to a registered Holder via registered mail as aforesaid shall be deemed, for all intents and purposes, as payment of the amount which is stated therein on the date of dispatch thereof via mail, unless it shall not have been cleared at the time of its lawful presentation for collection.
 
 
[h]
The payment of the principal and interest shall be performed subject to the linkage terms as specified in Section 2.2 above.
 
 
[i]
Any and all mandatory payments shall be deducted from each payment due to the Debentures, to the extent required under the law.
 
4.
Refrainment from Payment for a Reason which is Beyond the Company's Control
 
For details on refrainment from payment for a reason which is beyond the Company's control, see Section 15 of the Indenture.
 
5.
The Debenture Holders' Register
 
For details on the Register of the Debenture Holders, see Section 28 of the Indenture.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
6.
Transfer and Split of Debentures
 
Debentures are transferrable with respect to any nominal amount, provided that it will be in whole New Israeli Shekels. Any transfer of the Debentures (excluding a transfer executed through trade on TASE or a transfer between accounts of Holders holding via TASE members) will be effected by way of a deed of transfer in a standard form for transferring shares, duly signed by the registered Holder or the lawful representatives thereof and by the transferee or the lawful representatives thereof, which shall be delivered to the Company at its registered office, together with the Debenture Certificates transferred thereby and any other reasonable poof required by the Company in order to prove the transferor's right to transfer such.
 
Subject to the foregoing, procedural provisions included in the Company’s Articles of Association in respect of the manner of transfer of shares, shall apply, mutantis mutandis , to the manner of transfer and endorsement of the Debentures.
 
If any mandatory payment shall apply to the Debentures’ deed of transfer, the Company shall be provided with reasonable evidence for its payment by the transfer applicant.
 
In the event of a transfer of only part of the principal amount stated in the Debenture Certificate, the Debenture Certificate should first be split into several Certificates, in the manner specified in this Section below, into such number of Debenture Certificates mandated thereby, such that the total principal amounts specified therein are equal to the principal amount specified in the Debenture Certificate sought to be split.
 
After the fulfillment of all such conditions, the transfer will be registered in the Register and the transferee shall be bound be all of the terms specified in the Indenture and in this Debenture and he will be deemed a "Holder" for the purposes of the Indenture.
 
All of the expenses and fees entailed by the transfer of the Debentures will be borne by the transfer applicant.
 
Each Debenture Certificate may be split into several Debenture Certificates, the total principal amounts stated thereon are equal to the nominal amount of principal of the Certificate sought to be split, provided that the said Certificates will not be issued, except at a reasonable quantity. The split will be affected against the delivery of such Debenture Certificate to the Company at its registered office for the execution of the split, together with a split application, duly signed by the applicant. All of the expenses entailed by the split, including taxes and levies, if any, will be borne by the split applicant.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
7.
Early Redemption
 
For details as to early redemption of the Debentures by the TASE and/or by the Company, see Section 9 of the Indenture.
 
8.
Waivers, Compromises and/or Changes in the Indenture
 
For details as to the Company's and/or the Trustee's authority to make a modification, waiver, compromise and/or changes in the conditions of the Debentures, see Section 27 of the Indenture.
 
9.
Debenture Holders’ Meetings
 
The general meetings of Debenture Holders will be convened and conducted in accordance with the provisions of the Second Schedule of the Indenture.
 
10.
Replacement of Debenture Certificates
 
In the event where a Debenture Certificate wears out, is lost or destroyed, the Company will be entitled (subject, inter alia , to receipt of evidence to its satisfaction of the ownership of the Holder in the Debentures) to issue in its stead (subject to the terms set forth in this Section) a new Certificate for the Debentures and pursuant to the same conditions in respect of proof, indemnification and coverage of reasonable expenses incurred by the Company in investigating the ownership right of the Debentures, as the Company deems fit, and in the event of wear, the worn Certificate will be returned to the Company prior to the issuance of a new Certificate. Taxes and other levies, as well as other expenses entailed in the issuance of a new Certificate, if any, will be borne by the applicant requesting such Certificate (including expenses pertaining to the proof of his ownership of the Debentures and pertaining to indemnification and/or insurance coverage requested by the Company, if requested, with respect thereto).
 
11.
Applicable Law and Jurisdiction
 
The exclusive law governing the Indenture and the Debentures is the Israeli law. The Courts in the city of Tel Aviv-Jaffa shall have a unique and exclusive jurisdiction in any conflict regarding the Indenture and the Debentures.
 
12.
Notices
 
For details as to notices, see Section 26 of the Indenture.
 
13.
Urgent Representative Body of the Debenture Holders
 
 
13.1.
Appointment; Term of office
 
 
13.1.1.
The Trustee shall be entitled, or at the Company’s written request – it shall be obligated, to appoint and convene an urgent representative body out of the Debenture Holders, as shall be specified below (the “ Urgent Representative Body ”).
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
13.1.2.
The Trustee shall appoint to the Urgent Representative Body, the three (3) Debenture Holders, who, according to data it shall have received from the Company or pursuant to its best knowledge, hold the highest nominal value out of all of the Debenture Holders, and who declared that all of the following conditions are true in respect thereof (the “ Members of the Urgent Representative Body ”). In the event that any such Holder is unable to serve as a Member of the Urgent Representative Body, as aforesaid, the Trustee shall appoint, in lieu of said Debenture Holder, the Holder holding the next highest nominal value, in respect of whom all of the conditions specified below are fulfilled. And these are the conditions:
 
 
13.1.2.1.
The Debenture Holder is not in a material conflict of interests due to the existence of any additional material matter which conflicts with the interest deriving from his service on the Urgent Representative Body and his holding of the Debentures. For the avoidance of doubt it shall be clarified, that a Holder who is an Affiliated Holder (as defined in Section 8.2 of the Indenture) shall be deemed to be in a material conflict of interests as aforesaid, and shall not serve as a Member of the Urgent Representative Body;
 
 
13.1.2.2.
In the course of the same calendar year, the Debenture Holder does not serve on similar representative bodies of other debentures, the aggregate value of which exceeds the rate out of the asset portfolio managed by such Holder, that was determined as the maximal rate allowing service on urgent representative bodies under the directives of the Antitrust Commissioner which apply to the establishment of urgent representative bodies.
 
 
13.1.3.
In the event that during the service of the Urgent Representative Body, one of the circumstances specified in Sections 13.1.2.1 to 13.1.2.2 above shall have ceased to exist in respect to one of its members, his office shall expire and the Trustee shall appoint one member in his stead out of the Debenture Holders as set forth in Section 13.1.2 above.
 
 
13.1.4.
Prior to the appointment of the Members of the Urgent Representative Body, the Trustee shall receive from the candidates for service as Members of the Urgent Representative Body, a declaration as to the existence or absence of material conflicts of interests as set forth in Section 13.1.2.1 above and as to the service on additional representative bodies as set forth in Section 13.1.2.2 above. In addition, the Trustee shall be entitled to demand such a declaration from the Members of the Urgent Representative Body at any time during the service of the Urgent Representative Body. A Holder who fails to deliver such declaration shall be deemed to be found in a material conflict of interests or to be precluded from holding such office pursuant to the directives of the Antitrust Commissioner as aforesaid, as the case may be. In respect of a declaration of conflict of interests, the Trustee shall examine the existence of conflicting interests, and to the extent required, shall decide whether the conflict of interests disqualify that Holder from serving on the Representative Body. It is clarified, that the Trustee shall rely on such declarations and shall not be required to hold an additional independent examination or investigation. The determination of the Trustee in respect of such matters shall be conclusive.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
13.1.5.
The term of office of the Urgent Representative Body shall end on the date on which the Company shall publish the decisions of the Urgent Representative Body regarding the affordance of an extension to the Company for the purpose of its compliance with the terms of the Indenture as specified in Section 13.5 below, but in any event shall not exceed three months of the date of appointment thereof.
 
 
13.2.
Authority
 
 
13.2.1.
The Urgent Representative Body shall be authorized to afford a one-time extension to the Company in connection with the dates for complying with the financial covenant prescribed by the Indenture in a manner whereby the cause of acceleration set forth in Sections 10.1.17 and 10.1.18 of the Indenture shall be removed for the period of the extension, to the extent afforded, for a period of up to 90 days or until the date of publicity of the next financial statements, the earlier thereof. It shall be clarified, that the period of time until the appointment of the Urgent Representative Body shall be taken into account in the framework of such extension, and it shall not serve as cause to afford any additional extension to the Company over and above the aforesaid. It shall be clarified, that the actions of the Urgent Representative Body and the cooperation among its members, shall be limited to deliberating the possibility of affording an extension as aforesaid, and that no other information which does not pertain to the affordance of such extension shall be transferred between the Members of the Representative Body.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
13.2.2.
Should an Urgent Representative Body not have been appointed in accordance with the provisions of this Section 13, or if the Urgent Representative Body has decided not to afford such extension to the Company as set forth in Section 13.2.1 above, the Trustee shall act in accordance with the provisions of Section 10.2 of the Indenture.
 
 
13.3.
The Company’s undertakings in respect of the Representative Body
 
 
13.3.1.
The Company undertakes to provide the Trustee with any information that the Company possesses or is able to obtain in connection with the identity of the Debenture Holders and the scopes of their holdings. In addition, the Trustee shall act to obtain such information in accordance with the authorities legally conferred thereon.
 
 
13.3.2.
The Company undertakes to act in full cooperation with the Urgent Representative Body and the Trustee to the extent necessary in order to perform the inquiries required thereby and to form the decision of the Urgent Representative Body, and to transfer to the Urgent Representative Body all of the data and documents which it may require in respect of the Company, subject to legal limitations and the execution of an appropriate confidentiality agreement. Without derogating from the generality of the foregoing and subject to the execution of said confidentiality agreement, the Company shall deliver to the Urgent Representative Body the relevant information for the purpose of forming its decision, which shall not include any misleading detail and shall not be incomplete.
 
 
13.3.3.
The Company shall bear the costs of the Urgent Representative Body, including the costs of engaging consultants and experts by the Urgent Representative Body or on behalf thereof, pursuant to the provisions of Section 23 of the Indenture.
 
 
13.4.
Liability
 
 
13.4.1.
The Urgent Representative Body shall act and decide on the matters under its authority, according to its sole discretion and shall not be liable, neither it nor any of its Members, the officers therein, employees or consultants thereof, and the Company and the Debenture Holders hereby relieve them of liability for any allegations, demands and claims against them for using or refraining from using the powers, authorities or discretion vested to them under the Indenture and this Schedule and in connection thereof or from any other action they performed in accordance thereof, unless they have so acted in malice and/or in bad faith.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
13.4.2.
The indemnification provisions set forth in Section 25 of this Indenture shall apply to the actions of the Members of the Urgent Representative Body and anyone on their behalf, as if they were the Trustee.
 
 
13.5.
The Company shall issue an immediate report regarding the appointment of the Urgent Representative Body, the identity of its Members and its authorities, and shall issue an additional immediate report regarding the decisions of the Urgent Representative Body as aforesaid and an immediate report regarding the termination of office of the Urgent Representative Body.
 
 
13.6.
The appointment of the Urgent Representative Body shall not derogate from the Trustee’s right to convene a meeting of Holders of Debentures of the Relevant Series to the extent it so deems necessary. In such event, the resolutions of the Holders’ meeting shall govern the decisions of the Urgent Representative Body.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Cellcom Israel Ltd.
 
Second Schedule
 
Debenture Holders’ Meetings
 
In any event that a different and/or supplementary mechanism for convening and/or holding of meetings of Debenture Holders shall be prescribed under any mandatory law, including pursuant to the TASE Directives, the provisions of this Schedule shall be automatically adjusted to the provisions of the law, to the extent and insofar as the provisions of such law so mandate.
 
Without derogating from any other provision prescribed under mandatory law or the Indenture, the following provisions shall apply to meetings of Holders of Debentures of the Relevant Series:
 
Calling Debenture Holders’ meetings
 
1.
The Trustee, if it deems it necessary (or if necessitated under law), or the Company, may convene a meeting of the Debenture Holders. In the event that the Company convenes such a meeting, it must immediately send written notice of the place, date and time of the meeting, as well as of the matters to be discussed therein, to the Trustee. In case the Trustee calls such meeting, it must send written notice of the place, date and time of the meeting, as well as of the matters to be discussed therein, to the Company.
 
2.
The Trustee shall convene a Holders’ meeting at the demand of one or more Debenture Holders, holding at least five percent (5%) of the balance of the nominal value of the Debentures. The Trustee may demand indemnification from the Holders requesting the meeting, including in advance, for the reasonable expenses involved therein. It shall be clarified, that the Trustee’s demand for indemnification shall not prejudice the calling of a meeting which was summoned for the purpose of taking an action intended for the prevention of a breach of the rights of the Debenture Holders.
 
3.
A Trustee required to convene a Holders meeting pursuant to Section 2 hereof, shall convene it within twenty one (21) days of the day on which the demand was submitted thereto, for a date to be determined in the notice, provided that the date of convening of the meeting shall not be earlier than seven (7) days and not be later than twenty one (21) days of the date of the notice; provided that the Trustee may convene the meeting earlier, if it believes that this is required for the protection of the Holders’ rights and subject to the provisions of Section 7 hereof. In such event, the Trustee shall provide the reasons for convening the meeting earlier in the report of the meeting’s notice.
 
Had the Trustee failed to convene a Holders’ meeting at the demand of a Holder as aforesaid, within the period prescribed above, the Holder may convene the meeting, provided that the date of the meeting shall be within fourteen (14) days of the end of the period for convening the meeting by the Trustee, and the Trustee shall bear the expenses incurred by the Holder in connection with the convening of the meeting.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
4.
In the event that a Holders’ meeting was not held as set forth in Sections 2 and 3 hereof or as set forth in Section 35B(a1) of the Securities Law, the Court shall be entitled, at the request of a Debenture Holder, to order the convening thereof. Should the Court order as aforesaid, the Trustee shall bear the reasonable expenses incurred by the applicant in the Court proceeding, as shall be determined by the Court.
 
5.
The Court may, at the request of a Debenture Holder, order the revocation of a resolution adopted at a Holders’ meeting that was convened or conducted without the terms prescribed therefor under the Securities Law or the Indenture being fulfilled. In case the fault pertains to the notice regarding the place or time of convening the meeting, a Debenture Holder who appeared at the meeting, notwithstanding the fault, may not demand the revocation of the resolution.
 
6.
Any meeting of Debenture Holders will take place at the registered office of the Company, or at another address of which the caller of the meeting shall notify, and in any event it shall be held in Israel.
 
Effective date; Proof of ownership of Debentures
 
7.
The effective date for ownership of Debentures - Debenture Holders entitled to participate and vote at the Holders’ meeting are Holders of Debentures at the date prescribed in the notice of the Holders’ meeting, provided such date shall be no earlier than three (3) days prior to the date of convening of the Holders’ meeting, and shall be no later than one (1) day prior to the date of the meeting.
 
8.
A Debenture Holder wishing to vote at a Holders’ meeting is entitled to receive, without condition, from the TASE member through which the Debentures are held, a confirmation proving his ownership of the Debentures. The Debenture Holder shall deliver to the Company at its registered office (or to the entity calling the meeting at the address determined by such entity), by the date as determined by the caller of the meeting in the invitation to the meeting, a confirmation of ownership as aforesaid from the TASE member through which the Debentures are held, as to the number of Debentures held by the Holder as stated as of the date specified in such confirmation, together with a proxy if the confirmation of ownership is not in the name of the entity participating at the meeting.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
The chairperson of the meeting
 
9.
In each Holders’ meeting, the Trustee or a person appointed thereby shall reside as the chairman of such meeting.
 
Legal quorum; Adjourned meeting
 
10.
A Debenture Holders’ meeting will open after it has been proven that the legal quorum required for holding a discussion in respect of any of the issues on the agenda of the meeting is present. In a Debenture Holders’ meeting, only resolutions which were included in the meeting's agenda, and with respect to which the legal quorum required for adoption thereof is present, will be put to the vote. For the purpose of counting the Holders for determining the presence of the legal quorum required for discussing a certain matter at a Holders’ meeting, see Section 15 of this Schedule below, and the provisions of Sections 37 to 45 of this Schedule shall apply to the counting of votes at a Holders’ meeting.
 
11.
In meetings of Debenture Holders, but except in regards to resolutions in respect of which a different quorum is prescribed by mandatory law and/or by the Indenture, two Debenture Holders or more, present in person or by proxy at the meeting within half an hour of the time prescribed for opening the meeting, and holding or representing together twenty five percent (25%) of the voting rights by virtue of the Debentures, shall constitute a legal quorum.
 
12.
If, within half an hour of the time set for the beginning of the meeting, a legal quorum will have not been present at the Holders’ meeting, the meeting shall be adjourned to another date which shall not be earlier than two (2) Business days after the date prescribed for the convening of the original meeting, or not earlier than one (1) Business Day, if the Trustee believed that it is necessary for the protection of the Holders’ rights in the Debentures. In the event that the meeting was adjourned, the Trustee will specify the reasons therefor in the report of the meeting’s notice.
 
13.
In the event that a legal quorum will have not been present at the adjourned Holders’ meeting as aforesaid in Section 12 hereof, within half an hour of the time set for the beginning thereof, the meeting shall be held at any number of participants, unless a different requirement is prescribed by the Securities Law or the Indenture. Notwithstanding the foregoing, if the Holders’ meeting was convened at the demand of Holders as set forth in Section 2 hereof, the adjourned Holders’ meeting may be held only if at least such number of Debenture Holders as required in said Section for convening such a meeting are present.
 
14.
With respect to a meeting on the agenda of which is a proposal to approve a Special Resolution, two Debenture Holders or more, present in person or by proxy thereof at the meeting and holding or representing together at least fifty percent (50%) of the unpaid balance of the nominal value of the Debentures in circulation, will constitute a legal quorum. If, within half an hour of the time set for the beginning of the meeting, a legal quorum as aforesaid will not have been present, the meeting shall be adjourned and the provisions of Section 12 above shall apply, mutatis mutandis . At a meeting on the agenda of which is a proposal to approve a Special Resolution which was adjourned as aforesaid, two Debenture Holders or more, present in person or by proxy in the meeting and holding or representing together at least twenty percent (20%) of the unpaid balance of the nominal value of the Debentures in circulation, will constitute a legal quorum.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
15.
The vote of a Debenture Holder that is an Affiliated Holder, shall not be counted for the purpose of determining the presence of a legal quorum required to open a Holders’ meeting (including an adjourned meeting). However, the votes of whomever the Trustee has determined, according to the provisions of this Schedule and/or any other law, to be a Holder of Conflicting Interest (as defined in Section 38 of this Schedule below), shall be counted for the purpose of determining the presence of a legal quorum (including an adjourned meeting).
 
Follow-on meeting
 
16.
A Holders’ meeting in which a legal quorum is present, or the Trustee, may resolve to postpone the continuation of the meeting, the discussion or the adoption of a resolution in respect of an issue specified in the agenda, to another date and place to be determined (a “ Follow-on Meeting ”). A Follow-on Meeting of Holders, shall only deliberate such issue which was on the agenda and in respect of which a resolution was not adopted. In the event that the Holders’ meeting was adjourned as aforesaid without changing its agenda, invitations regarding the date of the new meeting shall be provided as soon as possible, and by no later than twelve (12) hours prior to the convening of the new Holders’ meeting. Such invitations shall be issued in accordance with Section 31 of this Schedule.
 
Vote; Required majority
 
17.
At any meeting of Debenture Holders, any Debenture Holder, who is present therein in person or by proxy thereof, is entitled to one vote for every NIS 1 par value of the principal of the Debentures by virtue of which he is entitled to vote subject to the provisions of the Indenture. The Trustee, who shall participate in a meeting, will participate without a voting right.
 
18.
In the event of joint Debenture Holders, only the vote of the Holder listed first from among them in the Register for same series, seeking to vote either in person or by proxy thereof, will be counted.
 
19.
A resolution at a Holders’ meeting, will be decided by a count of votes.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
20.
Resolutions of Holders’ meeting shall be adopted by a simple majority, unless a different majority is prescribed by the Securities Law or the Indenture or if the Trustee determined, pursuant to its authorities under the Indenture, that a resolution shall be adopted by a majority which is not a simple majority. The majority required for the adoption of a Special Resolution at a Holders’ meeting is a majority of at least seventy-five (75%) of all of the participating votes, excluding abstainers.
 
21.
The announcement of the chairperson with respect to the adoption or rejection of a resolution and an entry to this effect in the book of minutes, will serve as prima facie evidence of its adoption or rejection as aforesaid.
 
22.
A Debenture Holder may vote in Holders’ meetings by himself or via proxy and also by way of a voting card in which he shall state the manner of his vote, as specified in Section 28 hereof. A proxy appointment form shall be made in writing and signed by the principal or by an attorney thereof duly authorized in writing to do so. If the principal is a corporation, the appointment will be made in writing, signed by the corporate stamp together with the signature of a corporate official or an attorney of the corporation who is authorized to do so. The proxy appointment form will be drawn-up in any standard form. A proxy does not have to be a Debenture Holder himself.
 
23.
A proxy appointment form and the power of attorney pursuant to which the appointment form was signed, or a certified copy of such power of attorney, will be deposited with the Company's registered office (or with the entity calling the meeting at the address determined by such entity) by a date as shall be determined by the entity calling the meeting in the meeting’s notice, unless otherwise determined by the caller of the meeting in the notice calling the meeting. The appointment form will be valid for any adjourned meeting of a meeting referred to in the appointment form, provided that the appointment form does not stipulate otherwise.
 
24.
A vote, which was made in accordance with the conditions of the document appointing a proxy, will be valid even if prior thereto the principal will have passed away or declared legally incompetent or the appointment form will have been revoked or the Debenture with respect to which the vote was granted will have been transferred, unless a written notice of the passing, the incompetence decision, the revocation or the transfer, as applicable, will have been received at the Company's registered office (or by the entity calling the meeting at the time set by such entity), before the meeting.
 
25.
A Debenture Holder or his proxy may cast some of his votes in favor of a certain proposed resolution, and some against, and abstain in respect of others, all as he deems fit.
 
26.
A Debenture Holder shall refrain from abusing his power in voting at the Holders’ meeting.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
Minutes
 
27.
The Trustee will take minutes of the Holders’ meeting and shall keep them at its registered office for a period of seven (7) years of the date of the meeting. Minutes executed by the chairperson of the meeting shall serve as prima facie evidence of the stated therein. The minutes’ register of Holders’ meetings  shall be maintained at the registered office of the Trustee, and shall be open for the inspection of the Debenture Holders and a copy thereof shall be sent to any Debenture Holder requesting the same.
 
Voting Card
 
28.
Debenture Holders may vote in a meeting of Debenture Holders by way of voting cards. A voting card shall be delivered by the Trustee to all of the Debenture Holders. A Debenture Holder may state the manner of his vote in the voting card and send it to the Trustee. The wording of the voting cards shall be delivered to the Holders by the Trustee prior to the close of the meeting, by way of an immediate report. Subject to the provisions of the Securities Law and its regulations, a Holder is entitled to receive, without condition, a voting card from the TASE member through which the Debentures are held. In order to vote by way of a voting card as stated, such should be delivered to the place, at the dates and to the entities, as shall be determined in the notice of the meeting and/or in the voting card and as shall be published in an immediate report, such voting card being filled-in, duly signed and accompanied by all of the required documents attached thereto. A voting card in which a Debenture Holder has stated the manner of his vote which has reached the Trustee by the last date prescribed therefor, shall be deemed as presence at the meeting for the purpose of the existence of a legal quorum. A voting card received by the Trustee in respect of a certain matter which was not voted on at the Holders’ meeting, shall be considered as abstaining from the vote at such meeting in respect of a resolution to hold an adjourned Holders’ meeting according to the provisions of Section 16 hereof, and it shall be counted at the adjourned Holders’ meeting that shall be held pursuant to the provisions of Section 13 or 16 of this Schedule.
 
29.
The Trustee may, at its discretion and subject to any law, hold voting meetings in which votes shall be held by way of voting cards without convening the Holders, provided that the votes shall be held in respect of issues deliberated at Holders’ meetings.
 
Presence
 
30.
A person or persons appointed by the Trustee, may be present but shall not be entitled to vote at meetings of Debenture Holders. At meetings of Debenture Holders called by the Trustee, the Company's representatives and any other person or persons permitted therefor by the Trustee, may be present, with no voting right. In the event that, pursuant to the Trustee’s discretion, part of the meeting calls for a discussion without the presence of a certain person, including the Company’s representatives, such person shall not participate in such part of the discussion.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
Meeting’s notice; Agenda
 
31.
A notice of a meeting of Debenture Holders shall be published and delivered to the Company pursuant to the provisions of Chapter G1 and Sections 35H(1)(d) and (e) of the Securities Law and in accordance with the provisions of Section 26 of the Indenture, and shall include the agenda, the proposed resolutions and the arrangements pertaining to written votes.
 
32.
The Trustee shall determine the agenda for a meeting of Debenture Holders and shall include therein issues in respect of which the convening of the Holders’ meeting was required according to Section 2 hereof and any issue requested by a Holder as specified in Section 33 of this Schedule below. The Holders’ meeting shall only adopt resolutions in respect of issues specified on the agenda. Notwithstanding the aforesaid, to the extent that regulations be promulgated by virtue of Section 35L8 of the Securities Law, the meeting may adopt resolutions that differ from the wording of the resolutions on the agenda, according to the provisions of the law.
 
33.
One Debenture Holder or more, holding at least five percent (5%) of the balance of the nominal value of a series of Debentures, may request that the Trustee include an issue on the agenda of a Holders’ meeting that shall be convened in the future, provided that such issue is fit to be discussed at such meeting, all subject to the provisions of the Securities Law and its regulations.
 
Additional Provisions
 
34.
Nothing stated in Sections 2, 32 and 33 of this Schedule shall derogate from the Trustee’s authority to convene a Holders’ meeting, if it sees a need to consult therewith. The notice of such meeting shall not specify issues on its agenda and the date of its convening shall be at least one day after the date of the notice. No vote shall be held and no resolutions shall be adopted at such meeting and the provisions of the Securities Law shall apply thereto, other than the provisions specified in Section 35L26(b) of the Securities Law.
 
35.
Where there is no practical possibility to convene a Holders’ meeting or to hold it in the manner prescribed therefor by the Indenture or by the Securities Law, the Court may, at the request of the Company, a Debenture Holder entitled to vote at the meeting or the Trustee, order that a meeting be convened and held in a manner to be determined by the Court, and it is entitled to render supplementary instructions for such purpose to the extent deemed fit thereby.
 
36.
No resolution duly adopted at a meeting convened as set forth in this Schedule above shall be revoked, even if due to an error, notice thereof was not provided to all Debenture Holders, or if such notice was not received by all of the Debenture Holders. The foregoing in this Section shall apply if the meeting’s notice (or the adjourned meeting’s notice, as applicable) was issued on the MAGNA system.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
Affiliated Holder; Determination of Conflicting Interest
 
37.
In the event that a Holders’ meeting was convened, the Trustee shall examine the existence of conflicts of interest of the Holders, be it an interest deriving from their holding of the Debentures or another interest thereof, as shall be determined by the Trustee (“ Another Interest ”). The Trustee may demand of a Debenture Holder participating in a Holders’ meeting to inform it, including in writing, prior to the vote, of Another Interest it has and whether it is in a conflict of interests as aforesaid. The Trustee shall exclusively rely on the declarations delivered to it by the Holders as aforesaid and shall not hold an additional investigation or examination.
 
38.
In counting the votes at a vote held in a Holders’ meeting, the Trustee shall not count the votes of Holders who failed to respond to the Trustee’s demand as set forth in Section 37 above or of Holders in respect of whom the Trustee found that a conflict of interests exists as set forth in such Section (“ Holders of a Conflicting Interest ”) and of Affiliated Holders. An Affiliated Holder shall notify the Trustee in writing prior to the convening of a meeting of the Debenture Holders that he is an Affiliated Holder.
 
39.
Notwithstanding the foregoing, in the event that the total holdings of participants at the vote, who are not Holders of a Conflicting Interest, constituted less than five percent (5%) of the balance of the nominal value of the Debentures, the Trustee will count the votes of Holders of a Conflicting Interest in the tally of votes.
 
40.
In the context of the votes held at all meetings of Debenture Holders, the Trustee shall be permitted, at its sole discretion, to determine that a certain resolution shall be subject to the approval of the required majority only out of votes of Holders who are not Affiliated Holders and are not Holders of a Conflicting Interest.
 
41.
The Trustee shall examine whether a Holder is a Holder of a Conflicting Interest also considering such Holder’s holdings in other securities of the Company and/or of securities of any other corporation that is relevant to the resolution brought to the approval of the meeting (as shall be specified in the voting card), according to the declaration of such Holder.
 
42.
The determination of the existence of a Conflicting Interest may also be made on the basis of a general test of conflict of interests to be applied by the Trustee. For such purpose, the Trustee may rely on a legal opinion that it shall receive (in accordance with and subject to the provisions of the Indenture in such context). In addition, for the avoidance of doubt it is clarified, that none of the definitions above shall derogate from the provisions of the law, case law and the binding directives of the Israel Securities Authority which pertain to the definition of debenture holders having a “conflicting interest”, as shall apply at the date of the examination.
 
 
 
 
 
TRANSLATION FROM HEBREW
 
 
THE BINDING VERSION IS THE HEBREW VERSION
 
43.
The Trustee shall examine the manner of appropriate treatment of the votes of Holders who sought to participate at the vote in accordance with all of the above, and in the event necessary, shall apply to the Court to seek instructions in respect thereof.
 
44.
No separate meeting of those Holders classified as Holders of a Conflicting Interest shall be held, and the adoption of a resolution at a meeting of all of the Holders or of Holders of a Conflicting Interests shall not be required for the purpose of adopting a binding resolution.
 
45.
It shall be clarified, that the examination of a Conflicting Interest as aforesaid, shall be performed separately in respect of each resolution on the agenda of the meeting, and separately in respect of each meeting. It shall be clarified further, that the declaration of a Holder as a Holder of a Conflicting Interest in a certain resolution or meeting, shall not, in itself, indicate a Conflicting Interest of such Holder in another resolution on the agenda of the meeting or of a Conflicting Interest of such Holder in other meetings.
 
46.
For the purpose of this Schedule, an “ Affiliated Holder ” shall mean as defined term in Section 8.2 of the Indenture.
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Exhibit 4.11

 


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 March 1, 2015

 
1
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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:

 
2
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 


CHAPTER A: GENERAL

PART A: DEFINITIONS AND INTERPRETATION:

 
1.
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;
       
" Roaming Licensee "   A60
 
-
The person who one Tender 12/2010 – Combined License for the Provision of Mobile Radio Telephone Services by the Cellular Method (Cellular) in Israel – Extension of Existing License and Grant of a New License.
       
"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
                                                    
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A60 Amendment No. 60
A16 Amendment No. 16
A43 Amendment No. 43 [Inception: This amendment shall come into force not later than March 15, 2007]
 
 
3
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 

"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;
       
"Dormant subscriber" T 48)
   
A subscriber in respect of which all of the conditions set out below are fulfilled:
(a)He did not receive or use cellular services during a minimum of one year, starting from January 1, 2008;
(b)He does not pay the Licensee any fixed payment;
(c)He is not bound with the Licensee by any plan that includes a commitment period.
       
"Business subscriber" T 47 )
   
- A subscriber who is any of the following:
(a)A corporation, as defined in the Interpretation Law, 5741-1981;
(b)Government offices and auxiliary government bodies;
(c)A licensed dealer excluding an exempt dealer;
(d)An entity established by or pursuant to a law.
       
“Private Subscriber”   T 52
   
Non-Business Subscriber
       
"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
 
T48) Amendment No. 48 (Inception: This amendment will come into force on October 2, 2008).
T47) Amendment No. 47.
T52) Amendment No. 52.
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16

 
4
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 

"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;
       
" Domestic Roaming "   A60
 
-
Expansion of the services of another cellular licensee (hereinafter – " cellular licensee ") to the coverage areas of the Licensee by means of the Licensee's cellular system, as set forth in section 67E.
       
"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
A16 Amendment No. 16
A60 Amendment No. 60
A16 Amendment No. 16
A16 Amendment No. 16
 
 
5
 
 
TRANSLATION FROM HEBREW
    
THE BINDING VERSION IS THE HEBREW VERSION
 

"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
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
 
 
6
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 

"International Telephone Service (ITMS)"
 
-
A telephone service by means of the international system of a Licensee for the provision of international services;
       
"International Roaming Service" A16   A66
 
-
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
A66 Amendment No. 66
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16
A16 Amendment No. 16

 
7
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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.
 
 
 
16 In the event that the Subscriber has a limited monthly minutes package, the License Holder shall deduct the payment according to the duration of the call from the monthly minute quota; in the event that the Subscriber has an unlimited plan, he will not be charged any additional payment for dialing a Service Number; in the event that the Subscriber has a tariff plan other than in the framework of a package, his Regular Tariff will be identical to the tariff for an inter-network calling minute.
 
8
 
 
TRANSLATION FROM HEBREW
   
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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
 
 
9
 
 
TRANSLATION FROM HEBREW
   
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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 mobile phone system to another public communication network in Israel;
 
(3)
To engage with the subscribers for the purpose of provision of mobile phone services;
 
(4)
To supply mobile phone terminal equipment to subscribers;
 
(5)
To provide its subscribers with mobile phone services as specified in the first addendum to the license;
 
(6)
To provide its subscribers with services for which it has received approval in accordance with Section 67C of the license. A66

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.
                                                    
A66 Amendment No. 66
A16 Amendment No. 16

 
10
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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.

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
 
 
11
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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.

 
12
 
 
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THE BINDING VERSION IS THE HEBREW VERSION
 
 
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
 
 
13
 
 
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THE BINDING VERSION IS THE HEBREW VERSION
 

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;

 
                                                    
A2 Amendment No. 2
 
 
14
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
(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
 
 
15
 
 
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THE BINDING VERSION IS THE HEBREW VERSION
 
 
 
(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 apply, mutatis mutandis , to the restriction or suspension of the License or forfeiture of the guarantee.
                                                    
A2 Amendment No. 2
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).
 
 
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CHAPTER C: OWNERSHIP, ASSETS AND MEANS OF CONTROL

PART A – RESTRICTIONS ON TRANSFER OF THE LICENSE AND ITS ASSETS

16.
Void. A66
 
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 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.

                                                    
A66 Amendment No. 66
A16 Amendment No. 16
A2 Amendment No. 2
A2 Amendment No. 2

 
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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
 
 
18
 

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THE BINDING VERSION IS THE HEBREW VERSION
 
 
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 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.
 
 
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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 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.
 
22A.
Israeli Nationality and Holdings of Founding Shareholders or Their Substitutes
 
 
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THE BINDING VERSION IS THE HEBREW VERSION
 
 
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.

 
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.
 
 
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THE BINDING VERSION IS THE HEBREW VERSION
 

 
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.

 
(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
 
 
22
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 

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 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.
 
 
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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.
26.3
The Licensee may discontinue the operation of a cellular system that has become technologically obsolete, after received the Director's approval in that regard and subject to conditions to be set in the License A 63 .

 
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.

 
A63 Amendment No. 63
 
 
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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.

 
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.
 
 
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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;

(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;
 
 
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(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.

(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 therefor 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.
 
 
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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.

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.

 
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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. A72 In the setup period, this report shall be integrated into the engineering system report, as stated in Section 104.1(e)

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 a new 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.
A72 Amendment No. 72 (Inception: This amendment will come into force on the day of signing the Amendment)

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.
 
 
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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. ( A2)
 
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

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).

 
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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.

 
(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.
 
 
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(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.


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.
 
 
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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' 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.            Preparing to ensure continuity of operations in emergencies
 
 
48.1
The License Holder will appoint a functionary (including a first deputy and a second deputy) who will be responsible in emergencies for maintaining contact with the Ministry; the License Holder will provide to the Director, once a year, on January 1st, the details of the functionary and his deputies, as well as their contact details.
 
48.2
The License Holder will be prepared to ensure continuity of operations in emergencies, as specified in Annex D – “Preparing to Ensure Continuity of Operations in Emergencies”.
 
 
Part D: Inspections and Maintenance A43)
 
 
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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.

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.
 
 
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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.

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) A 58
A first, separate, printed page, setting out the following details, in a clear and precise manner, without any handwritten additions or alterations (hereinafter – the Plan Summary Page ):

 
 
(1) Licensee's name or logo, details of the Licensee's representative who executed the contract, date of conclusion of the transaction, subscriber's details including name, identity number, address, telephone number to which the contract relates, additional telephone number of the subscriber for sending notices concerning the rate of utilization of a surfing package as stated in section 75D and a cellular end-equipment model, if included in the contract. Notwithstanding that stated at the beginning of section (a), the details mentioned in this subsection, other than the Licensee's name or logo, can be written in handwriting.

 
 
(2) The duration of the commitment period, if any, and its expiry date. For purposes of this subsection, "commitment" – as this term is defined in section 56.1A.

 
 
(3) All the rates according to which the Licensee will charge the subscriber for the services the subscriber requested to receive when executing the contract, and the amount of every fixed payment, if such are included in the contract.
 
     The service rates will be presented in a table with two columns – "Name of Service" and "Price of Service."
 
     With respect to a surfing package, as this term is defined in section 75D – the service unit rate outside the package will be presented in the same values as in the package.
 
 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
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THE BINDING VERSION IS THE HEBREW VERSION
 

 
(4)
The inclusive price of the end-equipment and any accessory to the end-equipment purchased at the time of executing the contract (hereinafter – the equipment ), and if the subscriber and the Licensee agreed on payment in installments for the equipment – the amount of each installment.

 
(5)
Any benefit, as this term is defined in section 64A.1, noting the value of the benefit and the exact period of time during which it will be granted.

 
(6)
The method of calculation of the amount the subscriber will be required to pay for a breach of the commitment, as this term is defined in section 56A.1.

 
(7)
With respect to a business subscriber – information on rate increases during the commitment period, if this possibility exists under the terms of the contract, including the date and amount of such increase.

 
(8)
Information on the balance of any payment and/or cancellation of any benefit for end-equipment that was purchased from the Licensee in a previous contract.

 
(9)
The Licensee's undertaking to pay to a subscriber of another cellular licensee who has become a subscriber of the Licensee, the payment such subscriber will be required to make to the other cellular licensee for the breach of his commitment to that cellular licensee, and the manner of spreading such payment.
 
In this regard, " commitment " – as this term is defined in section 56A.1.

(10)
The subscriber's declaration that he read the page and that it was provided to him at the time of executing the contract. The subscriber's original signature, as well as the details and original signature of the Licensee's representative who executed the contract, must be appended to the declaration, which will appear at the bottom of the Plan Summary Page.

(11)
Respecting subsection (a)(1) to (10) – "Subscriber" is any person who entered into an agreement with the Licensee for receipt of cellular mobile radio telephone services for up to twenty five telephone numbers, excluding a Pre-Paid Subscriber. A 59

 (a1) A 58
(1)
A separate, printed page, on which the subscriber will be required to mark his choice as to the accessibility of any telephone number to which the contract relates, to services as set out in Appendix E2 (hereinafter – the Access to Services Form or the form ) and to sign by original signature alongside the mark and at the bottom of the form A 59 ; The form will come after the Plan Summary Page.

(2)
A new Subscriber who did not mark his selection, blocked or open, on the form in the designated spot (hereinafter, the "Selection") and signed against the service appearing on the form as stated in item (1), or did not sign against the service, even if he marked the Selection, or did not mark the Selection and did not sign against the service, shall be blocked from receiving such service.

 
In this section, " new Subscriber " means a Subscriber who entered into an agreement with the Licensee after September 13, 2011 (14 Ellul, 5771). A 59

(3)
 
A subscriber may request the Licensee at any time, orally or in writing, to change his choice regarding accessibility to services specified in the form (hereinafter in this section – the subscriber's request ). A first change will be made free of charge. The Licensee will implement the subscriber's request only after it has identified the subscriber. The request must be kept available by the Licensee for playing or presenting (as the case may be) to the Director within five (5) work days from the day of request's receipt.
 
The subscriber's request must be implemented within one working day A 59 from the date of the request.
 
 
A59 Amendment No. 59
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A59 Amendment No. 59
A59 Amendment No. 59
 
 
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TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 

 
(4)
The Licensee will include in the next telephone bill after the date of the subscriber's request a notice concerning the implementation of the request and the date of implementation. Said telephone bill must be kept available by the Licensee for presenting to the Director within five (5) work days from the day of preparation of the account.

 
(5)
The Licensee shall attach to the form two (2) immediate telephone statements sent after September 13, 2011 (14 Ellul, 5771) to a Subscriber who is not a new Subscriber A 59 .

 
(6)
A Subscriber who is not a new Subscriber who failed to transfer to the Licensee his comments on the form by December 13, 2011 (17 Kislev, 5772) will be blocked from receiving the services set forth in section 3 of the form within seven (7) working days of the aforesaid date; Notwithstanding that stated, where a non-new subscriber has not used the services set out in Section 3 of the form starting November 1, 2011 (4 Heshvan 5772) and has not submitted to the Licensee a response to the form by December 1, 2011 (5 Kislev 5772), the Licensee may block his access to said services as of December 1, 2011 (5 Kislev 5772) A 64 ; A non-new subscriber who has submitted to the Licensee a response to the form, will have his access to services blocked or opened in accordance with his request in the form, within one workday of the request's receipt A 62 ; a Subscriber who transferred to the Licensee his comments on the form and failed to mark his Selection and signed alongside the service appearing on the form as stated in subsection (1) shall be blocked from receiving such service A 59 .
 
The Licensee will notify the subscriber about the block in the next telephone bill after the block. Said telephone bill must be kept available by the Licensee for presenting to the Director within five (5) work days from when it was sent to the subscriber.

 
(7)
The Licensee will publish the form on its website, within seven (7) work days from September 13, 2011 (14 Ellul, 5771) A 59 .

 
(8)
Respecting subsection (a1)(1) to (6) – "Subscriber" - excluding a Pre-Paid Subscriber. Notwithstanding the above, the Licensee shall block services at the request of a Pre-Paid Subscriber, to the extent that it comes from a telephone number to which the request refers, or such Subscriber presented before it the end-equipment serving the telephone number forming the subject matter of the request, or in any other manner to the Licensee's satisfaction A 59 .

 
(a2)
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 discontinuation of all service A 58 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;
 
 
A59 Amendment No. 59
A59 Amendment No. 59
A64 Amendment No. 64
A62 Amendment No. 62
A59 Amendment No. 59
A59 Amendment No. 59
A59 Amendment No. 59
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
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THE BINDING VERSION IS THE HEBREW VERSION
 

 
(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 A 58
Where a contract is executed in the presence of the Licensee's representative and the subscriber, the Licensee will act as follows:

 
(a)
Prior to executing the contract, the Licensee's representative will present to the person requesting to be a subscriber of the Licensee (hereinafter in this section – the applicant ) a printed copy of the contract, and will allow him to peruse the contract.

 
(b)
When executing the contract, the applicant and the Licensee's representative must affix their original signature to the contract that was given to the applicant for perusal. Following such signature, the Licensee's representative will give the subscriber a copy of the contract bearing the original signatures of the Licensee's representative and the subscriber.

 
(c)
After that stated in subsections (a) and (b) has been done, the Licensee's representative may require the subscriber to sign an identical contract to the one signed with original signatures, by electronic means.

 
(d)
The Licensee must keep in its possession a signed copy of the contract. Said copy must be kept available by the Licensee for presenting to the Director within five (5) work days from the date of executing the contract.

 
(e)
Should the subscriber request to make a change in the terms of the contract, including a request to receive an additional service, to cancel a service or to join a service package – he will be given, at the time of the request for the change, a printed notice bearing the Licensee's name or logo, noting the details of the change that was made, its effective date and the full name of the Licensee's representative and the subscriber together with their original signatures. The signed notice must be kept available by the Licensee for presenting to the Director within five (5) work days from when the subscriber's request was implemented.

55.6
If the Licensee publishes on its website a tariff plan, including for purchases of cellular end-equipment, such publication will also contain the contract terms pertaining to that tariff plan, including the details appearing on the Plan Summary Page.

55.7 A 70
Notwithstanding the provisions of Section 55.5, the Licensee may have a subscriber sign an engagement agreement also through an Electronic Graphic Signature, in lieu of an original signature, and the provisions of appendix E shall apply in this regard in lieu of the provisions of Section 55.5.
 
 
For this purpose, " Electronic Graphic Signature " – A signature which is saved electronically as a graphic file."
 
 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
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THE BINDING VERSION IS THE HEBREW VERSION
 

55A. A 58
Remote Sales Transaction

55A.1
In a remote sales transaction, as this term is defined in section 14C of the Consumer Protection Law, 5741-1981 (hereinafter – remote sales transaction ), the Licensee will act as follows:

(a)
A document will be sent to the subscriber which includes all of the details specified in Subsection 55.4(a2) to 55.4(h), the "plan highlights sheet" and the "access to services form", checked in accordance with the subscriber's choices, as orally expressed to a representative of the license holder, or as entered upon performance of the engagement via the internet (the " Terms and Conditions of Engagement Document "). In a remote sale transaction made on the internet, the Terms and Conditions of Engagement Document may omit the full names and signatures of the subscriber and of the license holder's representative who performed the engagement . A69

 
The Contract Terms Document will be sent to the subscriber by regular post, or via email or fax if the subscriber gave his consent thereto. A copy of the Contract Terms Document must be kept available by the Licensee for presenting to the Director within five (5) work days from the day of executing the contract. If the Licensee sent the Contract Terms Document via email or fax, the sending confirmation must also be available for presenting to the Director within five (5) work days from when the document was sent as stated.

(b)
Should the subscriber request to make a change in any detail of the Contract Terms Document, including a request to receive a service or a service package (in this section – "change") A 59 – the Licensee will send to the subscriber a printed notice bearing the Licensee's name or logo, noting the details of the change that was made, its effective date , service or service package tariff A 59 and the full name of the Licensee's representative and the subscriber. In a remote sale transaction made via the internet, the notice will not include the name of the license holder's representative A 69 . The notice must be dept available by the Licensee for presenting to the Director within five (5) work days from when the subscriber's request was implemented.

 
The notice will be sent to the subscriber by regular post, or via email or fax if the subscriber gave his consent thereto. If the Licensee sent the notice via email or fax, the sending confirmation must also be available for presenting to the Director within five (5) work days from when the notice was sent as stated.

(c)
Notwithstanding the above, where a Subscriber requested to make a change which does not involve an extension of the term of undertaking of the Subscriber or the creation of such a term, the Licensee shall include in the immediate telephone statement to the date of the request a notice in which the particulars specified in subsection (b) shall be noted, except for the name of the Licensee's representative. For the purpose of this subsection, "undertaking" is within the meaning in section 56.1A of the License.

55A.2
A 69   The license holder may perform a remote sale transaction via the internet, provided that all of the following conditions are fulfilled:
 
(a)
The license holder's website shall clearly include all of the details specified in Subsection 55.4(a2) to 55.4(h), as well as the "plan highlights sheet" and the "access to services form".
 
(b)
The subscriber has declared, by checking the appropriate box on thewebsite, that he has read the information included in the "plan highlights sheet.

 
56.   A43)   Modification of Contract
 
 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A69 Amendment No. 69
A59 Amendment No. 59
A59 Amendment No. 59
A69 Amendment No. 69
A69 Amendment No. 69
 
 
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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.

 
56A. T 47)
Period of Commitment under a Contract
 
56A.1
Where the Licensee entered with a subscriber who is not a business subscriber into a contract that includes a commitment, the period of the commitment may not exceed eighteen (18) months.
 
 
In this regard, "commitment," – the subscriber's commitment to comply with conditions relating to the scope of consumption of services, the amount of the payment or the payment terms, during a defined period, where noncompliance with such conditions during such period entails a payment, including the return of a benefit or an exit fee.
 
56A.2
Where the Licensee proposed to a subscriber who is not a business subscriber to enter into a contract that includes a commitment, the Licensee will present to such subscriber a proposal to enter into a contract that does not include a commitment, as a reasonable alternative to contracts that include a commitment. In this regard, a contract containing a "prepaid" plan will not be deemed a reasonable alternative to a plan that includes a commitment. The Licensee will publish on its website the contract that does not include a commitment, including the Plan Summary Page of such contract A 58 .
 
56A.3
If the Director finds that the Licensee has violated Section 56A.2, he may direct the Licensee to modify conditions in a contract that does not include a commitment, without thereby derogating from any other power established in the License or in any law. In this regard, the Director will consider, inter alia, the number of subscribers of the Licensee who are signed on contracts that do not include a commitment.
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;
 
 
T47) Amendment No. 47.
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
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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)

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)
 
(a) A 58
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.

 
(b)
A 58   An explicit request may be made in one of the following ways:

 
(1)
By a document signed by the subscriber and sent to the Licensee;
 
(2)
By an email message sent by the subscriber to the Licensee;
 
(3)
In a phone call between the subscriber and the Licensee's representative;
 
(4)
By an SMS message sent from the subscriber to the Licensee;
 
(5)
By ordering a service on the website of the Licensee or a service provider. Ordering of the service shall be done in accordance with the provisions of Appendix F to the License. A 61
 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
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THE BINDING VERSION IS THE HEBREW VERSION
 
 
 
(c)
The Licensee will keep documentation on the subscriber's explicit request throughout the subscriber's commitment period, and where the subscriber is not in a commitment period, during the last eighteen (18) months at least, and also during a year after the date of sending the final bill to the subscriber, as stated in section 2.3(c)(2) in Appendix E. A 61 The documentation must be kept available by the Licensee for presenting to the Director within five (5) work days from the day of the subscriber's explicit request.

 
In this regard – " documentation ":
 
For purposes of subsection (b)(1) – a copy of the document;
 
For purposes of subsection (b)(2) – a printout of the email message;
 
For purposes of subsection (b)(3) – a recording of the phone call;
 
For purposes of subjection (b)(4) – a copy of the subscriber's telephone bill in which the details of the SMS sent by the subscriber appear in the "itemized list of calls."
 
For purposes of subsection (b)(5) – for purposes of subsection (b)(5) – a log printout from the Licensee's short message service center (SMSC 1 ), detailing the fact of the sending of the two SMS messages from the Licensee to the subscriber during the service ordering process. If the service was ordered on the Licensee's website or on its cellular portal by means of a user code and password as stated in section 1.3 in Appendix F to the License – a log printout from the SMSC testifying to the execution of the service ordering process, and a log printout of the log-in of the user code and password by the subscriber A 61 .

 
A memorandum entered by the Licensee's representative in the Licensee's information systems does not constitute documentation.

60.7 A 63
Without derogating from that stated in section 26.3, the Licensee may not discontinue the provision of cellular services through a system that has become technologically obsolete, until after that stated in Appendix K-1 is fulfilled.

60.7 A 58
The Licensee may not collect payment from a subscriber for a service, unless it has documentation on the subscriber's explicit request to receive the service.

 60.8 A 58
A subscriber who was debited for a service and notifies the Licensee that he did not request to receive the service, will be refunded the full amount collected from him as payment for the service, where the Licensee has no documentation on the subscriber's explicit request to receive the service. The subscriber's contestations and the refund will be handled in accordance with the provisions on "excess charges" in section 83A of the License.


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.

 
(b)
Clarifying subscribers’ complaints in connection with bills that were submitted by the Licensee, and deciding in regard thereto.
 
A61 Amendment No. 61
A61 Amendment No. 61
a Short Message Service Center.
A61 Amendment No. 61
A63 Amendment No. 63 - Mistake in the original language
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
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The Public Ombudsman will respond in writing to complaints as stated that were submitted in writing.

 
The Licensee will keep a copy of the complaint and of the written response that was sent to the subscriber. Said copies must be kept available by the Licensee for presenting to the Director within five (5) work days from the day of sending the response A 58 .

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 of all service A 58 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.


63. A 56
Call Center
 
 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A56 Amendment No. 56
 
 
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THE BINDING VERSION IS THE HEBREW VERSION
 
 
 
63.1
The Licensee will operate a manned call center for receiving calls of its subscribers. The Licensee will also operate additional means that allow its subscribers to turn to it for information and inquiries, all as set forth in Appendix E to the License.
 
 
63.2
The call center will be manned by skilled and professional personnel, having the appropriate competence for handling calls, and if a complaint has been received regarding a malfunction that led to termination of all cellular services to a subscriber, said personnel will act immediately to localize the malfunction and start taking steps to immediately correct it.
 
 
63.3
The Licensee will specify in the maintenance log the details of the malfunction, as stated in section 63.2, and the steps taken to correct it, all as stated in section 51
 
 
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.


64A.   T 53
Grant of Benefit to Subscriber

64A.1   T 53
The licensee shall not create any link between any benefit whatsoever for mobile radio-telephone services it granted to a subscriber, including any credit, discount, special tariff program, basket of services etc. (hereinafter referred to in this section as “ Benefit ”) and the fact that the mobile radio-telephone terminal equipment in the subscriber’s possession was purchased, hired or received from the licensee or any other marketer on its behalf. As part of this, the licensee shall offer an identical Benefit to that offered by it at the time the subscriber receives, purchases or hires from it a specific model of mobile radio-telephone terminal equipment for each subscriber using mobile radio-telephone terminal equipment with similar characteristics to the aforesaid model and which shall be granted to the subscriber in the course of a period of not less than the period in which a monetary credit was granted to the subscriber purchasing terminal equipment from the licensee, pursuant to the following rules:

 
(a)
To the extent that the model of the terminal equipment in the subscriber’s possession is identical to the model marketed by the licensee at the time the subscriber approaches the licensee, the licensee shall offer the subscriber an identical Benefit to that granted by it to any person purchasing from it the aforesaid model, in reliance on the confirmation of purchase presented to it by the subscriber;
 
 
T53) Amendment No. 53.
T53) Amendment No. 53.
 
 
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 (b)
To the extent that the model of the terminal equipment in the subscriber’s possession is not marketed by the licensee at the time the subscriber approaches the licensee, the licensee shall grant the subscriber a Benefit according to the terminal equipment classification determined in advance by the licensee and in reliance on the confirmation of purchase presented to it by the subscriber;

In this subsection -

“ Terminal equipment classification ” means the division of terminal equipment models not marketed by the licensee into no more than six categories, and determination of the amount and the terms and conditions of the Benefit to be granted in relation to each of the categories; this is according to the amount and terms and conditions of the Benefit granted by the licensee in relation to terminal equipment models marketed by it which are models of devices having similar characteristics;

 
(c)
At the time of calculating the period in which the Benefit will be granted under subsections (a) or (b), the licensee may take into account the date on which the terminal equipment was purchased by the subscriber, as appears in the confirmation of purchase.
 

In this section, “ confirmation of purchase ” means any certificate attesting to purchase of the terminal equipment, including, inter alia , the date of purchase and the amount paid.

64A.2   T 53
The licensee shall present updated information on its website about the terminal equipment classification made by it.”
 

 
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 b to identify the telephone number of a subscriber calling them c , 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.
 
 
 
65A A21)                        Blocking Service to a Nuisance Subscriber
 
 
T53) Amendment No. 53.
b Israel Police – 100, Magen David Adom – 101, Fire Station - 102
c Excluding a subscriber that his end user equipment permits dialing only to the call centers of the public emergency systems, such as a non SIM card cellphone in a GSM network
 
 
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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.
A phone call from a service center of the Licensee to the cellphone end-equipment of the subscriber;

 
B.
An SMS message sent to the cellphone end-equipment of the subscriber;

 
C.
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.
 
 
65.B “Personal Message” Service A75
65.1B
The license holder will provide a personal message service (in this section: the “ Service ”), at any time and free of charge, to all of its subscribers, including to subscribers of another license holder, owners of end equipment which supports the Service (in this section: “ Subscribers ”), and in accordance with the “personal message” service file.
 
 
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For purposes of this section:
“ Another License Holder ” – another Cellular license holder who receives service through national roaming or a cellular license holder on another network which receives service through a hosting agreement on the license holder’s network;
“ Personal Message ” – A short instruction, notification and warning of the Defense Agencies, sent immediately, selectively and in a focused manner to subscribers with CMR end equipment which supports use of cell broadcast (“CB”) technology.
“ Defense Agencies ” – Representatives of the Ministry of Defense and the Home Front Command which are responsible for the personal message system;
“ “Personal Message” Service File ” – A service file approved by the Director, including amendments that shall be made to the service file.
65.2B
For the purpose of performance of the provisions of Section 65.1B, the license holder shall act as stated in the First Schedule and in the service file regarding this Service and as follows:
(a)
Adaptation of the network and its components so as to support the provision of a personal message service, with the exception of the network components operating with iDEN or CDMA technology;
 
(b)
Assistance and allocation of resources for the performance of work to connect the Defense Agencies’ personal message system to the network;
 
(c)
Operation and maintenance of the components of the Service on the network, according to written instructions that shall be presented to the Defense Agencies; without derogating from the aforesaid, the Defense Agencies may instruct the license holder to modify such instructions, but the same does not derogate from the license holder’s responsibility for the repair and connection of the network;
 
(d)
Performance of technical trials to examine the integration between the system and the network and carrying out drills of the operation of the network and the system, in accordance with the instructions of the Ministry and the Defense Agencies.
 
65.3B
The license holder shall report to the Defense Agencies on any gap in the capability to provide the Service, and will act to restore capability as soon as possible, in accordance with written operation procedures that shall be formulated thereby and presented to the Defense Agencies.
Without derogating from the aforesaid, the Defense Agencies may instruct the license holders to modify the operation procedures, should it find them lacking, although such an instruction does not derogate from the license holder’s responsibility as stated above.
65.4B
The license holder shall notify the Defense Agencies in advance of any change in the network which may affect availability to provide the Service.
65.5B
The license holder shall not make commercial use of the CB function without the Defense Agencies’ knowledge, at least 30 days in advance before operation of the Service, and the Defense Agencies may notify it, in writing, within 15 days, of its objection to provision of the Service or conditions to provision of the Service as aforesaid, in which case, the license holder will not operate the Service, or may operate the same only according to the conditions determined by the Defense Agencies, as the case may be.
The aforesaid does not obviate the license holder’s obligation to receive the Director’s approval for the Service as aforesaid.
65.6B      The license holder will assist in launching the Service to its subscribers in all of the following ways:
(a)
By written information on the company’s website;
 
(b)
By direct marketing to subscribers through the monthly invoice upon the launch of the Service;
 
 
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(c)
By responding to subscribers’ requests to select the definitions required in his cellular end equipment. With respect to cellular end equipment models which were not marketed by the license holder, the license holder will make a reasonable effort to provide a solution for such subscribers;
 
(d)
The license holder will allow the Defense Agencies to make reasonable use of its existing distribution channels for the purpose of informing the subscribers of the Service.

 
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.

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.
 
 
T3) Amendment No. 3
 
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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;

 
(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
Void A 58 .

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.
 
 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

 
 
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(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.
 
(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.

67.5   T 52
A bill submitted to a private subscriber shall also be drawn up according to the provisions of Appendix E 1 (hereinafter referred to in this section as the “ Private Subscriber Billing Format ”).

67A.5 A 58
A bill submitted to a business subscriber will include the same details as in subsections 9b(1) to 9b(4) in Appendix E1 to the License.

 
In this section, 'business subscriber ' – excluding the subscribers specified in subsections (b) and (d) of the definition of 'business subscriber' in section 1 of the License.

67.6   T 52
 
A business subscriber may request that the licensee furnish him with a telephone bill in Private Subscriber Billing Format (hereinafter referred to in this section as a “ Request ”). Where a subscriber has requested as aforesaid, the licensee shall begin to send him the bill according to the aforesaid format by no later than the expiration of two billing periods after the date of the Request. The licensee shall publish once every six months a notice in the telephone bill submitted to the business subscriber according to which the business subscriber may demand that the licensee draw up the telephone bill submitted to him according to the Private Subscriber Billing Format. A business subscriber may also request from the Licensee a written explanation regarding the method of calculating a 'onetime debit.' The Licensee will submit to the business subscriber such written explanation regarding a 'onetime debit' within thirty (30) days from when the subscriber submitted a request in the matter to the customer service center or to the public ombudsman A 58 .
 
 
T52) Amendment No. 52.
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
T52) Amendment No. 52.
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
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67.7   T 52
 
The bill shall be sent to the address registered at the licensee or any other address delivered by the subscriber to the licensee or by any other means, if the subscriber has granted his express prior consent thereto; the licensee may demand any payment whatsoever for the issue and mailing of the bill to the subscriber. The licensee may demand reasonable payment for “Call Details” sent to the subscriber at his demand.”

67.8 A 58
If the payment specified in the telephone bill is made by standing order or credit card, the payment will not be executed before the expiry of eight (8) A 59 days from the day on which the telephone bill was sent to the subscriber.

 
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, 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.
 
 
T52) Amendment No. 52.
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A59 Amendment No. 59
A39) Amendment No. 39
 
 
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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 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.
 
 
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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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.

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.

 
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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.

 
67D1 Premium Service A 81
 

 
67.1D1
The license holder may provide premium services in one of the following two ways:
 
 
(1)
A premium service, the payment for which is charged according to a premium tariff and is collected through the telephone bill, shall be provided according to the provisions of Annex P;
 
 
(2)
A premium service, the payment for which is charged according to a regular tariff (in this subsection: the “ Service ”), will be provided as follows:

 
(a)
As an inter-network service through a network access code;
 
 
(b)
By dialing a landline number, access to which will be enabled for every subscriber of a general license holder's subscriber.
 
For purposes of this section:
 
“ Landline Number ” – A numbering format of geographic numbers and landline national numbers or a numbering format of an asterisk and four digits (*XXXX), as defined in the numbering plan.
 
“ Premium Service ” and “ Regular Tariff ” as defined in Annex P.”
 
 
67E. T 60) Domestic Roaming
 
 
67E.1
The Licensee provide by means of its network to a roaming licensee a domestic roaming service for the subscribers of the roaming to the network of the host operator, as set forth below.
 
 
67E.2
Licensee's preparations
 
The Licensee shall prepare for the implementation of domestic roaming in accordance with all of the following:
 
 
(a)
The provisions of Appendix C, in the Second Schedule.
 
 
(b)
The provisions of the Law and the License concerning provision of the possibility of utilization of its network, and specifically sections 30 to 30C of the License, mutatis mutandis .
 
 
67E.3
Operating arrangement
 
 
A60) Amendment No. 60
A81 Amendment No. 81
 
 
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(a)
If a roaming licensee notifies the Licensee, after notifying the Minister of its failure to reach agreement with any existing licensees on the conditions for the provision of roaming services as stated in section 5B(b)(1) of the Law, that it has chosen the Licensee for the receipt of domestic roaming services (in this subsection " notice "), the Licensee and the roaming operator shall forward to the Director the engineering and operating details agreed between them with respect to the implementation of domestic roaming (" operating arrangement "), within three months from the date of sending of the notice. In addition, said operators shall include engineering or operating details as required for maintaining domestic roaming, which were not included in the operating arrangement due to disagreements, should any arise.
 
 
(b)
Matters in disagreement as stated in paragraph (a) above, should there be any, shall be decided by the Director. The Director's instructions in this regard shall form an integral part of the operating arrangement.
 
 
67E.4
Starting date for implementation of domestic roaming
A host licensee shall begin providing domestic roaming services in accordance with the operating arrangement no later than three months after the date on which the roaming licensee presented to the host licensee the Minister's approval as stated in section 5B(b)(2) of the Law.
 
67F. A 66                       International roaming service through a network of a mobile phone operator in a neighboring country
 
67F.1           The license holder will act so as that in an area in which there is reception which allows an proper call to be made, both from the network and from a network of a mobile phone operator in a neighboring country, the subscriber will receive mobile phone service through the network. The license holder will perform the action itself, without the need for any action on the part of the subscriber.
 
67F.2           The license holder will block the possibility of a subscriber receiving international roaming service through a network of a mobile phone operator in a neighboring country (the " Service "), unless the subscriber shall have explicitly requested to receive the Service, and after it shall have been explained to him that in the framework of receipt of the Service, the terminal equipment in his possession may unintentionally roam near the border with a neighboring country, to a mobile phone network in a neighboring country, and he shall have been given information regarding the Service tariffs; if a subscriber requests to receive the Service as aforesaid:
 
 
(a)
The license holder will explain to him how he is able to choose, manually, through the terminal equipment in his possession, the mobile phone network from which he shall receive the Service;
 
 
(b)
The license holder will allow the subscriber to choose whether to block access to receipt of a data communications service through a mobile phone network of a neighboring country.
 
 
67F.3
In this section,
" Neighboring Country " -
Jordan and Egypt;
 
 
" Proper Call " -
A call made according to the minimum reception definitions set forth in international standards according to which the network operates.

 
67G. A 67
Offensive content and sites
 
 
 
A66 Amendment No. 66
A67 Amendment No. 67
 
 
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67G.1
The license holder will notify its subscribers of offensive sites and offensive content, as defined in Section 4.i of the law, as stated in Section 4.i(b)(1) of the law; such notice shall be given in the manner set forth in Section 4.i(c) of the law.
 
67G.2
The license holder will notify its subscribers of the existence of content on the internet which is inappropriate for children and youth (for example pornographic sites), and will include a specification of the ways in which the access of children and youth to such content may be blocked; such notice shall be given in all of the ways listed in Section 4.i(c) of the law.
          67G.3
The license holder will offer its subscribers, in all of the ways listed in Section 4.i(c) of the law, an effective service to filter offensive sites and offensive content, for no charge additional to the payment it collects from him for the internet access service, all as stated in Section 4.i(d) of the law, provided that such service shall be based on an analysis of the information and not according to a "black list" of sites only.

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 all service ' – Full termination of all the Licensee's services to the subscriber A 58 ;
 
' Termination of a service ' – Full termination of one of the Licensee's services to the subscriber A 58 .

 
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.
Discontinuation of Service at a Subscriber's Request
 
71.1
A subscriber may request the Licensee to discontinue service   or discontinue all service   A 58 to the cellular end-user equipment in his possession. For this purpose, a subscriber may communicate with the Licensee in writing, including by fax or by email   T 48) .
 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
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71.2
The Licensee will discontinue a service or discontinue all service not later than the work day after the date specified by the subscriber in his notice. If the subscriber did not specify a date, the service or all service will be discontinued not later than the work day after the date of delivery of the notice to the Licensee   A 58 .
 
71.3 T 48)
The Licensee will publish on its website, and in the bill sent by it to the subscriber, the fax number and the email address through which the subscriber may request the Licensee to discontinue a service.
 
71.4 A 58
The Licensee will send the subscriber a written notice concerning the discontinuation of a service or the discontinuation of all service, within one work day after the discontinuation was effected. The notice will contain, inter alia, the date of effecting of the discontinuation, and in a notice of discontinuation of all service also the last date for sending the final bill, as stated in subsection 2.3(c)(2) in Appendix E to the License (hereinafter – the final bill ). Such notice will be sent by regular post, or via email or fax if the subscriber gave his consent thereto. Where the subscriber submitted a request to discontinue a service or to discontinue all service at a service station of the Licensee, the Licensee's representative will give him the aforesaid written notice at the time of the submission of the request.
 
 
A copy of said notice must be kept available by the Licensee for presenting to the Director within five (5) work days from when it was sent. If the Licensee sent the notice via email or fax, the sending confirmation must also be available for presenting to the Director within five (5) work days from when the notice was sent.
 
71.5 A 58
Following the collection of the amount for payment as specified in the final bill, the Licensee will not be entitled to collect any payment via the payment means provided to it by the subscriber, without the subscriber's express prior written consent, except for the collection of payment for end-equipment that was purchased by the subscriber from the Licensee on installments, as stated in section 2.3(c)(2) in Appendix E to the License. A copy of the subscriber's said consent must be kept available by the Licensee for presenting to the Director within five (5) work days from when it was delivered to the Licensee.

 
71A. T 48)
Blocking of Cellular End-User Equipment
 
71A.1
The Licensee will register the identification number of a subscriber's cellular end-user equipment, excluding cellular end-user equipment operating by the IDEN technology (hereinafter in this section "cellular end-user equipment" ):
 
 
(a)
On the date of delivery of the cellular end-user equipment to the subscriber, on the date of contracting with the subscriber or on the date of renewal of the contract, including on the date of replacement, upgrading or repair of the cellular end-user equipment.
 
 
(b)
In the case of cellular end-user equipment that was not provided to the subscriber by the Licensee, the Licensee will make reasonable efforts to bring to the subscriber's attention the possibility available to him of registering with the Licensee the identification number of such aforesaid cellular end-user equipment.
 
 
T48) Amendment No. 48 (inception: this amendment will come into force on October 2, 2008).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
T48) Amendment No. 48 (inception: this amendment will come into force on October 2, 2008).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
T48) Amendment No. 48 (inception: this amendment will come into force on October 2, 2008).
 
 
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(c)
At the subscriber's request from the Licensee; the subscriber's request may be via the telephone, after the Licensee has verified the reliability of the request.
 
71A.2
If a subscriber notifies the Licensee that his end-user equipment has been stolen or lost, the Licensee will block the end-user equipment of a subscriber who was registered as stated in Section 71A.1, free of charge, not later than thirty (30) days after it has verified the reliability of the subscriber's request. For purposes of this section, "blocking" – elimination of the possibility that the cellular end-user equipment will receive cellular services.
 
71A.3
The Licensee will provide details of end-user equipment that was blocked by it to any other cellular licensee, not later than the workday after implementing that stated in Section 71A.2.
 
71A.4
(a) T 50)
The Licensee may not provide cellular services to end-user equipment that was blocked by it or by another cellular licensee.
 
 
(b) T 50)
Notwithstanding that stated in Section 71A.2 and Subsection (a), if it is found that blocking the identification number will cause the discontinuation of service to other end-user equipment having the same identification number, the Licensee may abstain from implementing the block as stated.
 
71A.5
The Licensee will remove the block on end-user equipment that was blocked by it, after receiving a request T 50) from the subscriber. Removal of the block will be done not later than one workday after the Licensee has verified the reliability of the request, unless the subscriber has specified a later date in his request T 50) .
 
71A.6
The Licensee will publish to all its subscribers its obligations with respect to the possibility of blocking cellular end-user equipment, the procedure for registration of the identification number of cellular end-user equipment with the Licensee and the ways of communicating with it for the purpose of implementing the block. The publication will be made in at least the following ways:
 
 
(a)
In the contract;
 
 
(b)
On the Licensee's website;
 
 
(c)
In a separate information sheet to be enclosed with the bill submitted to the subscriber, by January 30, 2009 T 50) .
 
71A.7 T 50)
The Licensee will detail, in a half yearly report, the number of identification numbers that were blocked and the number of identification numbers in respect of which such block was removed, as well as the number of identification numbers that were not blocked pursuant to this section and the reasons therefor.
 
T50) Amendment No. 50.
T50) Amendment No. 50
T50) Amendment No. 50
T50) Amendment No. 50
T50) Amendment No. 50
T50) Amendment No. 50
 
 
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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.
 
72.3 T 2)
Notwithstanding that stated in Section 72.2, the Licensee may disconnect service to a subscriber without prior notice, if one of the following is fulfilled:
 
 
(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 services, on the date set therefor in the payment notice. In this paragraph, "year" – the period from January 1 to December 31;
 
 
(b)
There is a 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 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
 
72A.4 T 2)
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 services, causes interference with the provision of cellular services to other subscribers or interference with the cellular system activity, provided that the Licensee gave the subscriber notice in writing 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.
 
72A. T 48)
Discontinuation of Service to a Dormant Subscriber
 
72A.1
If the Licensee wishes to discontinue service to a dormant subscriber, it must give the dormant subscriber prior notice of such intention, in the manner set out below (hereinafter in this section "the notice" ). The time of discontinuation of the service may not be less than thirty (30) days after the date of sending of the notice.
 
T2) Amendment No. 2 (due to a clerical error in the amendment, appeared as Section 71.3 instead of 72.3).
T2) Amendment No. 2 (due to a clerical error in the amendment, appeared as Section 71.4 instead of 72.4).
T48) Amendment No. 48 (inception: this amendment will come into force on October 2, 2008).
 
 
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72A.2
The Licensee will specify in the notice the telephone number in respect of which it intends to discontinue the service.
 
72A.3
The sending of a notice to a dormant subscriber will be done:
 
 
(a)
With respect to a subscriber whose name and address are known to the Licensee, in each of the following ways:
 
 
(1)
By a letter via regular post;
 
 
(2)
By two SMS messages to be sent to the dormant subscriber at a difference of at least two weeks between the messages.
 
 
(b)
With respect to a subscriber whose name and address are not known to the Licensee – by four SMS messages to be sent at a difference of at least one week between the messages.
 
 
(c)
Notwithstanding that stated in Subsections (a)(2) and (b), if the subscriber's end-user equipment does not support the receipt of SMS messages, the Licensee will send the subscriber voice messages instead of SMS messages, insofar as the subscriber's end-user equipment supports the receipt of voice messages.
 
72A.4
The Licensee may not discontinue service to a dormant subscriber to whom a notice was sent, where the dormant subscriber has notified the Licensee that he does not wish the service to be discontinued. The subscriber may deliver such a message via the telephone or in writing, including by fax or by email.
 
 
Notwithstanding the aforesaid, the Licensee may discontinue service to a dormant subscriber who has notified it that he does not wish the service to be discontinued, after the subscriber was sent at least two notices, as stated in Section 72A.3 and 72A.5, and where in the second notice the Licensee has notified the subscriber that if within one year from the date of the second notice the subscriber does not make use of the cellular service, the subscription to the service will be discontinued, without delivery of further notice to the subscriber.
 
72A.5
The Licensee may not send the subscriber further notice concerning its wish to discontinue the service after one year has passed from the date on which the subscriber was sent the previous notice in that regard.
 
72A.6
The Licensee will keep the telephone number of a dormant subscriber to whom service was discontinued, during at least three months from the date of discontinuation of the service, before the number is returned to the pool of telephone numbers of the Licensee itself or to another cellular licensee who originally allocated the number to the dormant subscriber. If during this period a written request is received from the subscriber to renew the service, the Licensee will renew the service upon the same terms as those that applied prior to the discontinuation of the service, free of charge.
 
72A.7
Where service was discontinued to a dormant prepaid subscriber who has a balance of the payment remaining to his credit, the Licensee will refund the appropriate balance within 30 days after receiving a written request from the subscriber who has proven that he is the owner of the line to which the service was discontinued, provided such request is received by the Licensee not later than six months after the date of discontinuation of the service.
 
 
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72B.   A 68
Disconnection of service due to recovery of the network in a fault event

72B.1
The license holder may temporarily disconnect or limit services that it is obligated to provide due to the need to allow speedy recovery of the networkin a material fault event.

 
For this purpose, " Material Fault " – a fault which causes disconnection of service for 10% of the subscribers, or for 100,000 subscribers at least, whichever is lower.

 
In this section, " Subscriber " – including a subscriber of a mobile phone license holder on another network and a subscriber of a roaming license holder using the network.

72B.2
The license holder will submit a detailed engineering procedure and process for recovery of the network in the event of a Material Fault (the " Procedure "), for the Director's approval, within 15 days from the date of signing of this Amendment.

72B.3
During a Material Fault, the license holder will act according to the Procedure that was submitted to the Director or which was approved by the Director, whichever is later.

72B.4
The Procedure will include, inter alia , initiated disconnection of service for subscribers who were not directly affected by the Material Fault, which shall begin two hours at most after the identification of a Material Fault, for the purpose of reduction of the load and controlled restoration of proper and regular service.
 
72B.5
Insofar as possible, the Procedure will allow preference to be given to the provision of proper and regular services to the armed forces, public emergency services and hospitals, as the Director shall determine."

 
73.            Disconnection of Service Due to Maintenance Operations

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)
 
A68 Amendment No. 68
 
 
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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).
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
 
74.1 A 57
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 monthly A 57 payment;
 
A57 Amendment No. 57 (Inception: This amendment will come into force on the day of signing the Amendment)
 
 
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(c)
Payment for airtime as specified in section 75A;
 
 
(d)
Payment for completion of a call as specified in section 75A;
 
 
(e)
Payment for basic telephone services, related services and value added services, detailed in the First Schedule to the License;

 
74.2 A 57    The Licensee may not collect from a subscriber:
 
 
(a)
Payment for establishing a call;
 
 
(b)
A minimum price for a call.
 
 
(c)   A 58
Any payment prior to the actual supply of the service, excluding a 'prepaid service.'
 

  A57 Amendment No. 57 (Inception: This amendment will come into force on the day of signing the Amendment)
A57 Amendment No. 57 (Inception: This amendment will come into force on the day of signing the Amendment)
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
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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 T 49)
If the Licensee contracts with the subscriber in regard to a certain service or package of services, and the contract includes a commitment as defined in Section 56A.1 ( "commitment period" ), the following provisions will apply, with the exception of a business subscriber:
 
 
(a)
The terms of the contract, excluding the contract rates, will be final, known and fixed in advance for the entire commitment period.
 
 
(b)
The rate for each service will be fixed on the date of the contract and will be uniform and specified in shekels for the entire commitment period.
 
 
For purposes of this section, "uniform" – any rate before VAT which the subscriber is required to pay, as determined on the date of the contract, may not be increased during the commitment period.
 
 
Notwithstanding the aforesaid, the Licensee may provide its subscriber services at lower rates than those fixed in advance in the contract, during a limited time period, to all the subscribers or to a certain type of subscriber.
 
 
(c)
The Licensee will include provisions as stated above in the contract with the subscriber.
 
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.
 
T49) Amendment No. 49 (Inception: This amendment will come into force on December 31, 2008).
 
 
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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;
 
 
(2)
Collect call to which the subscriber has given his agreement;
 
 
(3)
A call created by dialing a special prefix for a toll-free service that was allocated to the subscriber under an agreement with him A 55 ;
 
 
(4)
Void A 51
 
 
(c)
The licensee may collect from a subscriber initiating a call by dialing the following services or access codes, payment not exceeding the tariff collected by the licensee from a subscriber for a call whose destination is on a domestic operator network: A 51
 
(1) Split charge call service 1 ;
 
 
(2) Short number service for businesses 2 ;

 
(d)
For a call to an international destination, the Licensee may receive only the payment imposed on the international operator, as determined in the Interconnection Regulations." A 54
 
75.9 A18) I nception
 
 
Void A 55
 
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)
The payment for each airtime unit, at least during the first minute of contact, will be fixed. A 57
 
 
A55 Amendment No. 55 (Inception: This amendment will come into force on the day the relevant amendments to the Payment Regulations and to the Interconnection Regulations come into force, or on March 28, 2010 – whichever the later)
A51 Amendment No. 51 (Inception: This amendment will come into force on March 31, 2009)
A51 Amendment No. 51 (Inception: This amendment will come into force on March 31, 2009)
1 Pursuant to the "split charge call" service file (1-700 service).
2 Pursuant to the Administration Direction on "Short Form Dial for Businesses - Star (*) Plus Four Digits" dated May 4, 2008
A54 Amendment No. 54 (Inception: This amendment will come into force on the day the amendment to the Interconnection Regulations concerning a call from a cellular network to an international telecommunications network comes into force)
Inception The inception of section 75.9 is on December 15, 2002.
A55 Amendment No. 55 (Inception: This amendment will come into force on the day the relevant amendments to the Payment Regulations and to the Interconnection Regulations come into force, or on March 28, 2010 – whichever the later)
A57 Amendment No. 57 (Inception: This amendment will come into force on the day of signing the Amendment)
 
 
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(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.
 
 
“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.
 

75.11(a) (A71)
In this section –
" Limited Plan " – A minute plan which is limited to a number of minutes according to the subscriber engagement plan.
" Unlimited Plan " – An unlimited minute plan, for which the subscriber pays.
" Toll-Free Number " – A telephone number, a call to which from any network has been determined to be free of charge for the caller;
" Special Telephone Number at a Composite Rate " – A national or network telephone number in an Irregular Number Pattern, the rate of a call to which is a Composite Rate;
" Special Telephone Number at a Regular Rate " – A national 4 or network 5 telephone number in an Irregular Number Pattern, the rate of a call to which does not exceed the Regular Rate;
" Irregular Number Pattern " – A number pattern which is not a regular number pattern;
" Regular Number Pattern " – A number pattern of geographical numbers and national numbers, as defined in the number plan 6 ;
" Composite Rate " – A rate comprising a Regular Rate plus a rate for a service that is provided by a Licensee or anyone on its behalf or a service provider;
" Regular Rate " – A rate per call minute to telephone numbers in a Regular Number Pattern, in accordance with the subscriber's tariff plan.
 
A54 Amendment No. 71 (Inception: Sections 75.11(a)-(c) will take effect no later than September 3, 2013; Sections 75.11(d) will take effect no later than December 3, 2013).
4 A telephone number, access to which is possible from any network.
5 A telephone number, access to which is possible only from the license holder's network.
6 For example, numbers in the pattern 03-XXXXXXX, 05Y-XXXXXXX and 07Z-XXXXXXX.
 
 
66
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
 
" Regular Rate " – A rate per call minute to telephone numbers in a Regular Number Pattern, in accordance with the subscriber's tariff plan.
 
 
(b)
The Licensee shall not charge a subscriber calling destinations with Toll-Free Numbers and will not count the calling minutes to such destinations in a Limited Plan.
     
 
(c)
The Licensee may charge a subscriber calling destinations with Special Telephone Numbers at a Regular Rate, and shall count the calling minutes to the said destinations in a Limited Plan or in an Unlimited Plan. For the avoidance of doubt, the Licensee may not charge a subscriber calling destinations with Special Telephone Numbers at a Regular Rate any extra fee over the fixed payment that he pays for the minute plan, insofar as the subscriber shall not have exceeded the minute quota in the plan. If the subscriber exceeds the minute quota in the plan, the Licensee may charge him for calling the said destinations according to a rate no higher than the Regular Rate. In addition to the aforesaid, the Licensee may not make any distinction in the rate, according to which it charges the subscriber, between calling telephone numbers with a Regular Number Pattern and calling Special Telephone Numbers at a Regular Rate, including by determining separate call minute plans.
     
 
(d)
If the charge for calls to destinations with Special Telephone Numbers is made according to a Composite Rate, the Licensee shall count the calling minutes to the said destinations in the framework of the Limited Plan or the Unlimited Plan for which the subscriber pays.
The Licensee may charge the subscriber for the services provided in the framework of calling telephone numbers which are charged according to a Composite Rate, whether the charge is made according to a call minute or the charge is fixed per call, in addition to the fixed payment for the minute plan.
     
2.
 
Sections 75.11(a)-(c) will take effect no later than Elul 28, 5773 (September 3, 2013) .
 
Section 75.11(d) will take effect no later than Kislev 30, 5774 (December 3, 2013) .

 
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 –
 
 
67
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
“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:
 
 
(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.
 
 
75D. A 58 Notice Concerning Utilization of Surfing Package   A 73 in Israel
 
75D.1
The Licensee will send an SMS message to a subscriber who has utilized 75% and 95% of a surfing package. The SMS message will be sent to the subscriber's telephone number and to the additional telephone number indicated by the subscriber when executing the contract, as soon as possible after the time of such utilization, and will contain at least the following: percentage of utilization of the package, time of calculation of the utilization (date and hour), and the telephone number to which the SMS message relates. In this regard, " surfing package " means the number of units of a cell phone Internet surfing service in Israel  (hereinafter – surfing service ) that are supplied to the subscriber at a fixed rate regardless of the actual scope of use.
 
 
This section will apply only when the rate of a surfing service unit, after full utilization of all the surfing service units included in the surfing package, is more than 1.25 times the rate of a surfing service unit in the framework of the surfing package.
 
75E.   A 73 Billing for International Roaming Service
 
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.
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
68
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
 
75E.1
In this section –
 
" Arrangement " – A package or plan which includes internet;
 
" Package Offer " – An offer of three different packages or plans, insofar as exist at the Licensee, which include Surfing Service, which were offered to the Licensee's subscribers in the month prior to the date on which the package offer was sent to the subscriber.
 
" Package " – A limited number of service units which may be used in a limited period of time, through an international roaming service Abroad, which is sold at a fixed and predetermined price, and is valid for certain Destinations;
 
" Abroad " or " Destination " – A country, including a ship at sea and an aircraft;
 
" MB " – One million bytes (MByte);
 
" Surfing Service " or " Surfing " – Cellular surfing service Abroad;
 
" Plan " – A tariff plan for a limited period of time or for a specific trip overseas a74 for the consumption of services through an international roaming service Abroad (such as: call service, sending and receiving text messages and internet) for the Destinations included therein, with the payment for the services being made according to consumption; the rates of the services included in the plan are different to the rate for the same services for a subscriber who did not sign up for the plan; the plan may determine a fixed fee that does not depend on consumption.
   
75E.2
(a)       The Licensee shall send a text message to a subscriber who purchases an international roaming service package (in this section: " Package "); the text message shall be sent any time the subscriber uses 75%, 90% and 100% of the Package; in addition, the Licensee shall send the subscriber a text message upon expiration of the Arrangement, stating that the Arrangement has expired. The text messages shall be sent to the subscriber free of charge, as close as possible to the said usage level, and shall include at least the following: the percentage of usage of the services included in the Arrangement as specified in items (1)-(5) below, and the time (date and hour) of the usage calculation;
 
(1)      Call minutes;
 
(2)      Text messages;
 
(3)      Internet (in MB);
 
(4)      Combined call minutes and text messages;
 
(5)      Combined call minutes, text messages and internet (in MB).
 
(b)      a74 Notwithstanding the provisions of Section 75.2E(a) -
 
(3)      The license holder will be exempt from sending SMSs to a subscriber in respect of use of the package to which he subscribed, as stated in Section 75.2E(a), provided that all of the following are fulfilled:
 
(c)   The subscriber purchased the package before Adar B 29, 5774 (March 31, 2014);
 
A73 Amendment No. 73 (Inception: This amendment will come into force no later than February 17,2014)
A74 Amendment No. 74
 
 
69
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
 
 
 
(d)   The subscriber explicitly agreed in writing to waive receipt of SMSs as stated in Section 75.2E(a);
 
(e)   The license holder proves, to the Director’s satisfaction, that a technological restriction beyond its control is preventing it from receiving an indication in real time or close to real time with respect to the making of direct dial calls.
 
(4)      With respect to a subscriber who makes use of Cellular end equipment which does not support an SMS service, including a tablet with a SIM card and a cellular modem, the license holder will demand of the subscriber, at the time of subscribing to the package, a means of communication as an alternative to SMS (such as Skype, Viber, Whatsapp applications, e-mail or voicemail) (“ Alternative Means ”); if the subscriber provides Alternative Means, the license holder will send to the subscriber the messages regarding use of the package as stated in Section 75.2E(a) via the Alternative Means.
   
75E.3
If a subscriber buys an Arrangement, the Licensee shall block access to Surfing Service after the Package has been used up in full or the Arrangement has expired, as the case may be, free of charge, and the subscriber will not be required to make any payment for Surfing Service, over and above the predetermined payment for the Package that he purchased or the Plan that he joined. The Licensee shall send the subscriber a text message, free of charge, regarding such blocking, in proximity to the date of the blocking. The text message shall include a Package Offer.
   
75E.4
(c)       The Licensee shall block, free of charge, access to Surfing Service for every subscriber, immediately upon his arriving Abroad, unless the subscriber fulfills one of the following conditions:
 
(1)The subscriber has an Arrangement.
 
(2)The subscriber actively requested to allow him permanent access to Surfing Service through the "Access to Services Form".
 
(d)       If the subscriber does not fulfill one of the conditions stated in Subsection (a), and the Licensee does not block the subscriber's access to Surfing Service, the licensee will not charge the subscriber for Surfing Service.
 
(e)       The Licensee shall block, free of charge, access to Surfing Service as stated in Subsection (a), and will not charge for Surfing Service as stated in Subsection (b), any time that a subscriber who purchased an Arrangement reaches a Destination which is not included in the Arrangement. The Licensee shall immediately and automatically unblock such subscriber's access to Surfing Service, without the need for the performance of any manual action by the subscriber, any time that the subscriber is in a Destination included in the Arrangement.
 
(f)       The Licensee shall send a subscriber a text message, free of charge, regarding the blocking as stated in Subsections (a) and (c), in proximity to the date of the blocking, stating the reason for the blocking and the ways to contact the Licensee for the purpose of discontinuing the blocking. The text message shall include a Package Offer.
 
(g)       For the ordering of Surfing Service by a subscriber, during his stay Abroad, after his access to Surfinf Service shall have been blocked, to allow him access to Surfing Service without purchasing an Arrangement, and after he confirms that he is aware of the internet price per MB without an Arrangement, Section 60.6 shall apply and the documentation shall also include the details of the subscriber's reliable identification and his confirmation as aforesaid.
 
 
70
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
75E.5
Upon the arrival Abroad of a subscriber who requested, through the "Access to Services Form", to have permanent access to Surfing Service, and who has no Arrangement or whose arrangement does not include the country in which the subscriber is located a74 , the Licensee shall send him a text message with a warning regarding possible consumption of Surfing Service for a fee, without any active surfing action being taken, and information regarding the possibility of blocking Surfing Service by changing the end equipment's settings. The text message shall state, as relevant, that such blocking also blocks the possibility of surfing in Israel and therefore, internet blocking must be discontinued upon arriving in Israel, or by contacting the licenseer's call center. The text message shall further include a Package Offer.
   
75E.6
The Licensee shall inform its subscribers, in the telephone bill following the date of signing of the license amendment, of their possibility to block Surfing Service by filling out the "Access to Services Form" which is posted on the licensee's website. The subscriber may send the said form to the licensee by regular mail, e-mail, facsimile or via an online form on the Licensee's website, insofar as the Licensee's website supports such possibility.
   
75E.7
The Licensee shall post on its website information regarding the possibility available to the subscriber of blocking access to Surfing Service also through the end equipment, insofar as such blocking does not also block the possibility of surfing in Israel.
   
75E.8
The Licensee shall post on its website information whereby there are services which consume data for a fee, also without any active action being taken by the subscriber, such as: automatic synchronization of e-mail and the update of various applications.
   
75E.9
Billing for international roaming services according to a rate per unit, shall be made in the telephone bill retroactively, after consumption of the services, and not in advance. Insofar as a subscriber purchases an Arrangement which includes a predetermined payment, the billing for such payment shall be made in the billing period during which the transaction took effect.
   
75E.10
Without derogating from the provisions of Section 55A, Section 60.6 shall apply to a transaction for the "remote sale" of services via an international roaming service.
   
75E.11
The Licensee shall send, free of charge, a text message to any subscriber who performed a "remote sale" transaction for the purchase of services via an international roaming service, which includes a summary of the transaction, as early as possible, and no later than the end of the day on which the "remote sale" transaction was performed.
 
In addition, the Licensee shall state information regarding the said "remote sale" transaction in the telephone bill following the date of performance of the transaction, in accordance with the subscriber's billing period, including the telephone number in respect of which the transaction was performed, the date of performance of the transaction, the quantity and types of the services purchased via an international roaming service, the number of days allocated for use of the services, the date and time of commencement of provision of the services, the price of the services purchased, the price according to which consumption of services over and above the Package shall be charged, insofar as a Package is purchased, and the manner of rounding off of any quantity that shall be consumed (the " Details of the Transaction ").
 
A copy of the telephone bill stating the Details of the Transaction will be available at the Licensee for presentation or delivery to the Director upon request, within five (5) working days from the date of sending the telephone bill a74 .
 
 
71
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
75E.12
In an engagement for the purchase of services via an international roaming service performed in the presence of a representative of the Licensee and the subscriber, printed confirmation shall be delivered to the subscriber upon performance of the transaction, including the Details of the Transaction. A copy of the confirmation will be available at the Licensee for presentation or delivery to the Director upon request, within five (5) working days from the date of performance of the transaction.
   
75E.13
The Licensee shall post on its website all of the Packages and Plans marketed to private subscribers, as well as the rates of all of the international roaming services for a subscriber without an Arrangement, for all of the Destinations in respect of which the licensee has an international roaming agreement. The Licensee will not charge a subscriber for an international roaming service provided at a Destination that was not published thereby as aforesaid before the charge.
   
75E.14
The rate for Surfing Service shall be stated by the Licensee, wherever it is stated, in units of NIS per 1 MB.
   
75E.15
The internet rate per 1 MB for a subscriber who is not in an Arrangement will be lower than the price of the cheapest Package offered by the Licensee.
   
75E.16
The purchase of an Arrangement, in Israel or Abroad, does not change the default option stated in the updated services order form other than for the period of such Arrangement.
 
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 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.
 
 
72
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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 sent the Director prior written notice at least fourteen (14) days before the effective date of the rate, stating the new rate and the rate before the change. Notwithstanding the foregoing, regarding a reduction in a rate, the Licensee may send the notice to the Director up to a month after the reduction A 58 ;
 
 
(b)
It sent every subscriber who joined the service prior written notice at least fourteen (14) days before the effective date, noting the new rate and the rate before the change. Notwithstanding the foregoing, regarding a reduction in a rate, the Licensee may send the notice to the subscriber up to a month after the reduction.
 
 
Said notice will be sent to the subscriber by regular post or via the telephone bill sent to the subscriber A 58 .
 
 
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.

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
73
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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 all A 58 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
 

83A. A 58                  Excess Charges

 
 
(a)
The Licensee will document in its information systems any written or verbal contestation by a subscriber concerning an excess charge that appears in the telephone bill.
 
 
(b)
The Licensee will give a subscriber a written, explanatory response to his contestation, setting out the manner of calculation of the refund or the reasons for rejecting the contestation, as the case may be, within twenty one (21) days from the day of receipt of the contestation. In this regard, "day of receipt of the contestation" – With respect to a notice sent in writing – the day on which the notice was received by the Licensee;
 
With respect to a notice delivered orally – the day on which the notice was delivered to the Licensee.
 
A copy of such response must be kept available by the Licensee for presenting to the Director within five (5) work days from when it was sent. If the Licensee sent the response via email or fax, the sending confirmation must also be available for presenting to the Director within five (5) work days from when the notice was sent.
 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
74
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Notwithstanding the above, where a Subscriber has submitted a verbal objection and the Licensee found that the Subscriber has been overcharged by an amount not exceeding NIS 100, the Licensee has authority not to respond in writing to the objection, to the extent that the Subscriber granted his express consent thereto A 59 .
 
 
(c)
If the Licensee finds that the subscriber was overcharged, it will refund the excess charge in a single payment, without setting any conditions for the refund, with the addition of "linkage differences and interest" as this term is defined in section 1 of the Adjudication of Interest and Linkage Law, 5721-1961, for the period from the date of collection of the excess charge to the date of actual making of the refund, as set forth below:
 
 
(1)
If the excess charge is more than NIS 100 (including VAT and linkage differences and interest) – the amount refunded will be transferred directly to the subscriber's to the means of payment (bank account or credit card) A 59 within three (3) work days from the date on which the Licensee sent the response, as stated in subsection (b). Notwithstanding the above, the Licensee may return the reimbursement to a business Subscriber by means of crediting the telephone statement, if the business Subscriber expressly agreed to this A 59 .
 
 
(2)
If the excess charge is equal to or less than NIS 100 (including VAT and linkage differences and interest) – the amount refunded will be credited in the next telephone bill after the date of sending of the written response, as stated in subsection (b). If the refund is for a higher amount than the amount for payment in the next telephone bill, the balance will be transferred directly to the subscriber's bank account within three (3) work days from the date on which the notice was sent to the subscriber, and a note to that effect will be included in the aforesaid telephone bill.
 
 
(3)
Notwithstanding the provisions of subsection (c)(1) and c(2), a reimbursement to a Pre-Paid Subscriber shall be performed by means of crediting the available balance A 59 .
 
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” ).
 
A59 Amendment No. 59
A59 Amendment No. 59
A59 Amendment No. 59
A59 Amendment No. 59
 
 
75
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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.

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.
 
 
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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 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.
 
 
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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.
 

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.
 
 
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(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 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 Licensee fails to present a new guarantee as stated, the Director may exercise the guarantee.
 
 
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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.
 
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.

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.
 
 
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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.
 
104.1 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.
 
 
(e)
A43 The engineering system report – an engineering plan for the setup, development and upgrade of the network in the format set forth in Appendix B .

 
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:
 
 
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(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.
 
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)
Void A72) ;
 
 
(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)
Void A72) ;
 
 
(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.

 
 
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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 – A72 the engineering plan attached to Appendix B ;
 
(c)
Appendix D - Preparing to Ensure Continuity of Operations in Emergencies
 
(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.
 
 
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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.
 
 
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.

112. A 58
Documents and Recordings
 
112.1
The Licensee will present and/or play to the Director, at his request, any recording and/or document relevant to the subscriber, throughout the subscriber's last commitment period, and if the subscriber is not within a commitment period – during at least the last eighteen (18) months, and for a year after the date on which the final invoice is sent to the subscriber, as stated in section 2.3(c)(2) in Appendix E.
 

 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
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First Schedule
List of Services and Measures for Quality of Service A16 )

 
1.
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:

 
a.
Name of the service: Name of the service, including its trade name and a general description of the service.
 
 
b.
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.
 
 
c.
Engineering description:
Description and block diagram of the system;
End-user equipment – dedicated equipment for receiving the service.
 
 
d.
Miscellaneous:
The need for numbering;
Required coordination with other licensees or entities.
 
 
First Schedule - 1
 
 
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2.
List of Services A 65

 
2.1.
Basic Telephone Services

No.
Name of Service
Description of Service
Date of Provision
Service Quality Measures
Comments
1.
Cellular calls
Telephone calls to and from subscribers ofthe license holder to any telephone or other appropriate terminal equipment on another public communication network, in Israel or globally.
In place
Availability of the service 98%
 
2.
Emergency calls
Free calls to the emergency services, to be determined by the Director (for example: Police, MDA, Fire Dept., others). The caller will be routed to the emergency center according to the service provider's definition in reference to the subscriber's location.
In place
Availability of the service 98%
According to the Director's instructions.
The caller's telephone number may be identified by the public emergency services call center.


 
2.2.
Related Services

No.
Name of Service
Description of Service
Date of Provision
Service Quality Measures
Comments
3.
Callwaiting with option for temporary suspension
Subscriber may receive an incoming call while on another call. The subscriber may suspend this service at will.
In place
Availability of the service 99.9%
 
4.
Call forwarding
Forwarding incoming calls to another telephone number, at the subscriber's choice:
Regularly, when the line is busy, when the call is notanswered or in cases of unavailability.
In place
Availability of the service 99.9%
 
 
 
A65 Amendment No. 65
 
 
First Schedule - 2
 

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5.
Call transfer
The subscriber may transfer a call to another telephone number or between 2terminal devices having the same number.
* 3/2007
Availability of the service 99.9%
In accordance with notice dated March 14, 2007
6.
Hunting group
Determination of a hunt number for the group of the subscriber's telephone numbers; dialing the hunt number will route the call to an available number in the group.
In the future
Availability of the service 99.9%
 
7.
Caller ID
Caller's number is displayed on the subscriber's telephonedisplay.
In place
 
Dependent on the caller's terminal equipment
8.
Calling ID restriction
Allows the subscriber's telephone number to be blocked from display on the call recipient's display. The blocking may be permanent or one-time.
In place
Availability of the service 99.9%
 
9.
Caller name announce-ment
Provides the possibility of identifying the caller by anaudiosignature.
In place
Availability of the service 99.9%
 
10.
Conference call
Supports a call for several subscribers simultaneously.
In place
Availability of the service 98%
 
11.
Closed user group
A group of telephone numbers only between which a call may be made.
In place
Availability of the service 98%
On GSM network only.
12.
Voice mail
Storage and the possibility of retrieval of voice messages of persons calling the subscriber in a personal box.
In place
Availability of the service 99%
 
13.
Advanced voice mail
A voicemail system as specified in Paragraph 12 above, plus additional "smart" features includinga visual or voice announcement of incoming messages, the transfer of messages to other platforms and receipt of messages from such platforms.
In place
Availability of the service 98%
 
 
 
First Schedule - 3
 

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14.
Voice activated service
Voice activation of telephone and basic services, related services and value-added services.
Partially in place, will be expanded in the future
70% probability of  good identifi-cation in areas with asignal level higher than 85dbm
 
15.
Call tracking
Allows the subscriber, during a call, to send the applicant an announcement for the purpose ofsubsequent identification of the source of the call.
In the future
Availability of the service 99.9%
Subject to any law
16.
Virtual private network (VPN)
Allows speed dialing according to a private numbering program.
In place
Availability of the service 99.9%
For types of subscribers according to relevant distinctions. Currently provided to the business sector.
17.
Centrex
Allows the maintenance of a private network while using the network's resources.
In the future
   
18.
Facsimile services
Receipt, storage and retrieval of facsimile messages through the telephone.
In place
Availability of the service 99.9%
 
19.
Roaming
Provision of mobile phone services when visiting Israel (for "roamers" from overseas).
Forwarding calls to a subscriber who is overseas through a holder of a license to provide international communication services and allowing subscribers who are overseas to receive mobile phone services from operators overseas, including callscreening and call-back, and providing mobile phone services and related services to anyone visiting Israel (for roamers from overseas), all through roaming agreements with operators in other countries.
2002
Availability of the service 99.9%
The service was expanded in 2003 to also include data communications services.
 
 
First Schedule - 4
 
 
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20.
Toll free service
The maker of the call is not charged.
The subscriber called is charged in accordance with appropriate charge arrangements.
3/2010
 
According to service file ( 1800) .
21.
Talk Two
One number for several SIM/terminal equipment units.
In place
Availability of the service 99%
 
22.
Two telephone numbers for one SIM card
Definition of two telephone numbers for the same SIM card.
*7/2005
Availability of the service 99%
* According to notice dated June 7, 2005
23.
Change of number announce-ment
A person calling the subscriber will receive an announcement of the subscriber's new number and be given the possibility of routing to the new number at the applicant.
In place
Availability of the service 99.9%
On GSM network only.
24.
Camp on busy line
Automatic announcement and/or making of a call to a busy line once it becomes free.
*3/2004
Availability of the service 99.9%
* According to notice dated Feb. 5, 2004
25.
Personal number service
Allows the subscriber to determine that calls to one telephone number be routed to various destinations according to parameters to be determined by the subscriber.
In the future
Availability of the service 99.9%
 
26.
Collect call
A call whose cost will be paid by the subscriber receiving the call, after authorization thereof.
In place
Availability of the service 99.9%
 
27.
Message distribution
Distribution of messages to a list of recipients through various platforms.
In the future
Availability of the service 99.9%
 
28.
Over the air services (OTA)
Remote update of data and applications on the SIM card/terminal equipment by the license holder. The applications will be run from the SIM card / terminal equipment by the subscriber, on the terminal equipment.
11/2011
Availability of the service 99%
 
 
(1800) In accordance with service file "toll free service" ("1-800 service").
 
 
First Schedule - 5
 

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29.
Account code billing
Code billing for one telephone number in separate bills. The subscriber's instruction regarding the account to be charged will be given by entering a code at the beginning of or during the call.
In the future
Availability of the service 99%
 
30.
Star services
Allows a call to be made by dialing a speed access code according to an internal numbering program of the applicant.
In place
Availability of the service 99.9%
 
31.
SMS – short messages services
Transmission and receipt of text, graphics, voice and image messages to and from mobile phone terminal equipmentover the license holder's network, or from terminal equipment on other networks in Israel or overseas which have reached an agreement with the license holder.
Transmission of such messagesfrom a personal computer.
Forwarding of incoming messages to a facsimile machine.
The license holder will support various languages.
In place
Availability of the service 99%
Dependent on the terminal equipment
32.
Packet switching data com-munication
Connection of the subscriber through the telephone or an independent modem to TCP/UDP/IP communications for packet switching.
In place
Availability of the service 98%
on a best effort basis
Dependent on terminal equipment
 
 
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33.
Discon-nection of service
Disconnection of service at the subscriber's request.
In place
To be performed no later than the business day after the date of the subscriber's request
 
34.
POC (push to talk over cellular)
Making a call by pushing a button on the mobile terminal device.
The call may be private (subscriber-to-subscriber) or for a group on a data communication network.
In place (commen-cement)
According to service file
Pursuant to temporary 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)
 
* 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 of Provision
Service Quality Measures
Comments
35.
Directory assistance
Allows receipt of information on telephone numbers and the automatic making of a call to the number in respect of which the information was received.
In place
Availability of the service 99.9%
Pursuant to the provisions of Section 67A of the license
36.
Connectivity to information & enter-tainment services
Allows the subscriber connectivity to push or pull information services, entertainment, applications and content, both interactive and non-interactive, through various means of access.
In place
Availability of the service 99.9%
Dependent on the terminal equipment. Subject to the Director's instructions.
 
 
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37.
Access to internet provider services
Allows the subscriber access to an internet access provider.
In place
   
38.
Location based information & tracking
Receiving and sending information dependent on the location of the telephone, subject to any law.
* 3/2007
 
* In accordance with notice dated March 14, 2007
39.
M-commerce
Connectivity through terminal equipment for the performance of transactions.
In place
 
Dependent on the terminal equipment. Subject to the Director's instructions.
40.
Unified messaging
Allows the subscriber to receive and send voice messages, speech, fax, SMS, e-mail, applications and multimedia files to and from a unified box, with the possibility of converting the information received from one format to another, and access to information from various means of access.
In the future
Availability of the service 99.9%
Dependent on the terminal equipment
41.
Telemetry command and control
Use of a telephone or cellular modem to receive announcements and to send commands pertaining to the operation of various devices (such as: alarm systems, inventory systems, traffic lights, controls etc.)
In place
Availability of the service 99%
 
42.
Sponsored call
A call during which the subscriber is exposed to commercial advertising and information.
In the future
 
Subject to any law
43.
Video conference
Allows visual and audio communication between several users.
* 4/2004
 
Dependent on the terminal equipment.
* In accordance with notice dated April 4, 2004
 
 
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44.
Instant messaging
A messaging service between members of a "community", organization, group of friends, group of persons with a common interest. The subscriber announces his being online and his readiness to receive messages. The service notifies the subscriber of the group member who is located in geographic proximity to him.
In the future
   
45.
Surf & talk
Allows the subscriber to receive notice of and answer a call waitingwhile surfing the internet.
In place
Availability of the service 99%
Dependent on the terminal equipment. On GSM network only
46.
Personal information management
Accessto and synchronization of a personal information database through the terminal equipment.
In place
 
Dependent on the terminal equipment.
47.
Memo
Sending of a voice message as a memo from the subscriber to any telephone on a public network.
* 1/2004
 
* In accordance with notice dated Jan. 8, 2004
48.
A 67
Filtering of offensive content and sites on the internet
Filtering of offensive content and sites while the subscriber is surfing the internet through his terminal equipment, in accordance with the provisions of Section 67G of the license.
4/12
 
The service is provided to subscribers who use the internet access service for no charge additional to the payment it collects from him for the internet access service.
49. A 75
“ Personal Message ”
A short instruction, notification and warning of the Defense Agencies, sent immediately, selectively and in a focused manner to   subscribers with cellular end equipment which supports use of cell broadcast (“CB”) technology;
10/2014
 
Pursuant to the provisions of Section 65.B and the “personal message” service file
 
A67 Amendment no.67
A67 Amendment no.67
 
 
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50. A 81
Premium Service at Premium Tariff
A premium service provided through a designated code allocated for such purpose (1-900, 1-901, 1-902).
2/2015
 
The service will be provided according to the provisions of Annex P.
51 A 81 .
Premium Service at Regular Tariff
1)A premium service provided through:
2)A network access code – as an inter-network service;
3)Dialing a landline number – as a nationwide service.
2/2015
 
Landline number and regular tariff within the meaning thereof in Section 67D1 of the license.
 
·
The availability of the service is a percentage of the timeduring which the service is available, excluding the availability of the basic service.
 
A67 Amendment no.67
A67 Amendment no.67
 
 
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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 A60
Domestic Roaming;
Appendix D A43
 
Appendix E A16
Level of Subscriber Services;
Appendix F A8
Ordering Of A Service On The Website Of The Licensee Or A Service Provider;
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

 
A16 Amendment no.16
A60 Amendment no.60
A43 Amendment no.43
A16 Amendment no.16
A8 Amendment no.8
A16 Amendment no.16
A3 Amendment no.3
A5 Amendment no. 5
A6 Amendment no.6 replaced Amendment no.4
A7 Amendment no.7
A12 Amendment no.12
A12 Amendment no.12
A16 Amendment no.16
A24 Amendment no.24
 
 
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Appendix C – DOMESTIC ROAMING

 
1.       In this Appendix
 
" Handover 1 "
 
Continuity of a call during its transfer by means of cellular end equipment from the coverage area of a cellular radio center of one licensee to the coverage area of a cellular radio center of another licensee, in a continuous manner, without being disconnected or disrupted.
     
" Call "
 
Including SMS messages, data communication, cellular Internet surfing, use of applications and the like.
     
" Roaming Licensee's Subscriber "
 
Including a subscriber of a cellular licensee on another network, where such licensee utilizes a roaming licensee's network.
     
" Lockdown"
 
A state in which the end equipment of a roaming licensee's subscriber, who roamed to a host network, continues to receive service on the Licensee's network after the termination of the call, even if the roaming licensee has coverage in that area.
     
" Specifications "
 
The current 3GPP 2 recommendations regarding domestic roaming as in effect from time to time.
 
2.
The Licensee shall provide by means of its network to a roaming licensee a domestic roaming service, as stated in section 67E, in accordance with the conditions set out below.
 
3.
The Licensee shall provide a domestic roaming service, as stated, by one of the following two methods:
 
 
(a)
Call transfer – The Licensee shall enable the transfer of a call which is being conducted by means of a subscriber's end equipment from a roaming licensee's network to the Licensee's network, when the roaming operator's network has no coverage in that area. After the transfer, the call shall be conducted on the Licensee's network up to its termination.
 
 
(b)
Call setup – The Licensee shall enable the setup of a call on its network, by means of the end equipment of a roaming subscriber's licensee, if the roaming operator's network has no coverage in that area, or due to locking down of the end equipment of the roaming subscriber on the Licensee's network. Following its setup, the call shall be conducted on the Licensee's network up to its termination.
 
4.
The Licensee shall determine the duration of the lockdown time in accordance with the requirement of the roaming licensee.
 
5.
The Licensee shall guarantee reasonable and equal conditions for every roaming licensee, as regards the provisions of cellular services by it, including the following:

7 Handover.
8 3 rd Generation Project Partnership.
 
 
 
 

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(1)
Prohibition on discrimination – The scope, nature and quality of the services received by a roaming licensee's subscribers may not be inferior to those provided to the Licensee's subscribers. Insofar as the Licensee creates a distinction between categories of its subscribers, regarding the scope, quality or nature of its services, it shall allow the roaming licensee to maintain the same distinction for its subscribers.
 
 
(2)
Transfer – The Licensee shall allow a roaming licensee's subscribers a one-way transfer, i.e. – from the roaming licensee's coverage area to the Licensee's coverage area, in a continuous manner, without disconnection or interruption of the call.
 
 
(3)
Advanced network – The Licensee shall provide domestic roaming services to a roaming licensee by means of its most advanced network 9 and within the lowest frequency utilized by it 10 ; only if it does not have such coverage shall it provide the roaming licensee with domestic roaming services by means of a higher frequency range or by means of an earlier generation network 11 , all according to the same priority as its own subscribers.
 
 
(4)
Range of services – The Licensee shall enable a roaming licensee to provide the entire range of services the roaming licensee wishes to provide to its subscribers, subject to the host licensee's technical possibilities and provided this does not burden it unreasonably.
 
6.
The Licensee shall cooperate with the roaming licensee, including by -
 
 
(1)
Blocking sites – The Licensee, at the roaming licensee's request from time to time, shall block the use by the roaming licensee's subscribers in specific coverage areas of sites of the Licensee in which the roaming licensee has coverage.
 
 
(2)
Dynamic update – The Licensee shall update the roaming licensee on a regular basis regarding the data required for domestic roaming support, according to the roaming licensee's needs and in line with the expansion of its network, and regarding changes in the Licensee's network, including traffic data by sites, records of calls 12 , billing data of the roaming licensee's subscribers, malfunctions, changes in systems, etc., and the Licensee shall also update its systems, as necessary, according to the network data of the roaming licensee.
 
 
(3)
Location data – The Licensee shall provide to a roaming licensee, on a regular basis, real-time location data of the roaming licensee's subscribers who are within the Licensee's coverage area. Such location data shall not be less than those received for the Licensee's subscribers.
 
 
(4)
Visibility - The Licensee shall operate, to the extent possible, in such a manner that a roaming licensee's subscribers do not notice that they are receiving service through the Licensee.

  
9 UMTS / HSPA / HSPA+ and in the future LTE.
10 For example, a licensee operating UMTS networks within frequency ranges of 850/900 MHz and 2100 MHz, shall provide to the roaming licensee's subscribers services by means of the network within the 850/900 range according to the same priority as its own subscribers.
11 GSM / GPRS / EDGE.
12 Call Details Record (CDR).
 
 
 
 

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(5)
Switching – The Licensee shall transfer all the outgoing and incoming calls through the roaming licensee's network, to enable the roaming licensee to provide to its subscribers all the services it wishes to provide to them, including signaling of failed calls.
 
 
(6)
Intelligent network – The Licensee shall support, to the extent possible, intelligent network services provided by a roaming licensee.
 
 
(7)
Calls to emergency centers – The call of a roaming licensee's subscriber to an emergency center set up on the Licensee's network shall be routed directly to the emergency center by the Licensee, unless the roaming licensee is able to route it to the appropriate emergency center according to the subscriber's geographical location.
 
 
(8)
Compliance with statutory provisions – The Licensee shall cooperate with the roaming licensee for the purpose of complying with any statutory provision issued to any of them, where such cooperation is required by the existence per se of domestic roaming.
 
 
(9)
Handling malfunctions – The Licensee shall repair malfunctions in its systems which impair or could impair the domestic roaming service level agreed upon between the Licensee and the roaming licensee 13 or determined by the Ministry.
 
 
(10)
Prevention of information transfer – The Licensee shall keep fully confidential any information relating to a roaming licensee, and shall prevent the transfer of any information relating to the roaming licensee from its employees and representatives who handle the operation of the domestic roaming to any other personnel of the Licensee, and particularly the Licensee's marketing and sales personnel.
7.
The Licensee shall operate, with respect to domestic roaming, in accordance with the Specifications. Where any matter is not regulating in the Specifications, the licensees concerned shall act according to the best engineering practice 14 .

13 Service Level Agreement (SLA).
14 Best Engineering Practice.
 
 
 
 

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Annex D – Preparing to Ensure Continuity of Operations in Emergencies
 
1.
Introduction
 
 
1.1.
The Israeli communications sector constitutes a vital national infrastructure both   on a routine basis and in emergencies, and hence requires the License Holder to prepare to ensure continuity of operations in order to continue to provide its services also in emergencies.
 
 
1.2.
The License Holder will implement a comprehensive work plan and will ensure its durability for functioning in emergencies, while ensuring continuity of operations to provide its services.
 
 
1.3.
This annex constitutes a minimal action framework for the License Holder in order to maintain continuity of operations in emergencies, which includes a business continuity program (BCP) and a disaster recovery plan (DRP).
 
2.
Definitions
 
 
“ Interim Site ”
 
-
A site containing sub-systems of the network for performance of connection and control of end sites;
         
 
“ Alternative Site ”
 
-
A site held in a state of preparedness and intended for use in an emergency, at which the activity to ensure continuity of operations will continue;
         
 
“ Core Site ”
 
-
A main site which contains central systems of the network including switch, databases, computer systems, storage and a control and management center;
         
 
“ End Site ”
 
-
A cellular radio center on a license holder’s network;
         
 
“ Sharing Agreement ”
 
-
An active frequency sharing agreement, as defined in Section 19A of the license;
         
 
“ Recovery Target ”
 
-
A target determined by the License Holder for reinstating technological activity and support systems to a defined service level and within a defined time period;
         
 
“ Portable Site ”
 
-
A portable end site;
         
 
“ Continuity of Operations ”
 
-
Ensuring continuity of operations of the License Holder’s services, which includes a disaster recovery plan and a business continuity program;
         
 
“ Plan ”
 
-
Plan to ensure continuity of operations;
         
 
“ Business Continuity Program ”
 
-
Plan of action carried out by the License Holder in emergencies to ensure continuity of operations of processes that are defined as critical and of the communication, computer and storage systems (BCP).
 
 
 
 

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3.
Formulation of a plan to ensure Continuity of Operations
 
 
3.1.
The License Holder will formulate a plan to ensure Continuity of Operations which will assist it in emergencies to ensure its ability to operate continuously, to mitigate the harm to provision of its services and to recover its operations; the plan will include at least the following issues:
 
 
(a)
Analysis of risks to which it is exposed in emergencies, including an analysis of results, repercussions and implications for the ongoing and proper work of the infrastructures and of its services;
 
 
(b)
Determination of service targets and Recovery Targets for emergencies, in accordance with the analysis of the risks and their implications for Continuity of Operations and continued provision of its services;
 
 
(c)
The guidelines specified below in this annex, including the various plans specified below in this annex, while addressing the roles and responsibilities of various functionaries in the management of the emergency situation and actual implementation of the plan;
 
 
(d)
Assimilation of the plan among the managers, employees, suppliers and subcontractors.
 
4.
Liability of the board of directors and the management
 
 
4.1.
The License Holder’s board will approve the plan, while addressing the risks to Continuity of Operations and control thereof, as part of the comprehensive work framework for risk management, and shall instruct the License Holder’s management to carry out the same.
 
 
4.2.
The board of directors will discuss the Continuity of Operations issues upon significant technological changes and after a communication failure event, a significant failure in critical IT systems such as the billing system or the customer relationship management (CRM) system, provided that the Continuity of Operations issues are discussed at least once a year.
 
 
4.3.
The License Holder shall appoint a Continuity of Operations manager and shall define his responsibilities and powers, which shall include ensuring implementation of the plan and adjustment thereof to technological changes, the existence of an assimilation plan, practice drills and lesson drawing as well as mapping and monitoring existing deficiencies and reporting thereon to the management.
 
 
4.4.
The plan will be periodically audited by the internal auditor or a senior officer of the License Holder.
 
 
 
 
 
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4.5.
The board of directors and the management will define periodic monitoring discussions, documentation and reporting format, within the company.
 
5.
Management of an emergency situation
 
 
5.1.
The License Holder shall appoint a senior executive to declare the transition from routine work to emergency work in a transition from routine to emergency procedure.
 
 
5.2.
The License Holder shall operate a situation room in emergencies, which includes all of the resources required to manage the situation, including alternative means of communication which do not rely on the License Holder’s network (the “ Main Situation Room ”).
 
 
5.3.
The License Holder will set up an alternative situation room at another site, at a distance of at least thirty (30) km from the Main Situation Room; the aforesaid notwithstanding, at the License Holder’s written request, the Director may approve having an alternative situation room at a shorter distance.
 
 
5.4.
The situation room will be used by the officers of the License Holder to manage the situation and to operate the plan of action for Continuity of Operations.
 
 
5.5.
The License Holder will appoint a team to manage the emergency situation, to comprise, inter alia , the officers, key decision makers and technology professionals (communications and IT).
 
6.
Manpower, economic immobilization and emergency economy
 
 
6.1.
The License Holder will act vis-à-vis the Ministry of Economy for its recognition as an essential enterprise pursuant to the Emergency Work Service Law, 5727-1967.
 
 
6.2.
The License Holder will prepare manpower for every operating sector thereof which will allow it Continuity of Operations; the License Holder will validate the manning lists once a year.
 
 
6.3.
The License Holder will ensure regular working conditions and inter alia , on the following matters:
 
 
(a)
Food, water, sleeping equipment for all of the manned sites;
 
 
(b)
Equipment, protection, food and water for the field teams (field technician/field maintenance);
 
 
( c )
Protected spaces/rooms (floor shelters/apartment shelters) and safe work areas.
 
 
6.4.
The License Holder will maintain one armored vehicle which will allow the activity of a field team. A license holder which operates more than 1,000 sites will maintain an additional armored vehicle; such vehicles shall be owned by the License Holder or supplied through a supplier.
 
 
 
 

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6.5.
The License Holder will arrange for a transportation system for its employees to travel to and from its sites according to the manpower standard it has determined for each of its operating sectors as stated in Section 6.2.
 
7.
Continuity, backup and survivability of the network and the infrastructure
 
 
7.1.
The License Holder’s network will comprise at least two Core Sites at a geographic distance of at least thirty (30) km; the aforesaid notwithstanding, at the License Holder’s written request, the Director may approve having Core Sites at a shorter distance.
 
 
7.2.
The core systems on the network will operate on BCP architecture, insofar as the technology is available from the equipment manufacturer.
 
 
7.3.
The core of the network will be planned to have no single point of failure, a malfunction in which causes the malfunction of the entire network.
 
 
7.4.
The License Holder will operate a manned management and control center 24/7, 365 days a year, for the monitoring, control and operation of all of the network’s components.
 
 
7.5.
The License Holder will set up an alternative management and control center at another geographic site at a distance of at least thirty (30) km; the aforesaid notwithstanding, at the License Holder’s written request, the Director may approve having an alternative management and control center at a shorter distance.
 
 
7.6.
The alternative management and control center shall include all of the management and control systems required for Continuity of Operations of the License Holder’s services independently, and will be available for immediate action.
 
 
7.7.
The License Holder will formulate a technological and engineering backup plan for the Core Sites which will enable Continuity of Operations in the event of a Core Site failure.
 
 
7.8.
The License Holder will formulate a technological and engineering backup plan for the Interim Sites which will enable Continuity of Operations in the event of an Interim Site failure.
 
 
7.9.
The License Holder will formulate a contingency plan (without actual rollout of additional infrastructures) which will be operated at failure events to link End Sites in accordance with criteria to be determined by the License Holder.
 
 
7.10.
In the event of a failure at the Core Site or an Interim Site, the backup plans will allow additional reception of at least fifty percent (50%) of the disconnected End Sites.
 
 
7.11.
The License Holder will formulate a plan for regular backup of data and information systems on a routine basis and in emergencies at another geographic site, at a distance of at least thirty (30) km; the aforesaid notwithstanding, at the License Holder’s written request, the Director may approve an Alternative Site at a shorter distance.
 
 
 
 

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7.12.
The License Holder will maintain backed up transmission infrastructures to link the Core and Interim Sites.
 
 
7.13.
The License Holder will maintain four (4) Portable Sites which will substitute damaged End Sites, to expand coverage or increase capacity; such resources shall be owned by the License Holder. The aforesaid notwithstanding, in the event that the License Holder entered into a Sharing Agreement with another license holder, the License Holder may maintain the aforesaid together with the other license holder.
 
 
7.14.
The License Holder will have the independent capacity to roll out and operate the Portable Sites, supply energy and transmission and connect them to the network within twelve (12) hours.
 
 
7.15.
The License Holder will maintain reserve technical equipment for the entire technological system which will allow current continuous maintenance for at least three weeks, without the need to bring alternative equipment from overseas; such equipment shall be owned by the License Holder.
 
8.
Transmission infrastructures
 
 
8.1.
The License Holder will formulate a technological and engineering backup plan for the infrastructure and the transmission routes for Continuity of Operations of the transmission services, through landline or wireless transmission.
 
 
8.2.
The License Holder will formulate a technological and engineering backup plan for the transmission infrastructure connecting the network to the core facilities of another general license holder and any license holder through which it provides the internet access service.
 
9.
Energy and electricity infrastructures
 
 
9.1.
The License Holder will prepare for energy and electricity backup, as specified below, for which purpose it may use a supplier:
 
 
(a)
Core Sites – alternative supply of electricity through batteries, generators, diesel oil containers and supply of diesel oil for continuous operation of at least forty-eight (48) hours;
 
 
(b)
Interim Sites – alternative supply of electricity through batteries, generators, diesel oil containers and supply of diesel oil for continuous operation as specified below:
 
 
(1)
An Interim Site which connects more than thirty-two (32) End Sites – for twenty-four (24) hours;
 
 
 
 

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(2)
An Interim Site which connects up to thirty-two (32) End Sites – for twelve (12) hours.
 
 
9.2.
The License Holder will prepare for energy and electricity backup at the End Sites for an alternative supply of electricity through batteries for two hours for each End Site whose activity is required to meet the coverage level set forth in the provisions of the license; such batteries shall be owned by the License Holder.
 
 
9.3.
The License Holder will maintain at least six (6) generators for continuous operation of End Sites in the event of a power outage; such generators shall be owned by the License Holder. The aforesaid notwithstanding, in the event that the License Holder entered into a Sharing Agreement with another license holder, the License Holder may maintain the aforesaid together with the other license holder.
 
 
9.4.
The License Holder shall enter into an agreement with a subcontractor for the repair and transportation of generators in emergencies.
 
 
9.5.
The License Holder shall enter into an agreement with a supplier for the supply of diesel oil for fuelling in emergencies.
 
10.
Data and system protection
 
 
10.1.
The License Holder shall formulate a data and system protection plan which shall include protection procedures and responses to data protection events.
 
 
10.2.
The data and system protection plan will be determined in accordance with the instructions of the Ministry and the security forces.
 
 
10.3.
The License Holder will determine the work procedures and rules for remote access upon a data systems event as part of the plan to ensure Continuity of Operations.
 
11.
Suppliers and subcontractors
 
 
11.1.
The License Holder shall ensure that the engagement agreements with the suppliers and the subcontractors regulate the duty of the supplier and the subcontractor to provide the services required by the License Holder to ensure Continuity of Operations in emergencies.
 
 
11.2.
The agreements shall include a plan to ensure Continuity of Operations at the supplier and the subcontractor, including manpower and the resources required to provide the service.
 
 
11.3.
The agreements shall include the participation of the supplier and the subcontractor in drills.
 
12.
Reinstatement of service in emergencies
 
 
 
 

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12.1.
In the event of a significant service interruption in an emergency, the License Holder will reinstate the service according to the reinstatement of service procedure; insofar as possible, the procedure will give priority to the reinstatement of service to vital bodies, including security forces and emergency services, hospitals, emergency centers and government ministries.
 
 
12.2.
The procedure will be formulated such that reinstatement of the communication services will be according to the order specified below:
 
 
(a)
Dialing and maintaining a voice call between subscribers of the License Holder and between its subscribers and the subscribers of another license holder;
 
 
(b)
National and personal messaging (cell broadcast);
 
 
(c)
Surfing services;
 
 
(d)
Sending SMSs between subscribers of the License Holder and between its subscribers and the subscribers of another license holder;
 
 
(e)
The other services.
 
13.
Restoration of the service
 
 
13.1.
The License Holder will formulate a plan for restoration of its services which includes the following stages:
 
 
(a)
Immediate restoration – preplanned restoration; such restoration will be carried out within a very short time and almost automatically;
 
 
(b)
Interim restoration – utilization of existing surplus capacity, including available alternative machines; such restoration will be carried out within several days;
 
 
(c)
Long-term restoration – installation of new systems; such restoration will be carried out within weeks or months and is contingent on available equipment at the supplier and installation and construction capabilities.
 
 
13.2.
According to the restoration plan, the service level of the various services provided by the License Holder will be determined.
 
 
 
14.
Assimilation and practice
 
 
14.1.
The License Holder will implement the plan to ensure Continuity of Operations among its employees by instructing and training them.
 
 
14.2.
The License Holder will formulate a periodic practice drill plan which includes all of the scenarios and the critical processes included in the plan to ensure Continuity of Operations.
 
 
 
 
 
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14.3.
The License Holder will carry out, within the company, a practical and comprehensive drill, once a year, with the participation of an internal control team which shall examine the License Holder’s emergency preparedness; the License Holder will notify the Ministry of the date of holding of the drill at least thirty (30) days in advance thereof and will allow the Ministry’s representatives to attend the same.
 
 
14.4.
The conclusions of the drill will be provided to the License Holder’s management to study and examine required updates to the plan to ensure Continuity of Operations; the conclusions of the drill will be provided in writing to the Director within thirty (30) days after the holding of the drill.
 
15.
Procedures
 
 
15.1.
The License Holder will formulate designated procedures for various emergency scenarios in the framework of the plan, as specified below:
 
 
(a)
Procedure for handling malfunctions and irregular events in emergencies and recovery therefrom;
 
 
(b)
Procedure for skipping and transition to an alternative management and control center;
 
 
(c)
Procedures for backup and survivability of Core and Interim Sites;
 
 
(d)
Operation of portable resources procedure;
 
 
(e)
Procedure for reporting to the Ministry in emergencies;
 
 
(f)
Procedure for operation of the customer service system in emergencies;
 
 
(g)
Procedure for protection and response against data protection events;
 
 
(h)
Reinstatement of service in emergencies procedure;
 
 
(i)
Transition from routine to emergency procedure.
 
 
15.2.
The procedures will be approved by relevant officers at the company and will be updated once a year.
 
16.
Miscellaneous
 
 
16.1.
This annex will take effect no later than Tuesday, Elul 17, 5775 (September 1, 2015), with the exception of Sections 7 and 9, which will take effect no later than Tuesday, Adar A 21, 5776 (March 1, 2016).
 
 
 
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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;

 
(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;
 
 
Second Schedule - Appendix E-1
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix E
 
 
(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.

1A.
LTE Technology Network A 78
 
1.1A
Definitions :
         
 
“ Population ”
 
-
The entire population in the Area according to publications of the Central Bureau of Statistics;
         
 
“ Rollout Ratio ”
 
-
The ratio between the number of households in Towns in the Periphery and the number of households in Towns in the Center;
         
 
“ Town in the Center ”
 
-
A town that is defined by the Central Bureau of Statistics as an “intermediate (clusters 5,6)”, “central (cluster 7)” and “very central (clusters 8, 9, 10)” town;
         
 
“ Town in the Periphery ”
 
-
A town that is defined by the Central Bureau of Statistics as a “very peripheral (clusters 1, 2, 3)” and “peripheral (cluster 4)” town;
         
 
“ Road ”
 
-
The area (length * width) of any road whose number is up to a total of 4 digits, and a national and local railway track, in the area of the State of Israel, during the period of the license; with the width of the road or national and local railway track including the actual width of the road / track + 5 meters on each side of the road / track;
         
 
“ Population Concentration ”
 
-
An area in which there is, from time to time or continuously, a population concentration such as declared public beaches, sports stadiums, parks, nature reserves, markets etc.;
         
 
“ Coverage Level ”
 
-
Transmission and reception of electromagnetic signals which allow the adequate functioning of any service to mobile CMR end equipment at a height of one and a half (1.5) meters above ground level;
 
For this purpose, adequate functioning of a service shall be deemed as service provided within the coverage area, while meeting the minimum requirements with respect to the quality of the service as specified in this section;
 
A69 Amendment No. 69
A78 Amendment No. 78
 
 
Second Schedule - Appendix E-2
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix E
 
 
“ Area ”
 
-
The entire area to which the law, jurisdiction and governance of the State of Israel apply.
         
 
“ Blocked Calls ”
 
-
Calls and data communication or connections that cannot be established or messages that cannot be transmitted immediately upon the communication establishment order due to the unavailability of network resources or resources for connection between the network and other networks;
         
 
“ Dropped Calls ”
 
-
Calls and data communication or connections that are disconnected other than at the initiative of the subscriber initiating the call / connection or the call recipient.
 
1.2A
Rollout Obligations for an LTE Technology Network
   
 
Upon the establishment of an LTE technology network, the license holder shall act as follows:
 
(1)       It shall submit a rollout plan for the LTE technology network in the format set forth in the provisions of this annex, no later than thirty (30) days after the effective date; the rollout plan shall constitute part of the engineering plan. In this section, the “ effective date ” – the date of granting of rollout approval for an LTE technology network.
 
(2)       The rollout plan shall include the following data:
 
(a)   It shall specify all of the towns in Israel, according to the publication of the Central Bureau of Statistics, divided into two groups – Towns in the Center and Towns in the Periphery; alongside each town shall be stated the number of households in such town, as well as the total number of households in Towns in the Center and in Towns in the Periphery; opposite each town shall be stated the planned date for completion of the rollout plan in relation to such town;
 
(b)   It shall specify all of the Roads, according to the publication of the Central Bureau of Statistics; alongside each Road shall be stated the road number and opposite each Road shall be stated the planned date for completion of the plan for rollout along the Road.
 
(3)       The license holder may update the rollout plan and change the order of the towns or the Roads in which the network rollout is planned, by giving notice to the Director thereof up to 30 days before the date planned for the rollout, provided that the updated rollout plan meets the provisions set forth in this annex.
 
(4)       The network rollout pace will be as follows:
 
(a)   The license holder shall roll out the network at a Rollout Ratio no less than one (1).
   
2.
Customer and Subscriber Services Quality Measures

2.1.
Service to provide information to customers and subscribers : will be provided through a telephone call to a call center, on the license holder's website, by e-mail and by facsimile; such service may be provided also through a representative in a service station open to the public, through an IVR system, SMS, chat or by regular mail. A 69
 
 
Second Schedule - Appendix E-3
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
 
Appendix E

2.2.
Standards for accessibility and provision of information:

 
(A)
A 56 A call center will be manned   twenty four (24) hours a day, for receiving calls regarding theft or loss of cellular end-equipment, a network malfunction leading to termination of all cellular services to the subscriber and the "international roaming service", all days of the week except on Yom Kippur.
A 73 For the purpose of inquiries regarding an international roaming service – the licensee is required to allow any subscriber who is Abroad to contact the said call center free of charge, provided that the inquiry is made via a telephone number which is on the licensee's network. The licensee shall publish the telephone number for calls from Abroad on its website.

 
(B)
A 56 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 for receiving calls pertaining to a problem in receiving cellular services, which is not a malfunction as stated in subsection (a), and in connection with the Licensee's services.


 
(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.

 
(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.
 
A69 Amendment No. 69
A56 Amendment No. 56
A56 Amendment No. 56
A56 Amendment No. 56
 
 
Second Schedule - Appendix E-4
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix E
 
 
(G)
A 58 The Licensee may not use a telephone number with a cell phone area code for a fax service for the purpose of receiving complaints from the public.
 
(H)
A 58 Access to all call centers for reporting malfunctions, loss will be via a toll-free service (1-800 service).The Licensee will enable or theft (hereinafter – problem reporting center") access to the problem reporting center from
any national domestic network.
 
(I)
A 58 Subject to that stated in subsection (h), access to all call centers for matters pertaining to the Licensee's services will be by means of each of the following:
 
(1)
A network number to which access is free of charge;
 
(2)
A split-charge call service (1-700 service) or a toll-free service (1-800 service).

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.

 
(3)
The Licensee may include information regarding deals and personal notices to the subscriber.

 
(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 who wishes to disconnect from the Licensee shall receive a final bill on the nearest possible date, and no later than two months after the disconnection date .   A 61 Where the subscriber and the Licensee agreed on payment in installments for end-equipment purchased by the subscriber from the Licensee, and the subscriber's contract with the Licensee is cancelled before the subscriber has paid all the installments on the end-equipment which he purchased from the Licensee, the Licensee will send the subscriber a final invoice for the Licensee's services, and thereafter the Licensee will be entitled to send the subscriber invoices only in respect of the debit for the end-equipment.   A 58
 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A61 Amendment No. 61

 
 
Second Schedule - Appendix E-5
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
Appendix E
 
A final invoice will be titled 'Final Invoice'.

 
(3)
Void   T 52

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.

2.5.
A70 Manner of Use of an Electronic Graphic Signature
 
 
(a)       Identification of subscriber – the Licensee shall identify the subscriber before modifying an engagement agreement or having him sign a new engagement agreement, through a photo-bearing I.D. or a power of attorney together with an I.D. of the attorney.
 
(b)       Use of a digital screen – the Licensee shall allocate for the subscriber's sole use, throughout performance of the transaction until completion thereof, a digital screen, and shall allow the subscriber reasonable time to inspect the entire agreement and to understand the content thereof before being required to sign the same.
 
(c)       Signature by the subscriber – the "access to services form" and the documents relevant to the agreement shall be marked and signed only by the subscriber.
 
(d)       Fixed signature – each signature will be separately locked and fixed in place, with the unique characteristics thereof, such that it will be possible to prove that this signature is not the result of the "copying and pasting" of another signature of the subscriber signed elsewhere in the engagement agreement or in other documents.  Further to the aforesaid, each signature shall have an information layer in addition to the signature – which shall document the exact time of the signing thereof (precise date and time accurate to within a second).
 
(e)       "Locking" of an agreement – Upon completion of the execution of the entire agreement, the agreement document shall be "locked", such that it will be possible to identify any modification of the agreement after the date of signing. The "locking" of the agreement by a secured electronic signature or an approved electronic signature ("Electronic Signature") of the Licensee, within the meaning thereof in the Electronic Signature Law, 5761-2001, immediately after the execution thereof by the subscriber, shall be deemed as reasonable means of locking the agreement and protecting it against changes.
 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
T52) Amendment No. 52.
 
 
Second Schedule - Appendix E-6
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix E
 
 
(f)       Document Retention – the Licensee will retain documentation of any and all of the agreement documents in accordance with the requirements of Section 113.1 of its license, and shall regularly take measures to prevent the undocumented addition or omission of documents to the electronic archive system. A Licensee will take the necessary measures and processes in order to ensure that the content of the agreement is retained without modification from the date of the drafting thereof and throughout the retention period, considering technological changes or changes in the encryption methods used to retain documents. A Licensee may prove to the Ministry at any time that it took such measures and processes.
 
(g)       Receipt of a copy of the engagement agreement –
(1)   The subscriber may choose between two options for the receipt of documents at the time of consummation of the transaction (by checking one of two boxes):
((a)) Box one – to receive only the "plan summary pages" (up to 2 pages);
 
((b)) Box two – to receive the full signed agreement.
 
(2)   The subscriber shall confirm his choice by his signature. The space for the signature shall be adjacent to the said two boxes.
 
(3)   A subscriber who requests to receive only the "plan summary pages" will need to state his e-mail address or his fax number, to one of which the full signed agreement shall be sent (including 2 "plan summary pages").
 
(4)   The e-mail address or the fax number to which the full agreement shall be sent will be typed in by the sales representative (on his own keyboard).
 
(5)   The address or fax number shall appear beneath and adjacent to the said boxes.
 
(6)   The subscriber shall confirm by an additional signature that this is the e-mail address or fax number, to one of which the agreement shall be sent.
 
(7)   As a consequence of the aforesaid: any subscriber who does not have an e-mail address or a fax shall receive the full agreement at the time of consummation of the transaction.
 
(h)      Identification of the representative – any agreement shall include unequivocal identification of the representative who had the subscriber sign (full name and signature).
 
(i)       The Licensee shall retain in its possession a signed copy of the engagement agreement; such copy will be available at the Licensee for presentation to the Director within five (5) working days from the date of the engagement;
 
(j)       If the subscriber requests to make a change to the terms and conditions of the engagement agreement, including a request to receive an additional service, to cancel a service, or to join a service plan – printed notice bearing the name or logo of the Licensee shall be delivered to the subscriber upon the request for the change, stating the details of the change made, the date of its taking effect and the full name of the Licensee's representative and the subscriber and their original signatures. The signed notice shall be available at the Licensee for presentation to the Director within five (5) working days from the date of fulfillment of the subscriber's request.
 
(k)       Cold Calling – the rules specified above shall also apply to cold calling.

 
Second Schedule - Appendix E-7
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix E1
 
  
Appendix E1  T 52 - Fair Disclosure in Telephone Bills

General

For the purpose of this Appendix, “ telephone bill ” means a bill submitted by a licensee to a subscriber for services it provided to the subscriber itself or for services provided to the subscriber by any other licensee or service provider using the collection services of the licensee for the purpose of collection of payment from the subscriber.

1.
The telephone bill (hereinafter referred to in this Appendix as the “ Bill ”) to be presented by the licensee to a subscriber shall be clear, legible and comprehensible; the Bill shall include accurate details about the components of the charge demanded, as set forth in this Appendix.

2.
The Bill shall include the following parts:

 
A.
“Billing Summary”;

 
B.
“Billing Details” including:

 
1)
Details of fixed charges, variable charges, one-time charges, credits and reimbursements, within the meaning in section 8 E of this Appendix;
 
 
2)
Information on usage patterns;

 
C.
“Call Details”.

 
3.
The Bill shall be constructed using a bottom-up method, with its bottom level being Part C - “Call Details”, above it Part B - “Billing Details” and at the top level Part A - “Billing Summary”.
 
 
4.
The Company name and logo shall be displayed on each page of the Bill, including on the “Call Details”.
 
 
5.
The licensee shall issue a “Billing Summary”, “Billing Details” and “Call Details” for each telephone number separately. The licensee may issue to a subscriber holding several telephone lines one “Billing Summary” to refer to all the telephone numbers in the possession of the subscriber, provided that the “Billing Summary” sets forth each of the telephone numbers to which the Bill relates (see examples 1 and 2). “Call Details” and “Billing Details” shall be issued by the licensee for each telephone number separately. Notwithstanding the above, a subscriber in possession of several telephone numbers may demand from the licensee to receive a separate “Billing Summary” for each telephone number in his possession. In this regard, a PRI line shall be deemed one telephone number.
 
T53) Amendment No. 52.
 
Second Schedule- Appendix E1-1
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix E1
 
 
 
6.
Amounts in the Bill shall be rounded off and shall be set forth according to the provisions of section 2.2.2 of Israeli Standard 5262 - “Honesty in Billing and Fair Disclosure in Telephone Bills” (hereinafter referred to in this Appendix as the “ Standard ”) and the provisions of the General License on this matter. It should be clarified that in respect of the manner of calculating the billing amount, in contrast to the manner of presenting the “Call Details”, and the “Billing Details”, as determined in the provisions, the licensee must calculate this pursuant to the tariff provided in the Regulations, with no rounding off.
 
 
7.
The Ministry of Communications’ website in the section on “General Licenses” has examples of telephone bills drawn up pursuant to the detailed provisions of this Appendix (hereinafter referred to in this Appendix as the “ Examples ”). The Examples are based on telecommunications agreements and tariff plans marketed in 2008 by the general licensees. The examples are for the sake of illustrating the mode of implementation of the provisions only. In the case of any inconsistency between the provisions and the Examples, the binding version is that in the provisions.
 
 
Part A - “Billing Summary”
 
 
8.
The following details shall be presented in the “Billing Summary”:
 
 
A.
Subscriber Details -
 
 
1)
First name;
 
 
2)
Surname;
 
 
3)
Address;
 
 
4)
Customer number;
 
 
5)
Telephone number and/or PRI line number by means of which the services on account of which the Bill is presented to the subscriber were provided;
 
 
B.
Licensee Details -
 
 
1)
Company name;
 
 
2)
Company management address;
 
 
3)
Customer service telephone and facsimile numbers;
 
 
Second Schedule- Appendix E1-2
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
Appendix E1
 
 
4)
Company website address.
 
 
C.
Dates -
 
 
1)
Billing date;
 
 
2)
Billing period;
 
 
3)
Last date for payment of Bill - in respect of a Bill not paid by standing order or by credit card.
 
 
D.
Notices to Subscriber
 
 
1)
Notice on the option of filing a complaint to the licensee’s public complaints commissioner, about his powers and the ways of contacting him. To the extent that the licensee is not obligated under the provisions of its license to notify every subscriber about the option of filing a complaint with the licensee’s public complaints commissioner on the telephone bill, the licensee shall present a notice on the option of filing a complaint with the licensee’s telephone call center and about the ways of contacting it.
 
 
2)
The licensee’s address, telephone number, facsimile number and email address by means of which the subscriber may request the licensee to stop the service or deliver the licensee a notice of cancellation, within the meaning in section 13D of the Consumer Protection Law, 5741-1981. To the extent that the licensee is not obligated under the provisions of its license to provide for the sending of a request to stop the service by email, it is not obligated to present such email address.
 
 
3)
Information on offers and personal notices to the subscriber, at the decision of the licensee.
 
 
E.
Billing charge exclusive of VAT, as set forth below:
 
 
1)
Fixed charges - charges applying to the subscriber not dependent on the scope of usage;
 
 
2)
Variable charges - charges applying to the subscriber dependent on the scope of usage;
 
 
3)
One-time charges, such as charges for “Exit Fee”, linkage and interest differentials charge for a monetary debt, charge for collection expenses, etc. (hereinafter referred to in this Appendix as “ One-Time Charges ”);
 
 
Second Schedule- Appendix E1-3
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix E1

 
4)
Credits, such as credit for return of old terminal equipment, credit for a subsidy on terminal equipment, etc. (hereinafter referred to in this Appendix as “ Credits ”);
 
 
5)
Financial reimbursements for surplus charges (hereinafter referred to in this Appendix as “ Reimbursements ”).
 
 
F.
Total payment amount will be presented as set forth below:
 
 
1)
Total payment amount exclusive of VAT; the amount shall be calculated according to the charges summary presented in the “Subtotals Summary” and the “Billing Summary”;
 
 
2)
VAT amount;
 
 
3)
Total payment amount, plus VAT.
 
 
F.
All charges appearing in the “Billing Summary” shall be presented as a decimal number in New Israeli Shekels to a degree of accuracy of two digits after the decimal point.
 
 
Part B - “Billing Details”
 
 
9.
Part 1 of the “Billing Details” will include information on fixed charges, variable charges, One-Time Charges, Credits and Reimbursements, as set forth below:
 
 
A.
“Billing Details” will include general information on the tariffs plan according to the terms of which the subscriber is charged, including details of its main tariffs, inclusive of VAT. Details of the main tariffs will be presented exclusive of VAT for business subscribers.
 
 
B.
If the subscriber’s agreement includes a commitment period the licensee must note on every bill in the “Billing Details” the following details:
 
 
1)
The duration of the commitment period and its date of expiration; the provisions of this subsection shall not apply in respect of a transaction where there is no obligation to give a collection notice as stated in section 13A(d)(2)(b) of the Consumer Protection Law, 5741-1981.
 
 
2)
The payment the subscriber will be asked to pay if he requests to terminate his agreement with the licensee prior to the expiration of the commitment period to the company or the tariff plan (“ Exit Fee ”) in the course of the billing period following the present billing period (hereinafter referred to in this Appendix as the “ Subsequent Billing Period ”). In the event that the amount of the Exit Fee changes throughout the Subsequent Billing Period, the time point of reference for determining the amount of the Exit Fee shall be the middle of the Subsequent Billing Period (see Example 1).
 
 
Second Schedule- Appendix E1-4
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix E1

 
3)
To the extent that payment of the Exit Fee also includes payment for subsidizing terminal equipment, the aforesaid payment shall be presented separately. In the event that such payment amount is variable throughout the Subsequent Billing Period, the time point of reference will be the middle of the Subsequent Billing Period (see Example 1).
 
 
4)
The licensee will present to the subscriber written details in respect of the mode of calculation of the Exit Fee within 14 days of the date the subscriber submitted a request to the licensee’s customer service center or the public complaints commissioner.
 
 
C.
“Billing Details shall be presented by means of a table composed of columns and rows, as set forth in the Examples.
 
 
D.
Each service provided to the subscriber in the course of the Billing Period shall be presented in the “Billing Details” in a separate row, with the following details:
 
 
1)
Name of service; the name of the service shall identify as clearly and as accurately as possible, the service provided to the subscriber; respecting a service provided to the subscriber not by means of the licensee, the licensee shall present the details of the service provider, including its name and a telephone number by means of which it can be contacted;
 
 
2)
Quantity; quantity measured in time will be presented in the form of mm:ss (minutes: seconds). Quantity measured by data volume will be presented as a decimal number in MB to a degree of accuracy of at least 3 digits after the decimal point. The quantity of internet pages viewed or text messages will be presented as a natural number.
 
 
3)
Tariff; the tariff will be presented as a decimal number in New Israeli Shekels, to a degree of accuracy of at least 3 digits after the decimal point. The tariff is composed of several payment components, such as one tariff for the licensee’s services and a second tariff for reciprocal link or for international phone service, will also be presented as one inclusive tariff (see Examples 1 and 2). Calls in respect of which the tariff varies in the course of performance, such as a transition from off-peak to peak rates and from peak to off-peak rates, a change in tariff in the course of a conversation, including a conversation started within the scope of a “pay as you go” plan and exceeding the minutes in the course of performance, will be presented collectively within the “Calls at Variable Tariff in the Course of a Call” service; the tariff will be presented under the column “Average Tariff” and will be calculated by dividing the charge amount in the “Subtotal Row”, within the meaning in section 11I of the Appendix by the quantity (see Example 5 - Version A). To the extent that a call in the “Calls at Variable Tariff in the Course of a Call” is presented as set forth in the concluding part of section 11L below, the “Average Tariff” will not be required to be presented and the tariff will be presented according to each segment separately (see Example 5 - Version B).
 
 
Second Schedule- Appendix E1-5
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix E1
 
 
4)
The charge amount; the charge amount will be calculated by multiplying the quantity by the tariff and it will be identical to the charge amount appearing in the “Call Details” in the “Subtotal Row”; the charge in the “Subtotal Row” in the “Call Details” of each segment of a “Call at a Variable Tariff in the Course of a Call” will be included in the “Account Details” within the scope of the appropriate category of service (see Example 5 - Version B).
 
 
5)
In the event that there is also a fixed charge for each individual call, the number of calls made and the fixed tariff per call shall also be presented in the same row and the charge amount shall be calculated by multiplying the number of calls by the fixed charge tariff per call plus the quantity multiplied by the tariff (see Example 4).
 
 
E.
The “Fixed Charges”, “One-Time charges”, “Credits”, “Reimbursements” and "Linkage differences and interest" as specified in sections 60.8 and 83A   A 58 , shall each be presented in the “Billing Details” in a separate group (see Examples 3 and 5).
 
 
F.
The licensee shall notify the subscriber in the Bill of his option to request written details in respect of the mode of calculation of   A 58 the “One-Time Charge”; the licensee will furnish the subscriber with such written details within 30 days of the date of submission of a request by the subscriber on the matter to the licensee’s customer service center or the customer complaints commissioner (see Examples 3 and 5).
 
 
G.
Charges may also be noted in the “Billing Details” for sale of terminal equipment and charges for services which are not telecommunication services.
 
 
H.
The “Billing Details” shall include subtotals of charge amounts exclusive of VAT, for fixed charges, variable charges, One-Time Charges, Credits and Reimbursements (“ Subtotal Row ”).
 
 
I.
The final charge amount will be presented exclusive of VAT, and alongside such amount will be presented the charge amount inclusive of VAT.
 
 
J.
The licensee must note in the “Billing Details” a comment whereby to the extent that there is a difference between the charge amount and the subtotal of charge amounts set forth in the Subtotal Rows of the “Billing Details”, they originate in the fact that the charge amount was calculated according to tariffs to a higher degree of accuracy than that determined in the provisions of the license and the Standard.
 
 
K.
All charge amounts appearing in the “Billing Details” will be presented as a decimal number in New Israeli Shekels to a degree of accuracy of two digits after the decimal point, unless expressly determined otherwise.
 
 
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).
 
 
Second Schedule- Appendix E1-6
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix E1
 
 
10.
In Part 2 of the “Billing Details” the licensee shall present in graph form or in any other manner in respect of each telephone number to which the telephone bill relates information about usage patterns, as set forth below:
 
 
A.
The rate of utilization of each package of services included in the tariffs plan to which he is a subscriber, including packages of services granted to a subscriber within the scope of the fixed charge;
 
 
B.
Details of charges according to categories of services;
 
 
C.
Distribution of call minutes and text messages according to categories of licensees on whose network the call was completed (internal network, external network according to category of licensee - mobile radio-telephone, internal domestic fixed line telephony).
 
 
Part C - “Call Details”
 
 
11.
The details set forth below shall be presented in the “Call Details”:
 
 
A.
“Call Details” shall include information about all the services provided to the subscriber in the period to which the Bill relates.
 
 
B.
Each “category of service” shall be set forth in a separate group under the heading of the service name, with each item in the “category of service” being presented in a separate row, pursuant to the provisions of subsection 11E. Respecting PTT services, no details are required for each call separately.
 
 
C.
Presentation of data in relation to each “category of service” appearing in the “Call Details” will be carried out in ascending chronological order.
 
 
D.
“Call Details” will be presented in table format pursuant to the details in the Examples.
 
 
E.
In respect of each item appearing in the “Call Details”, at least the following data shall be noted:
 
 
1)
Date of performance of call or text message or internet surfing;
 
 
2)
Time (hh:mm:ss);
 
 
3)
Call destination (if any);
 
 
4)
Quantity;
 
 
Second Schedule- Appendix E1-7
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix E1
 
 
 
5)
Tariff exclusive of VAT, to a decimal number in New Israeli Shekels to a degree of accuracy of at least 3 digits after the decimal point.
 
 
6)
Charge amount exclusive of VAT, to a decimal number in New Israeli Shekels to a degree of accuracy of at least 3 digits after the decimal point.
 
 
F.
The tariff presented shall be the tariff according to which the subscriber is charged, viz. , for example, after a discount, if any, the cheaper tariff offered to the subscriber within the scope of any offer, etc.
 
 
G.
The quantity, tariff and charge amount will be presented in adjacent columns if possible, so that the quantity multiplied by the tariff will give the charge amount. If there is also a fixed charge per call the quantity of calls made and the fixed charge per call shall be presented and the charge amount will be calculated by the quantity of calls multiplied by the fixed charge tariff per call plus the quantity multiplied by the tariff (see Example 4).
 
 
H.
Quantity measured by time will be presented in the form of mm:ss (minutes: seconds); quantity measured by data volume will be presented as a digital number in MB to a degree of accuracy of at least 3 digits after the decimal point; the quantity of internet pages viewed or text messages will be presented as a natural number.
 
 
I.
Any “Category of Service” appearing in the “Call Details” will include a summary row in which will be set forth the total quantity for which the subscriber is charged and the total charge amount in respect of such “Category of Service” exclusive of VAT (hereinafter referred to in this Appendix as the “ Subtotal Row ”).
 
 
J.
Any charge amount appearing in the “Subtotal Row” will be presented in the “Billing Details” as a decimal number to a degree of accuracy of two digits after the decimal point, with the quantity presented alongside.
 
 
K.
The presentation of each Subtotal Row shall be made in a prominent manner.
 
 
L.
A call whose tariff is variable in the course of performance thereof, such as a transition from off-peak to peak rate or from peak to off-peak rate, a change in tariff in the course of the conversation, including a conversation starting within the scope of a “pay as you go” program and exceeding the minutes in the course of performance thereof, will be presented within the scope of “Calls at Variable Tariff in the Course of a Call”; the tariff will be presented under the column “Average Tariff” and will be calculated by dividing the charge amount into the quantity (see Example 5 - Version A). A call whose tariff is variable in the course of performance thereof may also be presented in another form in which the charge tariff, the quantity and the charge amount, as well as the total charge of the call will be presented in respect of each segment of such call (see Example 5 - Version B).
 
 
M.
The licensee may provide a subscriber making an express request, with Call Details in chronological order in which the calls were provided with no separation between categories of services, provided that it notifies the subscriber within the scope of the “Call Details” that he may receive “Call Details” also pursuant to the format determined in section 11(b).
 
 
Second Schedule- Appendix E1-8
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
Appendix E2
 
A73 Annex E2 – Access to Services Form

Form for Access to Services through the Cellular Device that are Billed in the Telephone Bill
 
Name of the license holder
Methods for submission of the form:
Address
E-mail address
Facsimile no.
Date: ___________________
I, whose details are stated below, request access to the services specified below, for the telephone number stated in this form, as follows:
The Subscriber's Details
The subscriber's name / the company's name: ______________ I.D./P.C. ________________   Address: ________________ Telephone number: ____________________
Check according to your choice and sign. Please be advised that partial checking and signing means that the possibility of receiving the service will be blocked.
No.
Type of Service
Blocked
Open
Subscriber's Signature
1.
Cellular internet in Israel including surfing on the license holder's cellular portal (blocking does not prevent surfing in Israel via WiFi).
☐
☐
 
1A.
Cellular internet Abroad including surfing on the license holder's cellular portal (blocking does not prevent surfing Abroad via WiFi). open indication in this section does not include availability for roaming services in Jordan and Egypt .
 
( Note that if you choose "blocked" and purchase, at a certain stage thereafter, a plan/package which includes internet, the blocking will be discontinued by [company's name] and we shall thereafter block you again once you have used up the package in full or the plan/package has expired, whichever is earlier )
☐
☐
 
2.
One-time content and/or information service
a.
One-time receipt or downloading of content via the internet , viewing and/or listening thereto (such as: one-time downloading or viewing of a video, listening to a song, downloading a ringtone, downloading a video, downloading a game).
☐
☐
 
   
b.
One-time sending of a special rate text message to vote in a program broadcast on television (such as: one-time voting in a reality show).
☐
☐
 
   
c.
One-time giving of a donation by sending a text message (such as: a one-time donation to an association).
 
 
 
 
 
Second Schedule - Appendix E2-1
 
Appendix E2
 
    d.
One-time receipt of information (such as: one-time information on transportation routes, professionals, financial information).
☐
☐
 
3.
Continuous content and/or information service – subscription
a.
Receipt or downloading of content via the internet, viewing and/or listening thereto other than on a one-time basis (such as: a subscription to download or view videos, a subscription to a music service, a subscription to download ringtones, a subscription to download videos and a subscription to download games).
☐
☐
 
   
b.
Receipt of content and/or information other than on a one-time basis (such as: a subscription to receive news updates, a subscription to receive sports results, a subscription to receive trivia questions and a subscription to receive diet recipes).
☐
☐
 
In an engagement in the presence of a representative of the licensee – I represent that this form has been marked and signed by
Name of the licensee's representative: _________________ Signature of the licensee's representative: ___________________
The subscriber's signature: ___________________

 
Second Schedule - Appendix E2-2
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix F
 
APPENDIX F – ORDERING OF A SERVICE ON THE WEBSITE OF THE LICENSEE OR A SERVICE PROVIDER A 61
 
1.        Ordering a Service from the Licensee
 
 
1.1
Ordering a Service from the Licensee
 
 
The ordering of a service on the Licensee's website or on its cellular portal (both hereinafter – the " Site ") shall be done according to one of the alternatives detailed in sections 1.2 or 1.3.
 
 
1.2
Random Code
 
 
(a)
The subscriber shall enter on the Site, in the place designated for that purpose, his subscriber number 15 .
 
 
(b)
If the subscriber is blocked for the service, the Licensee shall send the subscriber an SMS notifying him that he is blocked for the type of service that was ordered, and that he can apply to the Licensee to remove the block for that type of service.
 
 
(c)
If the subscriber is not blocked for the service, the Licensee shall send the subscriber an SMS including the following:
 
 
(1)
The name of the service including its classification as "one-time" or as "continuing."
 
 
(2)
The price of the service. The price shall be displayed in a detailed manner, including details concerning a "one-time" payment, a "fixed" payment for a specific period, including specification of the period, and the unit price according to which the payment for the service is measured.
 
 
(3)
A random code of five (5) digits (hereinafter – the " Sent Code ").
 
 
(d)
The subscriber shall enter on the Site, in the place designated for that purpose, the Sent Code.
 
 
(e)
The Licensee shall compare the Sent Code and the code entered by the subscriber as stated in subsection (d) (hereinafter – the " Entered Code ").
 
 
(f)
If the Entered Code is identical to the Sent Code, the Licensee shall send the subscriber an SMS notifying him that his registration for the service was approved, and in the case of a continuing service – information concerning the manner in which it is possible to cancel the registration for the service.
 
 
(g)
If the Entered Code is not identical to the Sent Code, the Licensee shall send the subscriber an SMS notifying him that his registration for the service failed due to such non-identity.
 
 
A61 Amendment No. 61
15 Mobile Subscriber Number (MSN).
 
 
Second Schedule - Appendix F-1
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix F
 
 
1.3
User Code and Password
 
 
(a)
The Licensee shall display on the Site, next to the place designated for ordering the service, prominently and in a clear and legible manner, the following details:
 
 
(1)
The name of the service including its classification as "one-time" or as "continuing." In the case of a continuing service – information concerning the manner in which it is possible to cancel the registration for the service.
 
 
(2)
The price of the service. The price shall be displayed in a detailed manner, including details concerning a "one-time" payment, a "fixed" payment for a specific period, including specification of the period, and the unit price according to which the payment for the service is measured.
 
 
(b)
The subscriber shall enter on the Site the user code and the password set or approved for him by the Licensee (hereinafter – the " Identity Code ").
 
 
(c)
If the subscriber is blocked for the service, the Licensee shall display to the subscriber a message addressed exclusively to him on the Site, notifying him that he is blocked for the type of service that was ordered, and that he can apply to the Licensee to remove the block for that type of service.
 
 
(d)
The Licensee shall compare the Identity Code and the user code and password set by it for the subscriber and saved in its system (hereinafter – the " Saved Code ").
 
 
(e)
If the Identity Code is identical to the Saved Code, the Licensee shall provide the service to the Licensee.
 
 
(g)
If the Identity Code is not identical to the Saved Code, the Licensee shall send the subscriber a message addressed exclusively to him through the Site, notifying him that his registration for the service failed due to such non-identity.
 
 
2.
Ordering a Service from a Service Provider
 
 
2.1
The ordering of a service on the website of a service provider shall be done in the following manner:
 
 
(a)
The subscriber shall enter on the website of the service provider (hereinafter – the " Service Provider's Site "), in the place designated for that purpose, his subscriber number 1 .
 
 
(b)
The service provider shall send the Licensee a message including the subscriber number, the type of service requested and the details of the service as set out in paragraph (d) below.
 
 
(c)
If the subscriber is blocked for the service, the Licensee shall send the subscriber an SMS notifying him that he is blocked for the type of service that was requested, and that he can apply to the Licensee to remove the block for that type of service. In addition, the Licensee shall notify the service provider that the subscriber is blocked for the service.
 
 
1 Mobile Subscriber Number (MSN).
 
 
Second Schedule - Appendix F-2
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix F
 
 
(d)
If the subscriber is not blocked for the service, the Licensee shall send the subscriber an SMS including the following:
 
 
(1)
The name of the service including its classification as "one-time" or as "continuing."
 
 
(2)
The price of the service. The price shall be displayed in a detailed manner, including details concerning a "one-time" payment, a "fixed" payment for a specific period, including specification of the period, and the unit price according to which the payment for the service is measured.
 
 
(3)
A random code of five (5) digits (hereinafter – the " Code ").
 
 
(e)
The subscriber shall enter on the Service Provider's Site, in the place designated for that purpose, the Code.
 
 
(f)
The service provider shall send the Licensee the code that was entered by the subscriber as stated in paragraph (e) (hereinafter – the " Entered Code ").
 
 
(g)
The Licensee shall compare the Code and the Entered Code.
 
 
(h)
If the Entered Code is identical to the Code, the Licensee shall send the subscriber an SMS notifying him that his registration for the service was approved, and in the case of a continuing service – information concerning the manner in which it is possible to cancel the registration for the service. In addition, the Licensee shall notify the service provider that the registration for the service was approved by it.
 
 
(i)
If the Entered Code is not identical to the Code, the Licensee shall send the subscriber an SMS notifying him that his registration for the service failed due to such non-identity. In addition, the Licensee shall notify the service provider that the registration for the service failed.


 
 
Second Schedule - Appendix F-3
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
    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.
     
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;
 
 
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
 
 
Second Schedule - Appendix J-1
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
  Appendix J

 
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 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:

 
1.
‘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.
 
 
Second Schedule - Appendix J-2
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
  Appendix J

 
 
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:

 
(D)
as an ascribed subscriber.
 
(E)
As blocked
 
(F)
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;
 
 
Second Schedule - Appendix J-3
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix J

 
 
(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.

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.
 
7 Attention is called to section 52.3 of the Bezeq license, and section 56.4 to the Golden Lines and Barak license.
 
 
Second Schedule - Appendix J-4
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix J

 
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 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;
 
effect This amendment will go into effect by no later than Thursday, the 29 th of Nissan, 5763 (May 1, 2003)
 
 
Second Schedule - Appendix J-5
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
Appendix J

 
 
(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:

 
(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.

5.
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:
 
 
Second Schedule - Appendix J-6
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
  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;

 
(B)
Allow all subscribers to change their chosen operators; this service will be given in return for a reasonable charge,
 
 
Second Schedule - Appendix J-7
 
 
TRANSLATION FROM HEBREW  
 
THE BINDING VERSION IS THE HEBREW VERSION
 
   
  Appendix J

 
 
(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.

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-8
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
  Appendix K

Appendix K – Discontinuation of Service to Cellular End-User Equipment of the IS-54 type t 7


 
Definitions
1. 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 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
 
7 Amendment 7
 
 
Second Schedule - Appendix K-1
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
  Appendix K
 
 
 
 
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.

 
 
Second Schedule - Appendix K-2
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
  Appendix K-1

 
A 63 Appendix K-1 – Discontinuation of Service for Cellular End Equipment in a Cellular System Using the IS-136 (TDMA) technology.


1.        Definitions
 
 In this appendix –
 
 
" Day of Service Discontinuation "
December 31, 2011 or an earlier date, if no initiated calls are made in the system operating by the IS-136 (TDMA) technology (hereinafter – the " old system ") by entitled subscribers during at least 14 consecutive days.
     
 
" Entitled Subscriber "
A subscriber, excluding a dormant subscriber to which the service was discontinued, who prior to the day of service discontinuation held obsolete equipment and has still not replaced or upgraded it to new equipment.
     
 
" Phone Number "
The phone number given to an entitled subscriber holding obsolete equipment.
     
 
" New Equipment"
Cellular end equipment, including a battery and charger, reconditioned or new according to the Licensee's choice, operating at a minimum on a system using the GSM technology, of Nokia 6070 model or another model with features not inferior to those of the said model.
     
 
" Obsolete Equipment "
Cellular end equipment operating on the obsolete system and its accessories, including end equipment which is out of order or missing.
 
2.
The Licensee shall discontinue the provision of cellular service to a subscriber holding obsolete equipment, starting from the service discontinuation day.
 
3.
Publication of Service Discontinuation
 
 
3.1
The Licensee shall publish, in at least three major dailies in Israel one of which is published in Arabic, on the closest Friday to the date 30 days before the service discontinuation, an appropriate notice notifying the public of the discontinuation of activity of the system using the IS-136 (TDMA) technology and the services provided to its subscribers through that system, in accordance with the provisions of this appendix (hereinafter – the " first notice "). In addition, it shall send a written notice similar to the first notice to each entitled subscriber whose address is registered with the Licensee. The Licensee shall submit the contents of the first notice to the Director for approval prior to its publication.
 
 
3.2
The Licensee shall publish, in three major 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 service discontinuation, an additional notice, in accordance with the provisions of this appendix (hereinafter: the " second notice "). Notwithstanding the foregoing, the Licensee is entitled not to publish a second notice as stated, if no entitled subscriber exists on that date.
 
 
3.3
The Licensee shall send an entitled subscriber a voice message and an SMS concerning the discontinuation of the service, by one week before the day of service discontinuation.

A63 Amendment no. 63
 
 
Second Schedule - Appendix K1-1
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
  Appendix K-1

 
 
3.4
The Licensee shall publish a notice similar to the first notice also on its website, starting from the date of publication of the first notice until 30 days after the publication of the second notice.
 
4.
End Equipment Replacement Process
 
 
4.1
The Licensee shall do the following, without any direct or indirect consideration:
 
 
a.
It shall replace for each entitled subscriber the obsolete equipment with new equipment.
 
 
b.
For an entitled subscriber with a speaker, it shall replace the speaker with a reconditioned or new speaker compatible with the new equipment. In this regard, replacement – including installation of the speaker.
 
 
c.
It shall grant a warranty for the new equipment and for the speaker, as the case may be, for a period of no less than two years from the day of publication of the first notice.
 
 
(All that stated in section 4.1 above – " upgrade ".)
 
 
4.2
The upgrade process shall be carried out at any of the Licensee's service and sales center, during two years from the day of publication of the first notice.
 
 
4.3
An entitled subscriber who is a "prepaid" subscriber with an unutilized payment balance, and who is not interested in upgrading the obsolete equipment held by him, shall receive from the Licensee the balance of the payment. Such a subscriber shall be entitled to a refund of the unutilized balance, after showing the obsolete equipment, from the day of service discontinuation until the end of the validity of such balance.
 
5.
 
Phone Number
 
 
5.1
The Licensee shall keep the phone number of an entitled subscriber that was allocated to him before the day of service discontinuation, during one year from the day of service discontinuation, before it is returned to the pool of phone numbers of the Licensee, unless the entitled subscriber notifies the Licensee of his wish to keep the number that was allocated to him for an additional year.
 
6.
 
Notice of Inception
 
 
6.1
Without derogating from that stated in section 3.1, the Licensee shall give the Director prior written notice regarding the day of service discontinuation and the publications days as stated, and shall furnish to the Director photocopies of all the notices, as stated in section 3.

 
Second Schedule - Appendix K1-2
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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, which are any of the following:
 
(1)       A service provided through the dialing of a telephone number
 
A36 Amendment no. 36
effect This amendment will go into effect on the 1 st of Nissan, 5766(March 30, 2006)
 
 
 
 
 

TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
 
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.

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.
 
A76 Amendment no. 76
 
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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

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.
 
 
A76 Amendment no. 76
 
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
 
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 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.
 
A76 Amendment no. 76
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
 
      
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.

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.
 
 
A76 Amendment no. 76
 
 
 
 
TRANSLATION FROM HEBREW
 
THE BINDING VERSION IS THE HEBREW VERSION
    
Annex P – Premium Service Provided at a Premium Tariff A76

1.
Definitions
     
         
1.1
In this Annex:
     
         
 
“ License Holder ”
-
 
An entity which received a general license by virtue of the law;
         
 
“ Host License Holder ”
-
 
A License Holder through whose Network the Service Provider provides its services;
         
 
“ Source License Holder ”
-
 
A landline or mobile domestic License Holder, whose Subscriber wishes to purchase a Premium Service;
         
 
“ Service Order ”
-
 
Any action initiated by the Subscriber for the purpose of receiving a Premium Service, including calling a Dialing Code, entering the Subscriber’s telephone number, entering a password and entering a code;
         
 
“ Telephone Bill ”
-
 
A bill submitted by a License Holder to a Subscriber for services provided to him;
         
 
“ Writing ”
-
 
Including via facsimile or e-mail;
         
 
“ International Operator ”
-
 
An entity which received a general license to provide international telecommunications services;
         
 
“ Subscriber ”
-
 
A subscriber of the Source License Holder;
         
 
“ Service Number ”
-
 
A 10-digit telephone number determined according to the provisions of the numbering plan and the instructions of the Directorate in this regard, which includes a designated Dialing Code plus several digits, which the Host License Holder allocates to a Service Provider, and the dialing of which allows a Subscriber access to a Premium Service;
         
 
“ Service Provider ”
-
 
An entity which provides Premium Service through a License Holder’s telecommunications Network, the payment for which is made through the Telephone Bill;
         
 
“ Dialing Code ”
-
 
A national dialing code, in a format determined by the Ministry for the purpose of accessing a Premium Service;
         
 
“ Network ”
-
 
A system of telecommunications facilities through which a License Holder provides its services;
         
 
“ Premium Service ”
-
 
Voice message announcement or visual message presentation service, including a recorded message, which is provided through a telecommunications device, directly or indirectly, inter alia for one of the following purposes: the provision of information and content, entertainment, advice, dating service, chat, entering a competition, a lottery, a game or a vote or service provided over the internet, and with the exception of an erotic service; for this purpose, “indirectly” – including by way of making contact from
 
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the Subscriber’s end equipment or entering the Subscriber’s telephone number, including on the internet, as a condition to provision of or charging for the service;
 
 
“ Premium Tariff ”
-
 
The tariff for payment for a Premium Service is in accordance with the requirement of the Host License Holder; this tariff shall include a tariff for completing the call on the Host License Holder’s public telecommunications Network, which is determined pursuant to the Communications Regulations (Telecommunications and Broadcasting) (Payments for Interconnect), 5760-2000, and with respect to a service that is provided by an International Operator as a Host License Holder, the tariff shall include the payment to be retained by the International Operator;
         
 
“ Regular Tariff ”
-
 
The tariff collected from the Subscriber by the Source License Holder, in accordance with the tariff plan set forth in the engagement agreement between it and the Subscriber 16 .
 
1.2
Words and expressions in this annex that have not been defined in this section will bear the same meaning as in the law, in the regulations promulgated thereunder, in the Interpretation Law, 5741-1981, in Section 1 of the license or as specified elsewhere in this annex, unless another meaning is implied by the context.
   
2.
Access to Service and the Duty of Universality
   
2.1
A Source License Holder will allow every Subscriber access to any Premium Service provided on all of the Networks of the license holders.
   
2.2
A Host License Holder will allow all callers of all license holders access to the Premium Services provided through its Network.
   
2.3
A Host License Holder and a Source License Holder will allow provision of Premium Services only through the Dialing Code and Service Number.
   
2.4
Referral to the Dialing Code will be made only in order to receive a Premium Service; referral to such Dialing Codes for other purposes, including charging and collection arrangements, customer service or administration, is absolutely prohibited.
   
2.5
The license holder will block access to a telephone number, including an international number, without the Dialing Codes for a Premium Service, insofar as it is informed by the Ministry or otherwise learns that a Premium Service is provided through this telephone number.
 
3.
Duty of a recorded announcement and notification to the Subscriber
   
3.1
Immediately after consummation of the engagement, and before providing a Premium Service, the Host License Holder will play a recorded message to
 
 
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the caller, in the language in which the service is provided, using clear and universally understandable words, and without interference on the recording. The recorded message will include the following details, according to the following order:
 
(a) The nature of the service;
(b) The Premium Tariff, in addition to the Subscriber’s Regular Tariff;
(c) The maximum tariff that may be collected for the service;
(d) The maximum duration determined for the purpose of receipt of a Premium Service, if determined;
(e) The possibility available to the caller to disconnect the call before commencement of provision of the service, without being charged, until the end of the sounding of the signal as specified in Section 3.2.
   
3.2
Upon completion of the sounding of the recorded announcement as stated in Section 3.1, and before commencement of provision of the service, the Host License Holder will sound a special signal to the caller, following which he shall be afforded at least 5 seconds to disconnect the call, without being charged the Premium Tariff. The license holder may afford the Subscriber the possibility of confirming receipt of the service by pressing a certain key on the end equipment in his possession to start the provision of the services before expiration of the said time.
   
3.3
If access to a Premium Service is blocked as stated in Section 7.1, the Source License Holder shall play a recorded message to the Subscriber whereby such service cannot be received, due to blocking of the access to the Dialing Code. The license holder may specify, in the recorded message, the ways of removing the blocking.
   
4.
Purchase of a Service
   
4.1
Upon completion of the process stated in Section 3.2, the caller will be afforded the possibility of purchasing the Premium Service.
   
4.2
The service purchase will be made for each service separately, and according to the Dialing Code, and the purchase of a certain service shall not be deemed as the purchase of an additional service, whether the same service or another service.
   
5.
Price of the Service
   
5.1
For all of the Dialing Codes specified below, the service tariff for the Subscriber will be the Premium Tariff for the service plus the Regular Tariff.
   
5.2
For a service provided with the Dialing Code 1-900, a maximum sum of NIS 0.5 per calling minute may be charged, and no more than NIS 30 for the entire call.
   
5.3
For a service provided with the Dialing Code 1-901, a maximum sum of NIS 50 may be charged, regardless of whether the Premium Tariff for the service was collected on a one-time basis or the tariff was determined according to the duration of the service, or a combination of the two.
   
5.4
For a service provided with the Dialing Code 1-902, a maximum sum of NIS 100 may be charged, regardless of whether the Premium Tariff for the service was determined on a one-time basis or the tariff was determined according to the duration of the service, or a combination of the two.
 
 
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5.5
Subject to the provisions of Sections 5.2-5.4, the binding Premium Tariff is the tariff provided to the Subscriber in the recorded announcement, prior to provision of the service, in accordance with Section 3.1.
   
5.6
The prices stated in this section include V.A.T.
   
6.
Collection and charging arrangements
   
6.1
A Source License Holder will not collect from a Subscriber payment for a Premium Service, which was provided contrary to the provisions of this annex.
   
6.2
The Source License Holder will collect from the Subscriber payment for the Premium Service according to the charge records that the Host License Holder forwarded thereto, in addition to the Regular Tariff.
   
6.3
The Host License Holder will forward to the Source License Holder, at least once a day, charge records in respect of a Premium Service (the “Premium Records File”) which was provided to the Subscriber, as delivered to the Subscriber in an announcement according to Section 3.1.
   
6.4
The Source License Holder will remit to the Host License Holder payments that it collected from its Subscribers in respect of Premium Services, according to the Premium Tariff, and will not be required to do so in respect of payments, as aforesaid, that it was unsuccessful in collecting from its Subscribers.
   
6.5
If a Subscriber disconnects the call before provision of the service has begun, the Source License Holder may collect from him a Regular Tariff, and will not remit to the Host License Holder an interconnect tariff, as set forth in the Communications Regulations (Telecommunications and Broadcasting) (Payments for Interconnect), 5760-2000 (the “ Interconnect Regulations ”).
   
7.
Discontinuation of a Premium Service
   
7.1
A Host License Holder may disconnect the caller from a Premium Service upon the payment for the call reaching the maximum payment as stated in Section 5.
   
7.2
A Source License Holder shall block the Premium Service for prepaid Subscribers upon exhaustion of the balance available to the Subscriber, or at the very latest, upon receipt of the “Premium Records File”.
7.3
The provisions of Section 7.2 shall apply also to a credit-restricted postpaid Subscriber who has reached the credit limit agreed with him.
   
8.
Blocking Access to Service
   
8.1
The license holder will allow every Subscriber, existing or new, to choose whether the access from his telephone line to Premium Services with Dialing Codes 1-900 and 1-901 will be open or blocked. The Subscriber’s decision will be made by checking the “blocked” or “open” box on the access to services form (the “ Form ”).
   
8.2
The license holder will prepare the access to services form or amend the access to services form defined in its license (the “ Access to Services Form ”) so as to include the provisions of the access to premium services form in Section 12.
   
8.3
The license holder will post the Access to Services Form on its website.
   
8.4
A new Subscriber’s choice will be made by checking a box on the form which constitutes part of the “engagement agreement”, when made in a transaction in the presence of the Subscriber and a representative of the license holder, in the framework of the “engagement terms and conditions document”, when the
 
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engagement is made in a remote sale transaction via a telephone call, or as marked by the Subscriber on an online form, when the engagement is made via the internet.
 
8.5
The license holder will notify an existing Subscriber, in the Telephone Bill, of the option of downloading the form from its website, and marking his choice regarding access to Premium Services with Dialing Codes 1-900 and 1-901. If an existing Subscriber filled out a form in the past and is now only filling out his choice regarding access to Premium Services, his previous choices regarding access to services shall remain in place, unless the Subscriber explicitly requests to modify them.
   
8.6
If an existing Subscriber does not explicitly mark, within two months from this annex taking effect, his choice regarding access to Premium Services which are provided with Dialing Codes 1-900 and 1-901, the default option will be as follows:
a.With respect to code 1-900 – open;
b.With respect to code 1-901 – blocked.
   
8.7
The blocking of access to Premium Services with Dialing Code 1-901 according to the default option as stated in Section 8.4, will be performed by the license holder within seven (7) working days from two months after this annex takes effect. A Subscriber’s first-time blocking of access to codes 1-900 and 1-901, whether according to the Subscriber’s choice or as a default option, will be performed free of charge.
   
8.8
The license holder will block the access of all of its Subscribers to the services provided with the Dialing Code 1-902 as a default option, free of charge, within one working day, from the date of this annex taking effect. A Subscriber’s request to remove the blocking will be made in writing, or orally, provided that the license holder performs a reliable identification of the Subscriber submitting the request, according to the procedure determined thereby.
   
8.9
If a Subscriber requests removal of a blocking, the license holder shall remove the blocking within a reasonable time.
   
8.10
The license holder shall document the Subscriber’s request to remove the blocking of Premium Services. The documentation will be available at the license holder for delivery or transfer, as the case may be, to the Director within five (5) working days from the date on which the Subscriber submitted his request.
   
9.
Provision of the service in Israel through an International Operator
   
9.1
An International Operator may be a Host License Holder, and allow provision of a Premium Service through its Network, without being required to route the call overseas.
   
10.
Miscellaneous provisions
   
10.1
A Host License Holder may permit a Service Provider to perform telecommunications actions through the facilities of the License Holder for the purpose of provision of the service; the Service Provider is exempt from the duty to obtain a general permit or license for the purpose of performance of telecommunications actions, pursuant to the provisions of Section 3(5) of the law.
   
10.2
If a Subscriber does not pay a Telephone Bill which includes a charge in respect of Premium Services, the License Holder will forward to the Host License Holder
 
 
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the following details of the Subscriber: his full name, I.D. number and contact details.
 
10.3
In a Telephone Bill which includes charges in respect of Premium Services, the License Holder will specify in respect of each Service Provider, charges in respect of whose services are included in the bill, the following details:
a.Name and address of the Host License Holder;
b.Company number or licensed dealer number of the Host License Holder;
c.Details for contacting the Host License Holder, including a telephone number.
   
10.4
A Host License Holder may not use means of payment details, provided thereto by the caller for the purpose of payment for other services, in order to collect a premium payment.
   
11.
Temporary provision
   
11.1
(a)       A Host License Holder will play an announcement to the caller whereby the Premium Service is provided only through use of the Dialing Codes 1-900, 1-901 and 1-902 in the following cases:
 
(1)   By calling Premium Services, access to which was enabled until the provisions of this annex took effect, by dialing an international number;
 
(2)   By calling Premium Services, access to which was enabled until the provisions of this annex took effect, by dialing a network access code, as defined in the numbering plan in Israel.
 
(b)       The announcement will be made in the language in which the Premium Service is given.
 
(c)       The Host License Holder will play the announcement for six months from the date on which the provisions of this annex take effect.
 
(d)       The source operator may charge the Subscriber the Regular Tariff in respect of the announcement.
 
 
12.
Access to Premium Services form:
 
Form of Access via the Telephone Device to Services Charged in the Telephone Bill
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Name of License Holder
Ways to send the form:
Address
E-mail address
Facsimile no.
Date: ____________
 
I, whose details are recorded below, request access to the services specified below, for the telephone number stated on this form, as follows:
 
Details of the Subscriber
 
Name of the Subscriber / name of the company: __________ I.D./P.C. __________ Address: _______________
Telephone number: _______________
Check the box according to your choice and sign. Please note that partial checking and signing mean blocking the possibility of receiving the service.
 
Type of service
Blocked
Open
Subscriber’s signature
  Access to Premium Services, which include playing of audio content or presentation of visual content, such as: information, entertainment, advice, dating service, entering competitions, etc., which are provided by dialing 1-900 and 1-901 numbers.
a.
1-900 numbers at a tariff of up to 50 Agorot per minute and no more than NIS 30 for an entire call.
o o  
   
b.
1-901 numbers at a tariff that does not exceed NIS 50 for an entire call.
o o  
 
 
In an engagement in the presence of a representative of the License Holder –
 
I, the undersigned subscriber, declare that this form was marked and signed by me.
 
Name of representative of the License Holder: ________________
 
Signature of representative of the License Holder: ________________
 
The Subscriber’s signature: _________________

 
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Exhibit 4.13
 
CELLCOM ISRAEL , LTD.
 
2015 SHARE INCENTIVE PLAN
 
A.  NAME AND PURPOSE
 
1.            Name:   This plan, as amended from time to time, shall be known as the “Cellcom Israel, Ltd. 2015 Share Incentive Plan”.
 
2.            Purpose: The purpose and intent of the Plan is to provide incentives to employees, directors, consultants and/or contractors of the Company and its Affiliates, by providing them with opportunities to purchase Shares, pursuant to a plan approved by the Board which is designed to enable the Company to issue options and restricted stock units, with respect to Israeli residents, pursuant to the provisions of either Section 102 or Section 3(9) of the Ordinance, as applicable, and the rules and regulations promulgated thereunder, as amended from time to time, or any other tax ruling provided by the tax authorities to the Company, as well as with respect to non-Israeli residents pursuant to the applicable law in their respective country of residence.
 
B. DEFINITIONS
 
“ Adoption Date ” means the Date of Grant, or any other date of commencement of vesting of an Award for the purposes of this Plan, that is determined by the Committee for a given grant of an Award
 
“ Affiliate ” means any company (i) that is a Controlling Shareholder (as such term is defined in Section 102 of the Ordinance) of the Company, or (ii) of which the Company is a Controlling Shareholder, or (iii) which has a Controlling Shareholder that is also a Controlling Shareholder of the Company.
 
“ Awards ” means Options and/or RSUs.
 
“ Beneficial Grantee ” means the Grantee in respect of whom, an Award held in Trust by the Trustee was granted.
 
“ Board ” means Board of Directors of the Company.
 
“ Cessation of Employment ” means the cessation of employment of a Grantee (who was an employee of the Company on the Date of Grant of any Awards to him or her), with the Company, for any reason.
 
“ Committee ” means the Board or a committee appointed by the Board for such purpose, if appointed.
 
“ Companies Law ” means the Companies Law 1999.
 
 
 
 
 
“ Company ” means Cellcom Israel, Ltd., a company organized under the laws of the State of Israel, or any Affiliate thereof, unless the context otherwise requires.
 
“ Controlling Shareholders ” means controlling shareholders of the Company, as such term is defined in the Ordinance.
 
“ Corporate Transaction ”   means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
 
(i)            a sale or other disposition, of all or substantially all, of the outstanding Shares of the Company; or
 
(ii)           a sale or other disposition of all or substantially all, as determined by the Board in its discretion, of the consolidated assets of the Company and its subsidiaries; or
 
(iii)           a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
 
(iv)           a merger, consolidation or similar transaction following which the Company is the surviving corporation but the Ordinary Shares of the Company outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
 
(iv)           a merger, consolidation or similar transaction with another Israeli corporation holding a General License for the provision of cellular services in Israel.
 
Whether a transaction is a “Corporate Transaction” as defined above, shall be finally and conclusively determined by the Committee in its absolute discretion.
 
“ Date of Grant ” means the effective date of the grant of an Award, as detailed in Section 5.1(b) hereinafter.
 
“ Date of Cessation ” means (i) the date on which the employee-employer relationship between the Grantee and the Company ceases to exist, or (ii) if the Grantee is a contractor or consultant - the date on which the consulting or contractor agreement between the Grantee and the Company expires, or the date on which either of the parties to such agreement sends the other notice of its intention to terminate said agreement, or (iii) if the Grantee is a director - the date on which the Grantee ceases to serve as a director of the Company.
 
“ Disability ” means the inability to engage in any substantial gainful occupation for which the Grantee is suited by education, training or experience, by reason of any medically determinable physical or mental impairment that is expected to result in such person’s death or to continue for a period of six (6) consecutive months or more.
 
 
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“ Exercise Date ” means the actual date of exercise of Options.
 
“Exercise Price” means the purchase price per Exercised Share, subject to each Option, or the nominal value per Exercised Share to be paid upon the vesting of an RSU, if applicable.
 
“ Exercised Shares ” means Shares received upon exercise of Options (or Rights, if applicable) and/or vesting of RSUs.
 
“ Grantee ” means the person to whom Awards shall be granted under this Plan.
 
“ Notice of Exercise ” means a written notice of exercise of an Option, delivered by a Grantee to the Company.
 
“ Notice of Grant ” means a written notice of the grant of an Award.
 
“ 102 Awards ” means grants of Awards to Israeli employees, directors and office holders of the Company, other than to a Controlling Shareholder, pursuant to the provisions of Section 102 of the Ordinance, the 102 Rules, and any other regulations, rulings, procedures or clarifications promulgated thereunder. Such grants of Awards may be pursuant to (i) a Taxation Route and/or (ii) Section 102(c) of the Ordinance (“ 102(c) Awards ”).
 
“ 102 Rules ” means the Income Tax Rules (Tax Relief in Issuance of Shares to Employees), 2003.
 
“ Options ” means options to purchase Shares.
 
“ Ordinance ” means the Israeli Income Tax Ordinance [New Version], 1961.
 
 “ Plan ” means this “Cellcom Israel, Ltd. 2015 Share Incentive Plan”, as amended from time to time.
 
“ Representative ” means any third party designated by the Company for the purpose of the exercise of the Options, as provided in Section 9.2 hereinafter.
 
“ Rights ” means rights issued in respect of Exercised Shares, including bonus shares but excluding cash dividends.
 
“ RSUs ” means Restricted Stock Units, as described in Section 13 below.
 
“ Shares ” means ordinary shares, nominal value of NIS 0.01 each of the Company (subject to an expected split of the Company’s shares).
 
“ Taxation Route ” means the capital gains route under Section 102(b)(2) of the Ordinance.
 
 
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“ 3(9) Awards ” means grants of Awards to Israeli consultants, contractors or Controlling Shareholders of the Company pursuant to the provisions of Section 3(9) of the Ordinance and the rules and regulations promulgated thereunder, or any other section of the Ordinance that will be relevant for such issuance in the future.
 
“ Trust ” means the holding of each Award and Exercised Shares by the Trustee in Trust for the benefit of the Beneficial Grantee.
 
“ Trustee ” means a trustee designated by the Committee in accordance with the provisions of Section 3.4 hereof and, with respect to 102 Awards, approved by the Israeli Tax Authority.
 
“ Trust Expiration Date ” means 1.1.2025, or any other date determined by the Board.
 
“ Trust Period ” means the period of time required under a Taxation Route for Awards and/or Exercised Shares to be held in Trust in order for the Beneficial Grantee to enjoy the tax benefits afforded under such Taxation Route, as will be applicable for such Taxation Route from time to time.
 
“ Vesting Period ” of an Award means, for the purpose of the Plan and its related instruments, the period between the Adoption Date and the date on which (i) an Option becomes exercisable into a Share; or (ii) an RSU is automatically vested into a Share, as applicable.
 
C.  GENERAL TERMS AND CONDITIONS OF THE PLAN
 
3.            Administration:
 
3.1           The Plan will be administered by the Board or, subject to applicable law, including but not limited to the instructions of the Companies Law, by a Committee, which will consist of such number of directors of the Company as may be fixed, from time to time, by the Board. If a Committee is not appointed, the term Committee, whenever used herein, shall mean the Board. The Board shall appoint the members of the Committee, may from time to time remove members from, or add members to, the Committee and shall fill vacancies in the Committee however caused.
 
3.2           The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places, as it shall determine. Actions taken by a majority of the members of the Committee, at a meeting at which a majority of its members is present, or acts reduced to, or approved in, writing by all members of the Committee, shall be the valid acts of the Committee. The Committee may appoint a secretary, who shall keep records of its meetings and shall make such rules and regulations for the conduct of its business, as it shall deem advisable.
 
3.3           Subject to the general terms and conditions of this Plan and applicable law, the Committee shall have the full authority in its discretion, from time to time and at any time to determine (i) the Grantees under the Plan, (ii) the number of Shares subject to each Award, (iii) the time or times at which the same shall be granted, (iv) the schedule and conditions, including performance conditions, if applicable, on which such Awards may be exercised and/or on which such Shares shall be paid for and/or on which such RSUs may vest, and/or (v) rules and provisions, as may be necessary or appropriate to permit eligible Grantees who are not Israeli residents to participate in the Plan and/or to receive preferential tax treatment in their country of residence, with respect to the Awards granted hereunder, and/or (vi) any other matter which is necessary or desirable for, or incidental to, the administration of the Plan.
 
 
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3.4           Furthermore, subject to the general terms and conditions of the Plan, the Ordinance, and any other applicable laws and regulations, the Committee shall have the full authority in its discretion, from time to time and at any time, to determine:
 
(a)           With respect to grants of 102 Awards pursuant to the Taxation Route the identity of the trustee who shall be granted such 102 Awards in accordance with the provisions of this Plan and the Taxation Route; and
 
(b)           With respect to the grant of 3(9) Awards - whether or not 3(9) Awards shall be granted to a trustee in accordance with the terms and conditions of this Plan, and the identity of the trustee who shall be granted such 3(9) Awards in accordance with the provisions of this Plan.
 
3.5           Notwithstanding the aforesaid, the Committee may, from time to time and at any time, grant 102(c) Awards.
 
3.6           The Committee may, from time to time, adopt such rules and regulations for carrying out the Plan, as it may deem necessary.  No member of the Board or of the Committee shall be liable for any act or determination made in good faith with respect to the Plan or any Award granted thereunder.
 
3.7           The interpretation and construction by the Committee of any provision of the Plan or of any Award thereunder shall be final and conclusive and binding on all parties who have an interest in the Plan or any Award or Share issuance thereunder, unless otherwise determined by the Board.
 
4.            Eligible Grantees:
 
4.1           The Committee, at its discretion, may grant Awards to any employee, director, consultant and/or contractor of the Company. Anything in this Plan to the contrary notwithstanding, all grants of Awards shall be authorized and implemented only in accordance with the provisions of applicable law.
 
4.2           The grant of an Award to a Grantee hereunder, shall neither entitle such Grantee to participate, nor disqualify him from participating, in any other grant of Awards pursuant to this Plan or any other incentive plan of the Company.
 
 
5
 
 
5.            Grant of Awards, Issuance of Shares, Dividends and Shareholder Rights:
 
5.1            Grant of Awards and Issuance of Shares .
 
(a)           Subject to the provisions of the Ordinance and applicable law (it being understood that, unless otherwise determined by the Committee, the following shall not apply to Awards granted to non Israeli Grantees),
 
(i)           All grants of Awards to Israeli employees, directors and office holders of the Company, other than to Controlling Shareholders, shall be as 102 Awards and shall be subject either to the Taxation Route or to Section 102(c) of the Ordinance; and
 
(ii)           All grants of Awards to Israeli consultants, contractors or Controlling Shareholders of the Company shall be as 3(9) Awards.
 
(b)           Subject to Sections 7.1 and 7.2 hereof, the Date of Grant shall be the date the Committee resolves to grant such Award, unless specified otherwise by the Committee in its determination relating to the grant of such Award.  The Committee shall promptly give the Grantee a Notice of Grant.
 
(c)            Trust .  In the event Awards are deposited with a Trustee, the Trustee shall hold each such Award and Exercised Shares in Trust for the benefit of the Beneficial Grantee; provided, however, that unless the Committee determines otherwise, in its sole and absolute discretion, the Trustee shall not hold any Awards in Trust following the Trust Expiration Date, all Awards held in Trust on such date shall be transferred automatically to the Grantee, and all implications, including tax implications, resulting from such transfer of Awards shall be borne solely by the Grantee.
 
In accordance with Section 102, the tax benefits afforded to 102 Awards and any Exercised Shares, in accordance with the Taxation Route, shall be contingent upon the Trustee holding such 102 Awards for the applicable Trust Period.
 
With respect to 102 Awards granted to the Trustee, the following shall apply:
 
(i)            A Grantee granted 102 Awards shall not be entitled to sell the Exercised Shares or to transfer such Exercised Shares (or such 102 Awards) from the Trust prior to the lapse of the Trust Period; and
 
(ii)            Any and all Rights shall be issued to the Trustee and held thereby until the lapse of the Trust Period, and such Rights shall be subject to the Taxation Route.
 
Notwithstanding the aforesaid, Exercised Shares or Rights may be sold or transferred, and the Trustee may release such Exercised Shares (or 102 Awards) or Rights   from Trust, prior to the lapse of the Trust Period, provided however, that tax is paid or withheld in accordance with Section 102 of the Ordinance and/or the 102 Rules, and/or any other provision of the Ordinance and any regulation, ruling, procedure and clarification promulgated thereunder, that will be relevant from time to time.
 
 
6
 
 
All certificates representing Exercised Shares issued to the Trustee under the Plan shall be deposited with the Trustee, and shall be held by the Trustee until such time that such Shares are released from the Trust as herein provided.
 
Alternatively, provided that the Company’s Shares are listed on any stock exchange or admitted to trading on an electronic securities trading system, whether in Israel or outside of Israel, the Company shall register the Exercised Shares issued to the Trustee pursuant to the Plan, in the name of the Trustee, in accordance with any applicable laws, rules and regulations, until such time that such Shares are released from the Trust as herein provided.
 
(d)           Subject to the terms hereof, at any time after the Awards are vested, with respect to any 102 Awards or Exercised Shares held by the Trustee the following shall apply:
 
(i)           Upon the written request of any Beneficial Grantee, the Trustee shall release   from the Trust, within a reasonable period of time, the Awards granted, and/or the Exercised Shares issued, on behalf of such Beneficial Grantee, by executing and delivering to the Company such instrument(s) as the Company may require, giving due notice of such release to such Beneficial Grantee, provided , however , that the Trustee shall not so release any such Awards and/or Exercised Shares to such Beneficial Grantee unless the latter, prior to, or concurrently with, such release, provides the Trustee with evidence, satisfactory in form and substance to the Trustee, that all taxes, if any, required to be paid upon such release have, in fact, been paid.
 
(ii)           Alternatively, subject to the terms hereof, with respect to any  Exercised Shares held by the Trustee, provided the Exercised Shares are listed on a stock exchange or admitted to trading on an electronic securities trading system (such as the   OTC Bulletin Board ), upon the written instructions of the Beneficial Grantee to sell any Exercised Shares, the Company and/or the Trustee shall use their reasonable efforts to effect such sale within a reasonable period of time, and shall transfer such Exercised Shares to the purchaser thereof concurrently with the receipt of, or after having made suitable arrangements to secure, the payment of the proceeds of the purchase price in such transaction.  The Company and/or the Trustee, as applicable, shall withhold from such proceeds any and all taxes required to be paid in respect of such sale, shall remit the amount so withheld to the appropriate tax authorities and shall pay the balance thereof directly to the Beneficial Grantee, reporting to such Beneficial Grantee and to the Company the amount so withheld and paid to said tax authorities. In case an appropriate tax exemption or partial tax exemption certificate was provided to the Company and/or Trustee, an adequate time prior to the date in which the proceeds are to be paid, the Company and/or Trustee shall not withhold or partially withhold the taxes required, in accordance with the tax exemption certificate, as the case may be).
 
 
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5.2            Guarantee . In the event a 102(c) Award is granted to a Grantee who is an employee at the time of such grant, upon  the Grantee’s Cessation of Employment, such Grantee shall provide the Company, to its full satisfaction, with a guarantee or collateral securing the future payment of all taxes required to be paid upon the sale of the Exercised Shares received upon exercise of such 102(c) Award or its vesting (if an RSU), all in accordance with the provisions of Section 102 of the Ordinance, the 102 Rules and the regulation or orders promulgated thereunder.
 
5.3            Dividend .  All Exercised Shares shall entitle the Grantee thereof to receive dividends with respect thereto. For so long as Exercised Shares deposited with the Trustee on behalf of a Beneficial Grantee are held in the Trust, the cash dividends paid or distributed with respect thereto shall be distributed directly to such Beneficial Grantee, subject to any applicable taxation on distribution of dividends, and when applicable subject to the provisions of Section 102 of the Ordinance, the 102 Rules and the regulations or orders promulgated thereunder.
 
5.4            Voting Rights; Shareholder Rights .  The holder of an Award shall have no shareholder rights with respect to the Shares subject to such Award until such person shall have exercised the Award, or the Award has vested (if an RSU), as the case may be, has paid the Exercise Price, if applicable, and has become the record holder of the applicable Exercised Shares.
 
As long as the Exercised Shares are held by the Trustee, the voting rights at the Company’s general meeting attached to such Exercised Shares will remain with the Trustee. The Trustee shall not be obligated to exercise such voting rights at general meetings, nor to notify the Grantee of any Exercised Shares held in the Trust, of any meeting of the Company’s shareholders. However, the Trustee may, at his sole discretion, empower the respective Beneficial Grantee, to vote in name and in place of the Trustee according to such Beneficial Grantee’s instructions, if provided.
 
6.            Reserved Shares: The total number of Shares that may be subject to Awards granted under this Plan shall not exceed 5,000,000 in the aggregate, subject to adjustments as provided in Section 11 hereof. All Shares under the Plan, in respect of which the right of a Grantee to purchase the same shall, for any reason, terminate, expire or otherwise cease to exist, shall again be available for grant through Awards under the Plan, and under any other plans or sub-plans, as the Committee may determine at its own discretion, from time to time, provided, however, that until termination of the Plan the Company shall at all times reserve sufficient number of unissued Shares to meet the requirements of the Plan.
 
Without derogating from the foregoing, the Committee shall have full authority in its discretion to determine that the Company may issue, for the purposes of this Plan and/or any other plans, previously issued Shares that are held by the Company, from time to time, as Dormant Shares (as such term is defined in the Companies Law).
 
 
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7.            Required Approvals; Notice of Grant; Vesting and Re-pricing:
 
7.1           The implementation of the Plan and the grant of any Award under the Plan shall be subject to the Company’s procurement of all approvals and permits required by applicable law or regulatory authorities having jurisdiction over the Plan, the Awards granted under it, and the Exercised Shares issued pursuant to it.
 
The Company shall obtain the approval of the Company’s shareholders for the adoption of this Plan or for any amendment or sub-plan adopted in the future to this Plan, if shareholders’ approval is necessary to comply with the Company's bylaws, any applicable law, rule or regulation, including without limitation the US securities laws, or the securities laws of other jurisdictions applicable to Awards granted to Grantees under this Plan, or if shareholders’ approval is required by any authority or by any governmental agencies or national securities exchanges, including without limitation the US Securities and Exchange Commission.
 
7.2           The Notice of Grant shall state, inter alia , the number of Shares subject to each Award, the vesting schedule, the dates when the Awards may be exercised or shall automatically vest into Exercised Shares (for RSUs), as applicable, their Exercise Price, if applicable, whether the Awards granted to Israeli Grantees are 102 Awards (and in particular whether the 102 Awards are granted under the Taxation Route, or as 102(c) Awards) or 3(9) Awards, and such other terms and conditions as the Committee at its discretion may prescribe, provided that they are consistent with this Plan. Each Notice of Grant evidencing a 102 Award shall, in addition, be subject to the provisions of the Ordinance applicable to such awards.
 
Furthermore, each Grantee of a 102 Award under the Taxation Route shall be required to execute a declaration stating that he or she is familiar with the provisions of Section 102 of the Ordinance and the Taxation Route, and to undertake not to sell or transfer the Awards and/or the Exercised Shares prior to the lapse of the applicable Trust Period, unless he or she pays all taxes that may arise in connection with such sale and/or transfer .
 
7.3            Term of Awards; Vesting .  Without derogating from the rights and powers of the Committee under Section 7.2 hereof and subject to Section 10 hereinafter, unless otherwise specified by the Committee, the Awards shall be for a term of up to six (6) years, and, unless determined otherwise by the Committee, the Vesting Period pursuant to which such Awards shall vest, shall be such that 1/3 of the Awards granted to a Grantee in a specific grant shall vest on each of the first, second and third anniversaries of the Adoption Date.
 
Unless determined otherwise by the Committee, any period in which the Grantee shall not be employed by the Company, or in which the Grantee shall have taken an unpaid leave of absence, or in which the Grantee shall cease to serve as a director, consultant or contractor of the Company, shall not be included in the Vesting Period.
 
7.4            Acceleration of Vesting .  Anything herein to the contrary in this Plan notwithstanding, the Committee shall have full authority, whether before of after the grant of an Award, to determine any provisions regarding the acceleration of the Vesting Period of any Award, or the cancellation of all or any portion of any outstanding restrictions with respect to any Award upon certain events or occurrences, on such terms and conditions as the Committee shall deem appropriate.
 
 
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7.5            Repricing . Subject to applicable law, the Committee shall have full authority to, at any time and from time to time, (i) grant in its discretion to the holder of an outstanding Award, in exchange for the surrender and cancellation of such Award, a new Award having   an Exercise Price lower than   provided in the Award   so surrendered and canceled and containing such other terms and conditions as the Committee may prescribe in accordance with the provisions of the Plan, or ( ii) effectuate a decrease in the Exercise Price (see Section 8 below) of outstanding Awards .
 
8.            Exercise Price: The Exercise Price shall be determined by the Committee in its sole and absolute discretion, subject to applicable law and to guidelines adopted by the Board from time to time.
 
9.            Exercise of Options:
 
9.1           Options shall be exercisable pursuant to the terms under which they were awarded and subject to the terms and conditions of the Plan.
 
9.2           The exercise of an Option shall be made by a written Notice of Exercise delivered by the Grantee to the Company at its principal executive office, and/or to a Representative and, with respect to Options held in the Trust, to the Trustee, in such form and method as may be determined by the Company and when applicable, by the Trustee in accordance with the requirements of Section 102 of the Ordinance, specifying the number of Shares to be purchased and accompanied by the payment of the Exercise Price, at the Company’s or the Representative’s principal office, and containing such other terms and conditions as the Committee shall prescribe from time to time.
 
9.3           Notwithstanding the provisions of Section 9.2 above, and unless otherwise provided by the Board, all Options shall be exercised using the following method (the “ Net Exercise ”):
 
(a)           The Company shall issue to the Grantee (or to the Trustee, as applicable) a number of Shares having an aggregate Market Value (as defined below) equal to the Benefit Amount (as defined below) (the “ Net Exercise Shares ”);
 
For the purposes of this Section:
 
(i) The “ Benefit Amount ” shall mean the difference between:
 
 
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      (A)  (i) the Market Value times (ii) the number of Shares subject to the Options for which a Notice of Exercise has been delivered to the Company; and
 
      (B)  (i) the Exercise Price times (ii) the number of Shares subject to the Options for which a Notice of Exercise has been delivered to the Company.
 
            (ii) “ Market Value ” shall mean the closing price for a Share on the last trading day prior to the date of exercise, as reported or quoted on the Tel-Aviv Stock Exchange  or on any other stock market on which Shares are traded, as shall be determined by the Committee.
 
(b)           The Grantee shall not be required to pay to the Company any sum with respect to the exercise of such Options, other than a sum equal to the aggregate nominal value of the Net Exercise Shares (which shall be paid in a manner provided in Section 9.5 below) (the “ Nominal Value Sum ”). However, the Company shall have the full authority in its discretion to determine at any time that the Nominal Value Sum shall not be paid and that the Company shall capitalize applicable profits or take any other action to ensure that it meets any requirement of applicable law regarding issuance of Shares for consideration that is lower than the nominal value of such Shares;
 
(c)           No fractional Shares will be issued to the Grantee and the number of Shares granted to the Grantee under the Plan shall be rounded off (upward or downward) to the nearest whole number.
 
9.4           Anything herein to the contrary notwithstanding, according to the regulations of the TASE, no exercise or conversion of Awards shall take place on the "record date" (as such term is defined in the TASE's regulations) for the distribution of dividends or bonus shares, a rights offering, a split or reverse split of Company's share capital, or a capital reduction (each of the foregoing, a "Company Event"), and such exercise or conversion of Awards shall be postponed to the following TASE trading day. In addition, if the "ex day" on the TASE in respect of a Company Event occurs prior to the "record date" thereof, then no Awards shall be exercised or converted into Company Shares on such "ex day", and the exercise or conversion of Awards shall be postponed to the following TASE trading day.
 
9.5           Anything herein to the contrary notwithstanding, but without derogating from the provisions of Section 10 hereof, unless otherwise determined by the Committee, if any Option has not been exercised and the Shares subject thereto not paid for within six (6) years after the Date of Grant (or any shorter period set forth in the Notice of Grant), such Option and the right to acquire such Shares shall terminate, all interests and rights of the Grantee in and to the same shall ipso facto expire, and, in the event that in connection therewith any Options are still held in the Trust as aforesaid, the Trust with respect thereto shall ipso facto expire, and the Shares subject to such Options shall again be available for grant through Awards under the Plan (provided its term is extended, if needed), any other plans or sub-plans, as provided for in Section 6 herein, or any other incentive arrangement of the Company.
 
 
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9.6           Each payment for Exercised Shares shall be in respect of a whole number of Shares, and shall be effected in cash or by a bank’s check payable to the order of the Company, or such other method of payment acceptable to the Company.
 
10.            Termination of Employment:
 
10.1            Employees .  In the event of a Cessation of Employment of a Grantee who was an employee at the Date of Grant, all Awards theretofore granted to such Grantee when such Grantee was an employee of the Company, unless determined otherwise by the Committee, shall terminate as follows:
 
(a)           All such Awards that are not vested on the Date of Cessation shall terminate immediately.
 
(b)           If the Grantee’s cessation of employment is by reason of such Grantee's death or Disability, any Options previously granted to the Grantee (to the extent vested on the Date of Cessation) shall be exercisable by the Grantee (if applicable) or the Grantee's guardian, legal representative, estate or other person to whom the Grantee's rights are transferred by will or by laws of descent or distribution, at any time until the lapse of twelve (12)   months from the Date of Cessation (but in no event after the expiration date of such Options), and shall thereafter terminate.
 
(c)           If the Grantee’s Cessation of Employment is due to any reason other than those stated in Sections 10.1(b), 10.1(d) or 10.1(e) herein, any Options previously granted to the Grantee (to the extent vested on the Date of Cessation) shall be exercisable at any time until the lapse of six (6) months from the Date of Cessation (but in no event after the expiration date of such Options), and shall thereafter terminate;
 
(d)           Notwithstanding the aforesaid, if the Grantee’s Cessation of Employment is due to (i) breach of the Grantee’s duty of loyalty towards the Company, or (ii) breach of the Grantee’s duty of care towards the Company, or (iii) the commission of any flagrant criminal offense by the Grantee, or (iv) the commission of any act of fraud, embezzlement or dishonesty towards the Company by the Grantee, or (v) any unauthorized use or disclosure by the Grantee of confidential information or trade secrets of the Company, or any substantial breach of the Grantee’s employment agreement with the Company, or (vi) any other intentional misconduct by the Grantee (by act or omission) adversely affecting the business or affairs of the Company in a material manner, or (vii) any act or omission by the Grantee which would allow for the termination of the Grantee’s employment without severance pay, according to the Severance Pay Law, 1963, any and all Options previously granted to the Grantee whether vested or not shall ipso facto expire immediately and be of no legal effect.
 
(e)           If a Grantee retires, he may, subject to the approval of the Committee, continue to enjoy such rights, if any, under the Plan and on such terms and conditions, with such limitations and subject to such requirements as the Committee in its discretion may determine.
 
 
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(f)           Whether the Cessation of Employment of a particular Grantee is by reason of “ Disability ” for the purposes of paragraph 10.1(b) hereof or by virtue of “retirement” for purposes of paragraph 10.1(e) hereof, or is a termination of employment other than by reason of such Disability or retirement, or is for reasons as set forth in paragraph 10.1(d) hereof, shall be finally and conclusively determined by the Committee in its absolute discretion.
 
(g)           Notwithstanding the aforesaid, under no circumstances shall any Option be exercisable after the specified expiration of the term of such Option.
 
10.2                 Directors, Consultants and Contractors .  In the event that a Grantee, who is a director, consultant or contractor of the Company, ceases, for any reason, to serve as such, the provisions of Sections 10.1(a), 10.1(b), 10.1(c), 10.1(d), 10.1(f) and 10.1(g) above shall apply, mutatis mutandis .
 
10.3           Notwithstanding the foregoing provisions of this Section 10, the Committee shall have the discretion, exercisable either at the time an Option is granted or thereafter, to:
 
(a)           Extend the period of time for which the Option is to remain exercisable following the Date of Cessation to such greater period of time, as the Committee shall deem appropriate, but in no event beyond the specified expiration of the term of the Option; or
 
(b)           Permit the Option to be exercised, during the applicable exercise period following the Date of Cessation, not only with respect to the number of Shares for which such Option is exercisable on the Date of Cessation but also with respect to one or more additional installments in which the Grantee would have vested under the Option had the Grantee continued in the employ or service of the Company.
 
10.4           Notwithstanding the foregoing provisions of this Section 10, and for the avoidance of doubt, unless the Board determines otherwise, the transfer of a Grantee from the employ or service of the Company to the employ or service of an Affiliate, or from the employ or service of an Affiliate to the employ or service of the Company or another Affiliate, shall not be deemed a Cessation of Employment or termination of service for purposes hereof.
 
11.            Adjustments, Liquidation and Corporate Transaction:
 
11.1            Bonus Shares .
 
(a)           If the Company distributes bonus shares to all of its shareholders, including all holders of Shares, whose date of distribution is earlier than the Exercise Date or vesting date (for RSUs), as applicable, Shares in the number and kind that the Award holder would have been entitled to as bonus shares had he/she exercised the Options or had his/her RSUs vested, as the case may be, before the record date determining the right to receive bonus shares, will be added to the Exercised Shares to which the holder of the Awards is entitled upon exercising the Options or vesting of the RSUs, as applicable.
 
 
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(b)           The Exercise Price of each Award will not change as a result of the addition of such bonus shares, while other terms referring to the Exercised Shares will also apply to the bonus shares added to the Exercised Shares, mutatis mutandis .
 
(c)           If the Company distributes bonus shares, as described in Section (a) above, for which the record date for distribution and/or the date of distribution fall during the period in which Exercised Shares are registered in the name of the Trustee for the Beneficial Grantee, the Company will transfer to the Trustee an amount of bonus shares according to the number of Exercised Shares registered in its name at the time of distribution, and the Trustee will hold them in Trust for the Beneficial Grantees. In the event Exercised Shares have been transferred from the Trustee to a Beneficial Grantee and/or sold by the Company or the Trustee at the Beneficial Grantee’s request between the record date for distribution and the date of distribution, the Company will transfer bonus shares in respect of these Shares directly to such Beneficial Grantee. Each such Grantee will be entitled to Shares in the same number and class to which he would have been entitled, had the Shares been held by him prior to the record date for the right to receive the bonus shares.
 
11.2            Cash Dividends . If the Company distributes cash dividends with respect to all Company’s Shares issued to its shareholders, and the record date for determining the right to receive such dividends (the “ Determining Date ”) is earlier than the Exercise Date of the Options granted hereunder, then the Exercise Price for each Share subject to an Option not exercised prior to the Determining Date, shall be reduced by an amount equal to the gross amount of the dividend per Share distributed, calculated in the same currency as the Exercise Price according to the representative rate of exchange as of the Determining Date, if applicable. Notwithstanding the aforesaid, in the event the Company’s Shares are listed on any stock exchange or admitted to trading on an electronic securities trading system, the aforesaid reduction of the Exercise Price for each Share subject to an Option not exercised shall correspond to the reduction in the price of a Company Share as a result of such distribution as recorded by such stock exchange or electronic securities trading system. Unless determined otherwise by the Board, the Exercise Price shall not be reduced to less than the nominal value of a Share.
 
11.3            Adjustments .  Unless determined otherwise by the Committee, subject to any required action by the shareholders of the Company and/or any other required action under any applicable law, the number of Shares subject to each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, as well as the price per share of Shares subject to each such outstanding Award, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a share split, reverse share split, combination or reclassification of the Shares or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided , however , that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive.
 
 
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Except as expressly provided in this Section 12, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Award.
 
Except as expressly provided in this Section 11, the grant of Awards under the Plan shall in no way affect the right of the Company to distribute bonus shares, to offer rights to purchase its securities, or to distribute cash dividends.
 
11.4            Liquidation .  Unless otherwise provided by the Board, in the event of the proposed dissolution or liquidation of the Company, all outstanding Awards will terminate immediately prior to the consummation of such proposed action. In such case, the Committee may declare that any Award shall terminate as of a date fixed by the Committee and give each Grantee the right to exercise his/her Award or to allow his/her Awards to vest (for RSUs), including any Award that would not otherwise be vested (in respect of RSUs) and/or exercisable (in respect of Options).
 
11.5          Corporate Transaction .
 
(a)           In the event of a Corporate Transaction, the Vesting Period of the Awards shall be automatically and immediately accelerated so that all Awards whether vested or not shall become vested and, in respect of Options, exercisable, as of ten (10) days prior to the effective date of such Corporate Transaction and until the effective date of such Corporate Transaction. The Company will provide each Grantee with a ten (10) day advanced notice prior to the effective date of a Corporate Transaction and in case no such advance notice is possible and/or the exercise of Awards is restricted under applicable law or regulations during the ten (10) days prior to the effective date of a Corporate Transaction, the Grantee will be entitled to exercise his or her Awards after the effective date of said Corporate Transaction, allowing a ten (10) day period to do so from the later of (i) receipt of such notice, or (ii) removal of all restrictions under applicable law or regulations on the exercise of the Awards, after which any unexercised Awards shall terminate.
 
(b)           Immediately prior the consummation of the Corporate Transaction, all outstanding Awards which are not exercised until the effective date of the Corporate Transaction, shall terminate and cease to be outstanding.
 
 
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11.6            Sale .  Subject to any provision in the Articles of Association of the Company and to the Committee’s sole and absolute discretion, in the event of sale or other disposition of all or substantially all of the outstanding share capital of the Company, each Grantee shall be obligated to participate in such sale and sell his or her Exercised Shares, provided , however , that each such Exercised Share shall be sold at a price equal to that of any other Share sold under the sale, subject to the absolute discretion of the Board.
 
With respect to Exercised Shares held in Trust the following procedure will be applied:  the Trustee will transfer the Exercised Shares held in Trust and sign any document in order to effectuate the transfer of such Shares, including share transfer deeds, provided , however , that the Trustee receives a notice from the Board, specifying that: (i) all or substantially all of the issued outstanding share capital of the Company is to be sold, and therefore the Trustee is obligated to transfer the Exercised Shares held in Trust under the provisions of this Section 11.5; and (ii) the Company is obligated to withhold at source all taxes required to be paid upon release of the Exercised Shares from the Trust and to provide the Trustee with evidence, satisfactory to the Trustee, that such taxes indeed have been paid;   and (iii) the Company is obligated to transfer the consideration for the Exercised Shares directly to the Grantees.
 
11.7           The grant of Awards under the Plan shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
 
12.            Limitations on Transfer:
 
12.1           Unless determined otherwise by the Committee, no Award shall be assignable or transferable by the Grantee to whom granted otherwise than by will or the laws of descent and distribution, and an Award may be exercised, where applicable, during the lifetime of the Grantee only by such Grantee or by such Grantee's guardian or legal representative. Any assignment or transfer other than as aforesaid, shall be null and void. The terms of such Award shall be binding upon the beneficiaries, executors, administrators, heirs and successors of such Grantee.  In addition, as long as Awards and/or Exercised Shares are held by the Trustee on behalf of the Grantee, all rights of the Grantee over the Exercised Shares are personal, cannot be transferred, assigned, pledged or mortgaged, other than by will or pursuant to the laws of descent and distribution.
 
12.2            Underwriter’s Lock-up .   The Grantee’s rights to sell Exercised Shares may be subject to certain limitations (including a lock-up period), as will be requested by the Company or its underwriters, from time to time, or upon a specific occurrence, and the Grantee unconditionally agrees and accepts any such limitations.
 
12.3            Restrictions on Shares. The Committee may impose such restrictions on any Exercised Shares, as it may deem advisable, including, but not limited to, restrictions related to applicable U.S. federal securities laws, the requirements of any national securities exchange or system upon which Shares are then listed or traded, or any U.S. blue sky or state securities laws.
 
 
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13.            Restricted Stock Units
 
13.1           Subject to the sole and absolute discretion and determination of the Committee, the Committee may decide to grant under this Plan, in addition to, or instead of, any grant of Options, Restricted Stock Unit(s) (“ RSU(s) ”). RSUs are Options, bearing an Exercise Price of no more than the underlying Share’s nominal value.  In addition, notwithstanding anything to the contrary in Section 9.2 above, upon the lapse of the Vesting Period of an RSU, such RSU shall automatically vest into an Exercised Share of the Company and, unless otherwise determined by the Board, the Grantee shall pay to the Company its nominal value as a precondition to any issuance of such Exercised Share. However, the Company shall have the full authority in its discretion to determine at any time that the nominal value shall not be paid and that the Company shall capitalize applicable profits or take any other action to ensure that it meets any requirement of applicable law regarding issuance of shares for consideration that is lower than the nominal value of such Shares.
 
13.2           All other terms and conditions of this Plan applicable to Options, shall apply to RSUs mutatis mutandis .
 
14.            Term and Amendment of the Plan:
 
14.1           The Plan shall terminate, and no additional Awards may be granted pursuant to it, upon the earliest of (i) the expiration of ten (10) years from the date the Plan was adopted by the Board, or (ii) the termination of all outstanding Awards in connection with a Corporate Transaction. All Awards outstanding at the time of a clause (i) termination event shall continue to have full force and effect in accordance with the provisions of the Plan and the documents evidencing such Awards.
 
14.2           Subject to applicable laws and regulations, the Board in its discretion may, at any time and from time to time, amend, alter, extend or terminate the Plan,   as it deems advisable. However, no amendment or modification shall adversely affect any rights and obligations with respect to Options at the time outstanding under the Plan, unless the applicable Grantee consents to such amendment or modification. In the event the Committee wishes to grant Awards to non-Israeli Grantees, the Committee may adopt, as part of this Plan and based on it, sub-plans, in order to comply with all relevant and applicable laws and regulations of the country of residence of such Grantees.
 
15.            Withholding and Tax Consequences: The Company’s obligation to deliver Exercised Shares upon the exercise or vesting of any Awards granted under the Plan shall be subject to the satisfaction of all applicable income tax and other compulsory payments withholding requirements. All tax consequences and obligations regarding any other compulsory payments arising from the grant, exercise, or vesting of any Award, from the payment for, or the subsequent disposition of, Exercised Shares subject thereto or from any other event or act (of the Company, of the Trustee or of the Grantee) hereunder, shall be borne solely by the Grantee, and the Grantee shall indemnify the Company and/or the Trustee, as applicable, and hold them harmless against and from any and all liability for any such tax or other compulsory payment, or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax or other compulsory payment from any payment made to the Grantee.
 
 
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The Company and/or the Trustee, when applicable, shall not be required to release any Share certificate to a Grantee until all required payments have been fully made.
 
16.            Miscellaneous:
 
16.1            Continuance of Employment.   Neither the Plan nor the grant of an Award thereunder shall impose any obligation on the Company to continue the employment or service of any Grantee. Nothing in the Plan or in any Award granted thereunder shall confer upon any Grantee any right to continue in the employment or service of the Company for any period of specific duration, or interfere with or otherwise restrict in any way the right of the Company to terminate such employment or service at any time, for any reason, with or without cause.
 
16.2           Notwithstanding anything to the contrary in this Plan, it is hereby clarified, that any income attributed (or deemed to be attributed) to the Grantee as a result of this Plan, the grant or exercise of Awards thereunder, or the sale of Exercised Shares, shall not be taken into account for the purpose of calculating the Grantee’s eligibility for any rights deriving from the employee-employer or service provider-client relationship between the Grantee and the Company.
 
16.3            Governing Law.   The Plan and all instruments issued thereunder or in connection therewith, shall be governed by, and interpreted in accordance with, the laws of the State of Israel, excluding the choice of law rules thereof .
 
16.4            Application of Funds .  Any proceeds received by the Company from the sale of Exercised Shares pursuant to the Awards granted under the Plan shall be used for general corporate purposes of the Company.
 
16.5            Multiple Agreements.   The terms of each Award may differ from other Awards granted under the Plan at the same time, or at any other time.  The Committee may also grant more than one Award to a given Grantee during the term of the Plan, either in addition to, or in substitution for, one or more Awards previously granted to that Grantee.  The grant of multiple Awards may be evidenced by a single Notice of Grant or multiple Notices of Grant, as determined by the Committee.
 
16.6            Non-Exclusivity of the Plan .  The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
 
16.7           The provisions of this Plan shall not be construed as deviating from any applicable laws, rules and regulations.
 
*****
 
 
18 
Exhibit 12.1
 
I, Nir Sztern, 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;
 
 
4.
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 16, 2015
 
/s/ Nir Sztern
 
 
Nir Sztern
Chief Executive Officer
 
 
 

 
Exhibit 12.2

I, Shlomi Fruhling, 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;
 
 
4.
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 16, 2015
 
/s/ Shlomi Fruhling
 
 
Shlomi Fruhling
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, 2014 (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.
 
Nir Sztern, the Chief Executive Officer and Shlomi Fruhling, the Chief Financial Officer of Cellcom Israel Ltd., each certifies that:
 
 
1.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
 
 
2.
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 16, 2015
  /s/ Nir Sztern  
 
Name: Nir Sztern
 
 
Chief Executive Officer
 

  /s/ Shlomi Fruhling  
 
Name: Shlomi Fruhling
 
 
Chief Financial Officer
 


 
Exhibit 15
 
 
Consent of Independent Registered Public Accounting Firm
 
The Board of Directors
Cellcom Israel Ltd:


We consent to the incorporation by reference in the registration statements (No. 333-141639 and No. 333-184955) on Form S-8 of Cellcom Israel Ltd. (“the Company”) of our report dated March 15, 2015, with respect to the consolidated statements of financial position of the Company as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2014, and the effectiveness of internal control over financial reporting as of December 31, 2014, which report appears in the December 31, 2014 annual report on Form 20-F of the Company.

 
 
Somekh Chaikin
 
 
Certified Public Accountants (Israel)
Member Firm of KPMG International

 
Tel Aviv, Israel
 
March 15, 2015