20-F 1 zk85032.htm 20-F

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

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

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

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

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 1-14968

PARTNER COMMUNICATIONS COMPANY LTD.

(Exact Name of Registrant as Specified in its Charter)

ISRAEL

(Jurisdiction of Incorporation or Organization)

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

(Address of Principal Executive Offices)

Roly Klinger

ExecutiveOffices@orange.co.il

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

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






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

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

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

NONE

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

NONE

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






ORDINARY SHARES OF NIS 0.01 EACH	157,320,770

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

YES x NO o

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

YES o NO x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

YES x NO o

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






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

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






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

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

ITEM 17 o ITEM 18 x

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

YES o NO x






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

INTRODUCTION

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

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

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

FORWARD-LOOKING STATEMENTS

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

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

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

3A. Selected Financial Data

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

	Year ended December 31,
	2003		2004			2005			2006			2007			2007
	New Israeli Shekels in thousands (except per share data)														US$(1)



Statement of Operations Data
Revenues, net

Services		4,117,887		4,615,781			4,619,932			5,027,310			5,328,739			1,385,527

Equipment		349,832		524,956			503,007			579,401			784,905			204,083


		4,467,719		5,140,737			5,122,939			5,606,711			6,113,644			1,589,610

Cost of revenues

Services		2,586,707		2,885,077			3,022,480			3,085,507			3,101,588			806,445

Equipment		549,749		729,937			743,872			811,760			1,001,488			260,397


		3,136,456		3,615,014			3,766,352			3,897,267			4,103,076			1,066,842


Gross profit		1,331,263		1,525,723			1,356,587			1,709,444			2,010,568			522,768

Selling and marketing
expenses		314,008		325,244			272,900			307,592			370,183			96,251
General and administrative
expenses		162,387		181,133			180,781			183,460			235,865			61,327


Operating profit		854,868		1,019,346			902,906			1,218,392			1,404,520			365,190

Financial expenses, net		321,710		260,545			345,448			166,442			126,317			32,844
Loss on impairment of
investments in non-
marketable securities		3,530		-			-			-			-			-


Income before tax		529,628		758,801			557,458			1,051,950			1,278,203			332,346


Tax (expenses) benefit		633,022		(287,248	)		(202,898	)		(370,675	)		(338,417	)		(87,992	)


Income before
cumulative effect of a
change in accounting
principles		1,162,650		471,553			354,560			681,275			939,786			244,354


Cumulative effect, at
beginning of year, of
a change in accounting
principles		-		-			-			1,012			-			-


Net income for the year		1,162,650		471,553			354,560			682,287			939,786			244,354

	Year ended December 31,
	2003			2004			2005			2006			2007			2007
	New Israeli Shekels in thousands (except per share data)															US$ (1)


Earnings per ordinary
share and per ADS
Basic:
Before cumulative effect		6.39			2.57			2.19			4.43			6.01			1.56
Cumulative effect		-			-			-			0.01			-			-

		6.39			2.57			2.19			4.44			6.01			1.56

Diluted:
Before cumulative effect		6.34			2.56			2.17			4.40			5.96			1.55
Cumulative effect		-			-			-			0.01						-

		6.34			2.56			2.17			4.41			5.96			1.55

Weighted average number
of shares
Outstanding


Basic:		181,930,803			183,389,383			161,711,125			153,633,758			156,414,684			156,414,684

Diluted:		183,243,157			184,108,917			163,617,272			154,677,685			157,787,009			157,787,009


Other Financial Data

Capital expenditures, net		232,293			600,944			486,421			487,946			469,149			121,984

EBITDA(2)		1,379,830			1,575,996			1,568,616			1,850,107			2,014,668			523,835
Dividend per share (3)		--			--			1.22			2.63			4.77			1.24

Statement of Cash Flow
Data

Net cash provided by
operating activities		1,031,492			1,272,802			1,006,324			1,223,469			1,456,275			378,647

Net cash (used in)
investing activities		(376,769	)		(673,616	)		(546,692	)		(448,686	)		(540,080	)		(140,425	)

Net cash provided by
(used in) financing
activities		(652,309	)		(598,349	)		(460,235	)		(701,244	)		(845,646	)		(219,876	)

Balance Sheet Data (at
year end)

Current assets		865,319			1,057,148			1,170,976			1,274,350			1,513,322			393,480

Investments and long-term
receivables		72,630			165,815			264,456			355,489			535,421			139,215

Fixed assets, net		1,694,584			1,843,182			1,768,895			1,747,459			1,734,964			451,108
License and deferred
charges, net		1,325,948			1,325,592			1,321,167			1,247,084			1,153,926			300,033

Deferred income taxes		413,752			94,442			86,505			76,139			93,745			24,375


Total assets		4,372,233			4,486,179			4,611,999			4,700,521			5,031,378			1,308,211


Current liabilities (4)		760,256			859,741			986,995			1,027,841			1,156,818			300,785


Long-term liabilities (4)		2,536,413			2,039,363			2,809,653			2,418,213			2,219,088			576,986

Total liabilities		3,296,669			2,899,104			3,796,648			3,446,054			3,375,906			877,771


Shareholders' equity		1,075,564			1,587,075			815,351			1,254,467			1,655,472			430,440


Total liabilities and
shareholders' equity		4,372,233			4,486,179			4,611,999			4,700,521			5,031,378			1,308,211

(1)

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

(2)

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

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

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

	Year ended December 31,
	2003			2004			2005			2006			2007			2007
	New Israeli Shekels in thousands															US $(1)



Reconciliation Between
Operating Cashflow and EBITDA
Net cash provided by
operating activities		1,031,492			1,272,802			1,006,324			1,223,469			1,456,275			378,645
Liability for employee
rights upon retirement		(15,540	)		(16,302	)		(9,430	)		(11,142	)		(18,580	)		(4,831	)
Accrued interest, exchange
and linkage differences on
long-term liabilities		67,438			10,258			(108,411	)		4,646			(59,980	)		(15,595	)
Amount carried to deferred
charges		-			-			13,820			-			-			-
Accrued interest, exchange
and linkage differences on
security deposit		(8,877	)		-			-			-			-			-

Increase (Decrease) in
accounts receivable:
Trade		(22,721	)		225,860			262,262			254,748			328,824			85,496
Other (**)		5,557			13,615			26,970			304,492			(10,260	)		(2,668	)

Decrease (Increase) in
accounts payable and
accruals:
Trade		93,444			(135,600	)		(112,857	)		58,568			(100,817	)		(26,213	)
Related parties		-			-			(10,513	)		(5,317	)		12,425			3,231
Other (**)		(47,541	)		(41,613	)		75,884			(49,923	)		275,732			71,693
Decrease (Increase) in
inventories		(34,647	)		(1,205	)		107,667			(82,857	)		16,556			4,305
Decrease (Increase) in asset
retirement obligation		(1,228	)		(464	)		92			(1,069	)		(528	)		(137	)
Financial expenses(*)		312,453			248,645			316,806			154,492			115,021			29,907

EBITDA		1,379,830			1,575,996			1,568,614			1,850,107			2,014,668			523,835

(1)

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

(**)	Excluding provision for tax expenses






Industry Data

Estimated population of Israel (in thousands) (1)	6,991		7,117		7,244
Estimated Israeli cellular telephone subscribers (in thousands) (2)	7,851		8,383		9,026
Estimated Israeli cellular telephone penetration (3)	112	%	118	%	125	%

	Year ended December 31
	2003			2004			2005			2006			2007



Partner Data
Subscribers (000's)
(at period end) (4)		2,103			2,340			2,529			2,668			2,860
Pre-paid subscribers		639			700			754			781			792

Post-paid subscribers		1,464			1,640			1,775			1,887			2,068

Share of total
Israeli subscribers
(at period end) (5)		31	%		32	%		32	%		32	%		32	%
Average monthly usage per
subscriber (mins.) (6)		277			286			294			311			336
Average monthly revenue per
subscriber including in
roaming (NIS) (7)		171			170			156			158			158
Churn rate (8)		13.6	%		12.0	%		13.6	%		15.6	%		15.0	%

Estimated coverage of Israeli
population (at period end) (9)		97	%		97	%		97	%		97	%		97	%

Number of employees (full time
equivalent) (at period end) (10)		2,769			3,164			3,403			3,714			4,130

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

(2)

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

(3)

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

(4)

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

(5)	Total number of Partner subscribers expressed as a percentage of the estimated total number of Israeli subscribers.

(6)

We have calculated our average monthly usage per subscriber by (i) dividing, for each month in such period, the total number of minutes of usage, excluding inroaming usage, during such month by the average of the number of our subscribers, and (ii) dividing the sum of such results by the number of months in the relevant period.

(7)

We have calculated Partner average monthly revenue per subscriber by (i) dividing, for each month in the relevant year, the Partner revenue during the month, excluding revenue from equipment sales and including revenue from foreign network operators for calls made by their roaming customers while in Israel using our network, by the average number of Partner subscribers during that month, and (ii) dividing the sum of all such results by the number of months in the relevant period. We have presented the amounts in NIS.

(8)

We define the “churn rate” as the total number of subscribers who disconnect from our network, either involuntarily or voluntarily, in a given period expressed as a percentage of the average of the number of our subscribers at the beginning and end of such period. Our churn rate includes subscribers who have not generated revenue for us for a period of the last six consecutive months ending at a reporting date. This includes subscribers who have generated minute revenues only from incoming calls directed to their voice mail. Involuntary churn includes disconnections due to non-payment of bills or suspected fraudulent use, and voluntary churn includes disconnections due to subscribers terminating their use of our services.

(9)

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

(10)

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

Exchange Rate Data

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






Average(1)	4.512	4.480	4.485	4.457	4.108
High	4.924	4.634	4.741	4.725	4.342
Low	4.283	4.308	4.299	4.176	3.830
End of period	4.379	4.308	4.603	4.225	3.846

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






High	3.969	4.008	3.861	3.655	3.656	3.640
Low	3.830	3.841	3.625	3.578	3.377	3.424

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

3B. Capitalization and Indebtedness

Not applicable.

3C. Reasons for the Offer and Use of Proceeds

Not applicable.

3D. Risk Factors

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

RISKS RELATING TO THE REGULATION OF OUR INDUSTRY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Uncertainties regarding requirements for repeaters and other small devices. We, like the other cellular telephone operators in Israel, provide repeaters, also known as bi-directional amplifiers, to subscribers seeking an interim solution to weak signal reception within specific indoor locations. As part of our transmission network, we also deploy and operate a small number of microwave links. In light of the lack of a clear policy of the local planning and building authorities, and in light of the practice of the other cellular telephone operators, we have not requested permits under the Planning and Building Law for the repeaters. We have received an approval to connect the repeaters to our communications network, however, from the Ministry of Communications. We have also approached the Ministry of the Environment, asserting that no permits are necessary for the repeaters, based on the Ministry’s previous advice that permits are not necessary for devices with levels of emission comparable to those of “Fixed Cellular Terminals”. If the local planning and building authorities determine that permits are necessary for the installation of these devices, or any other receptors that we believe do not require a building permit, it could have a negative impact on our ability to obtain permits for our repeaters.

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

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

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

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

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

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

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

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

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

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

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

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

We believe providing access to our network would require additional statutory and regulatory action to establish inter-operator relationships, including with respect to rates. However, if such action is taken, access to our network would lower the entry barriers for potential new competitors and increase the likelihood of additional new competitors entering the mobile telephone market in Israel. Our capacity is limited, and if we are required to allocate capacity to other operators, the services to our subscribers may be harmed or we may be required to invest additional capital in order to enable additional use of our network. If we fail to agree with new operators that are given access to our network regarding the tariffs for the usage of our infrastructure, the Ministry of Communications may set those tariffs. If the Ministry of Communications sets those tariffs too low, this may adversely affect our financial condition. In addition, operators, such as MVNOs, could offer mobile telecommunication services to our current customers at prices that are lower than our prices, thereby reducing our market share and/or causing price erosion and adversely affecting our financial results and condition.

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

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

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

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

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

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

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

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

Furthermore, although we believe that we are currently in compliance with all material requirements of our license, the interpretation and application of the technical standards used to measure these requirements, including the requirements regarding population coverage and minimum quality standards, and other license provisions may not be certain, and disagreements have arisen and may arise in the future between us and the Ministry of Communications. As indicated above difficulties in connection with obtaining building and other permits required for our network infrastructure may prevent us from achieving or maintaining the network coverage and quality requirements contained in our license. We have provided a bank guarantee to the Ministry of Communications in the amount of US$10 million to guarantee our performance under our license. If we are found to be in material breach of our license, the guarantee may be forfeited and our license may be revoked. In addition, the Ministry of Communications is authorized to levy significant fines on us for breaches of our licenses which could have a material adverse effect on our financial condition or results of operations.

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

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

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

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

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

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

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

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

RISKS RELATING TO OUR BUSINESS OPERATIONS

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

A number of studies have been conducted to examine the health effects of wireless phone use and network sites, and some of these studies have been construed as indicating that radiation from wireless phone use causes adverse health effects. Media reports have suggested that radio frequency emissions from network sites, wireless handsets and other mobile telecommunication devices may raise various health concerns and may interfere with various electronic medical devices, including hearing aids and pacemakers. While, to the best of our knowledge, the handsets that we market comply with the applicable laws that relate to acceptable Specific Absorption Rate (“SAR”) levels, we rely on the SAR levels published by the manufacturers of these handsets and do not perform independent inspections of the SAR levels of these handsets. As the manufacturers’ approvals refer to a prototype handset, we have no information as to the actual level of SAR of the handsets along the lifecycle of the handsets, including in the case of handset repair.

Several lawsuits have been filed outside of Israel against operators and other participants in the wireless industry alleging adverse health effects and other claims relating to radio frequency transmissions to and from handsets and other mobile telecommunications devices. We may be subject to potential future litigation relating to these health concerns.

Furthermore, we do not expect to be able to obtain insurance with respect to such liability. The perception of increased health risks related to network sites may cause us increased difficulty in obtaining leases for new network site locations or renewing leases for existing locations. If it is ever determined that health risks existed or that there was a deviation from SAR standards which would result in a health risk from sites or handsets, this would have a material adverse effect on our business, operations and financial condition, including through exposure to potential liability, a reduction in subscribers and reduced usage per subscriber.

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

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

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

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

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

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

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

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

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

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

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

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

Our subscriber growth rate, and consequently our revenue growth rate, has begun to slow, because Israel’s mobile telephone services market is highly penetrated, making it more difficult for us to obtain new subscribers and retain existing subscribers.

Although Israel’s mobile telephone services market has experienced substantial growth, and we have experienced substantial subscriber growth since our commercial launch in 1999, the Israeli market for mobile telephone services is now highly penetrated, and the growth of the overall Israeli market and of our own subscriber base has been slower than in the past. According to data from the Central Bureau of Statistics, the population of Israel at the end of December 2007 was approximately 7.2 million. According to a recent report issued by a research company, at December 31, 2007, Israel’s mobile telephone market penetration is estimated to be approximately 125%. This may include dormant subscribers as well as subscribers who are not included in the Israeli population figures, such as Palestinians, visitors, and foreign workers. While in the past our revenue growth has largely resulted from growth in the overall market, our future revenues will depend significantly on our ability to retain existing subscribers and to attract subscribers from the other mobile telephone network operators as well as on our ability to generate higher revenues from existing subscribers.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

RISKS RELATED TO OUR CONTROLLING SHAREHOLDER

Our company is controlled by a single shareholder.

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

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

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

ITEM 4. INFORMATION ON THE COMPANY

4A. History and Development of the Company

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

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

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

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

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

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

—	On March 31, 2001, we had over 1,000,000 subscribers.

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

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

—	In June 2002, our license was extended until February 2022.

—	In August 2003, we had over 2,000,000 subscribers.

—	In December 2004, we commercially launched our 3G network, having implemented our “soft launch” in June 2004.

—	In March 2005, we completed a debt offering, raising NIS 2.0 billion in a public offering in Israel of notes due 2012.

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

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

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

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

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

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

4B. Business Overview

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

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

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

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

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

Special characteristics of the Cellular Telecommunications Industry in Israel

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

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

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

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

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

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

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

Our Strategy

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

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

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

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Retain the Strength of our Brand. We believe that a focused marketing strategy based upon the strong international Orange brand is critical to our subscriber growth and loyalty. In light of the benefits that our strong brand gives us, we intend to continue to promote our brand, including in connection with our 3G services, in order to maximize these advantages. We also intend to support our brand by continuing to focus on customer service, innovation and the quality of our network.

Competitive Strengths

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

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

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

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

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

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

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

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

Marketing and Brand

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

Our marketing strategy is based on the concept of high value for money and introducing advanced services for subscribers. In order to carry out our strategy, we offer our subscribers competitive tariffs, technologies and services that we believe are advanced, including our 3G services as well as our GPRS services. During 2007, we achieved the primary objective of our marketing strategy, which was to increase our 3G subscriber base and 3G usage by our customers as well as to enhance our long-term relationship with our customers through innovative retention activities.

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

In order to promote our advanced new services and to increase awareness of these services, we are taking many promotional steps, using a broad range of advertising media. We also intend to maintain our advertising presence in the media in order to maintain high exposure for our brand and advanced technologies. During 2007, our main advertising activities focused on promoting the subscribership and usage of 3G and HSDPA services, as well as increasing loyalty among our customers. Our marketing strategy focuses on promoting our services to various segments of the Israeli population, and we have extended this to our 3G services. We advertise our services in several languages. In addition to traditional media, we promote our brand and services by sponsoring and initiating cultural and community programs, such as the sponsoring of the Mamma Mia musical in Israel, a series of international music concerts held in the Tel-Aviv harbor and the International Film Festival, a major cultural event in Israel that takes place every year in Jerusalem and attracts international attention. We use the distinctive Orange Brand logo in all our promotional activities and advertising. See “Item 4B. Business Overview–Intellectual Property.”

Services and Products

Our principal business is the provision of cellular telephone services in Israel. Our goal is to offer our subscribers a wide range of sophisticated and easy to use services based upon the latest proven technology, and we are continually developing tailored value-added services to meet the special needs of our subscribers and to enhance our long-term relationship with our subscribers.

Our most basic service is telephony service – provided on both our GSM/GPRS network and our UMTS/HSDPA network. Our basic offer includes international dialing, roaming, voice mail, short message services, intelligent network services, content based on our cellular portal, data and fax transmission and other services. Our use of HSCSD, GSM, GPRS, UMTS and HSDPA technologies enables high speed data transmission. All our content services are unified under the obox brand: Our 2G and 2.5G content services are all branded as obox and our 3G services are branded as obox live. Our orange obox services enable the downloading of rich applications and content and WAP browsing, while our obox live services are enhanced by the video and audio capabilities of our UMTS network. Our MMS services enable subscribers to send photos, multimedia and animation from handset to handset and from handset to web. We also offer 24-hour, seven-day a week customer service, as well as handset repair and replacement services, to subscribers who acquire these services.

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

Tariff Plans

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

Our business tariff plans offer features attractive to business users such as: the charging of fees based on airtime usage without adding the interconnect charges imposed by other cellular and land-line providers for calls made by our subscribers that terminate on third party networks, and the provision of discounts for calls to designated numbers within a subscriber’s calling circle. In addition, we usually offer handset subsidies to customers joining these tariff plans.

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

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

International Roaming

Israelis are frequent travelers. According to the Israel Central Bureau of Statistics, in 2007, more than 4.1 million overseas departures of Israelis were recorded, and almost 2.3 million people visited Israel during 2007. Roaming allows a mobile phone subscriber to place and to receive calls while in the coverage area of a network to which he or she does not subscribe and to be billed for such service by his or her home network. Facilitating international roaming was a primary design goal of the GSM system from its inception. A GSM roamer can therefore expect to enjoy substantially the same services, features and security while traveling as he does at home. We consider international roaming to be a significant source of revenue. The Ministry of Communications may introduce new regulations that would limit our revenues from roaming services. See “Item 4B. Business Overview – Regulation.”

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

On December 31, 2007, we had 48 3G roaming agreements in 32 countries, enabling our 3G roamers to experience video calls, high speed data and video and audio content while abroad. Since we operate our GSM services on the 900 MHz band, which is the most widely-used among GSM operators worldwide in terms of handsets, and also on the 1800 MHz band, all of our roaming enabled subscribers may roam to most countries where we have roaming capability using their own handsets without modification. In some countries cellular networks use either the 1900 MHz band of GSM or other technologies (GSM 850, CDMA or UMTS) with which we have established international roaming. Our subscribers who own dual or tri-band handsets that work on GSM 1900 as well as GSM 900 may also use their own handsets in countries that deploy GSM 1900 frequency with networks using GSM 1900. Other subscribers who advise us of their intention to visit those countries are either loaned free of charge a compatible handset into which they insert their SIM, thus retaining their own phone number, phone book and all other regular features, or are given the option to rent such handsets at their destination upon their arrival. Since the launch of our 3G network, 3G networks around the world are becoming gradually available to our 3G subscribers. See also “Item 3D. Risk Factors – Risks Relating to the Regulation of Our Industry” for risks relating to the regulation of roaming tariffs.

Value-Added Services

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

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

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

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

—

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

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

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

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

—

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

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

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

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

—	Orange “Precisely for You”. A service that checks a subscriber’s rate plan, handset type, seniority and usage patterns and offers a personalized offer.

—	Orange Shop. Website offering new and existing customers an online shop for handsets and plans.

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

—	PC to Mobile Video Calling. This service allows 3G subscribers to speak with any other party using an internet camera. This service expands the video telephony available to customers who do not have a 3G handset or are not within the 3G coverage area.

—	SIM Backup. This service allows customers to backup their phonebook entries on the SIM card on a network server. If the SIM card or phone is lost, the subscriber does not lose his contact list.

—	Speed Detectors. This service allows subscribers to receive a notice about speed detectors in their vicinity.

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Vehicle Fleet Management. This service provides a comprehensive system for businesses to manage their vehicle fleet. It allows tracking the position, speed and direction of vehicles, which helps speed up delivery times, cut running costs and improve customer service. It provides the ability to assess at a glance which driver is best placed to respond to the next call, optimizing driver time, cutting fuel costs and improving efficiency. In addition, it provides the option to communicate with drivers via text messages.

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Video and Audio Streaming. We provide our 3G customers (and a small portion of our 2.5G customers) with the ability to watch video clips and to listen to full music tracks without downloading them to their handset. These services offer a wide range of information and entertainment clips to view and listen to, and enable the customer to watch live television broadcasts.

—	Video Calls. This service enables our 3G users (while in our 3G coverage area and with a 3G handset) to speak with each other through video conferences – to hear and to see the other party simultaneously.

—	Video Mail. This service enables our 3G subscribers to send and receive video messages if the receiver is not available.

—	Virtual Private Network. User groups can be formed in multiple layers, and the members can then reach each other through short dialing codes, like extension numbers. This service is mostly used among business customers.

—	WAP Services. We have WAP technology that enables WAP-related services.

Handsets

We provide handsets to our subscribers at discounts of up to 100% when they first become subscribers or when upgrading their handsets. The price at which the handset is provided depends upon the tariff package and special promotions.

We currently offer a range of different handset models supplied by a number of manufacturers. We offer handsets to satisfy our subscribers’ roaming needs in the 900 MHz, 1800 MHz and 1900 MHz bands and in 2100 MHz (3G) as well. Not all handsets support all band ranges. We evaluate the technical features of every new cellular handset and, if we decide to make it available to subscribers, we obtain a type approval from the Ministry of Communications for such handset. We advise our sales representatives and dealers on compatibility and technical issues. All our handsets are EFR compatible to provide high voice quality. All of our handset models have Hebrew language displays. We have begun selling some innovative handsets with enhanced applications, including large screens with high resolution displays, high quality music performance, high quality cameras, video capabilities, embedded GPS, E-Mail massaging, open operating systems (Symbian), T.V. client and music library. Following the launch of our HSDPA network, we sell handsets that enable customers to use content services with high-speed rates of data transmission and lap tops with HSDPA data cards.

Land-line Services

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

Customer Division

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

Customer Service

Our customer support and service provides several channels for our customers: call centers, walk-in centers and self-services, such as IVR, web-based services and via SMS.

Call Centers. Guided by our aim to provide high quality service, our call-center services are divided into several sub-centers as follows: customer segment (business, private and pre-paid) and specialized support and services (finance, network, international roaming and data transfer related issues). The call center services are provided in four languages: Hebrew, Arabic, English and Russian.

Walk-in Centers. We currently operate 31 Partner owned service and sales centers across Israel. These centers provide a face-to-face, uniformly designed, contact channel and offer all services that we provide to customers: sales, handset upgrade, handset maintenance and other services (such as finance, rate-plan changes and subscription to new services). Several centers are focused on sales to both private and small business customers. These centers are located in central locations, such as shopping malls in Tel Aviv and its periphery, Jerusalem, Haifa and Be’er-Sheba. Lease agreements for our retail stores and service centers are for periods of two to five years. We have the option to extend the lease agreements for different periods of up to twenty years including the initial lease period. See also Note 7a(3) to our consolidated financial statements.

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

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

Sales and Distribution

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

We distribute our services and products primarily through:

—

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

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

Direct Sales Channels

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

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

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

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

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A “door to door”sales-force focuses on individual and small business customers.

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

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

Indirect Sales Channels

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

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

In addition, we continue to develop our distribution network with other non-traditional dealers, such as the “Cellular Center for Vehicles”, which has approximately 34 locations for the sale, installation and maintenance of car kits, and “Auto Depot”, which has nine such locations. We provide regular training to the employees of our non-traditional dealers to update them on our products and services.

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

Customer Contracts and Credit Policy

Part of our subscriber contracts for customers on our original tariff plans provide for a 36-month term. Under the terms of these contracts, customers who terminate their contracts prior to the expiration of the 36-month term and who have purchased their handset from our dealers or from us can be charged for payment of the residual price of their handset. This charge reflects the difference between the price they paid for the handset, if any, and the list price, adjusted for the number of months that the customer has been a subscriber.

Most of our subscribers pay for the handsets in 36 installments, which are charged directly to their credit card or to their monthly bill. If the customer opts to pay for the installment via his monthly bill, the outstanding installment payments are not secured. Subscribers are billed monthly for airtime charges and charges per services. Most of our business customers have signed 36-month contracts.

Most of our individual subscribers pay for their services by credit card. All credit card accounts are subject to an initial maximum credit limit each month, which varies depending upon the type of credit card and for which we obtain prior approval from the card issuer. When a subscriber account reaches this limit, we may seek approval from the card issuer. If the card issuer does not grant the approval, we may require the customer to provide other means of payment or arrange an increase in the approved limit from his credit card issuer. If this does not occur, the customer’s usage may be limited or suspended until we receive a cash deposit or guarantee from the customer.

All business subscribers and some of our individual subscribers can subscribe and pay for their services by credit card or direct debit. Customers acquiring more than ten handsets (or four in certain circumstances) are subject to a credit scoring review performed by outside credit agencies. All customers are subject to a monthly maximum credit limit. When the monthly limit is exceeded, usage may be limited. Roaming access for direct debit subscribers is subject to credit scoring by outside credit agencies and may require additional guarantees or credit checks.

Our Network

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

Overview

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

Infrastructure

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

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

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

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

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

Network Design

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

With these quality parameters in mind, we rolled out our UMTS/HSDPA network starting in 2004, which shares locations with the GSM sites. We use monitoring probes and counters to ensure network quality.

Our transmission network design confers the following benefits: (i) necessary bandwidth for GSM and UMTS/HSDPA services; (ii) resilience; (iii) use of high transmission rate back-bone routes based on Synchronous Digital Hierarchy; and (iv) the ability to utilize a new generation of sophisticated technology to optimize the system and increase capacity where necessary. Our switching architecture is based on two transit switches connected to all of our systems and platforms.

Spectrum Allocation and Capacity

Spectrum availability is limited and is allocated by the Ministry of Communications through a licensing process. Pursuant to the terms of our license and subsequent allocations, we were allocated 2x10.4 MHz in the 900 MHz frequency band, of which 2x2.4 MHz are shared with Paltel which operates in the West Bank and the Gaza Strip. We also have an agreement to use an additional 2x2.4 MHz of spectrum in the 900 MHz frequency band on a shared basis with Paltel. Under this agreement, which has been endorsed by the Ministry of Communications, we are permitted to use this additional spectrum in Israel so long as we do not cause interference in areas where Paltel operates. See “Item 3C. Risk Factors” for a discussion of the risks associated with developments in spectrum allocation.

We were also allocated two additional bands of spectrum: 2 x 10 MHz of GSM 1800 spectrum and 2 x 10 MHz and 1 x 5 MHz of UMTS/HSDPA third generation spectrum. During 2002, we deployed GSM 1800 MHz band base transceiver stations to enhance the capacity of our GSM 900 MHz network, and to further improve our GSM 900 MHz network’s quality.

Enabling Systems

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

Site Procurement

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

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

—	erection and operating permits from the Ministry of the Environment;

—	permits from the Civil Aviation Authority, in certain cases; and

—	permits from the Israeli Defense Forces.

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

Suppliers

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

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

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

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

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

Interconnection

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

We are currently operating without any formal interconnect agreements with Bezeq. Day-to-day arrangements with Bezeq substantially conform to a draft interconnect agreement negotiated with Bezeq. The interconnect rates charged by Bezeq are set by Israeli legislation and Bezeq is required by law not to discriminate against any licensed telecommunications operator in Israel with respect to the provision of interconnect services. We currently pay Bezeq an interconnection fee based on a tariff structure set forth in the Interconnection Regulations (Telecommunications and Broadcasts) (Fees for Interconnection) (2000).

We have formal interconnect agreements with all Israeli cellular and land-line companies. The interconnect tariffs are set forth in the Interconnection Regulations (Telecommunications and Broadcasts) (Fees for Interconnections) 2000 that imposes a uniform call interconnect tariff for all cellular telephone operators.

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

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

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

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

Competition

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

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

Market Share*




Partner	31	%	32	%	32	%	32	%	32	%
Cellcom	35	%	34	%	33	%	34	%	34	%
Pelephone	30	%	30	%	30	%	29	%	29	%
MIRS	4	%	4	%	5	%	5	%	5	%

* Based on information contained in published reports issued by, and public statements made by, Pelephone and Cellcom or by their respective shareholders and from Partner subscriber data. The figures for MIRS are our estimates.

Cellcom is an Israeli corporation whose major beneficial shareholder is Discount Investment Corporation Ltd, (DIC). DIC is a majority-owned subsidiary of IDB Development Corporation, which in turn is a majority-owned subsidiary of IDB Holding Corporation Ltd (IDB). The IDB group is one of the largest business groups in Israel, whose indirect subsidiaries also operate in the Israeli communications market providing high speed internet, international telephone services and wireline and land line communications services. In May 2008, the IDB group acquired through one of these subsidiaries a 15% holding in HOT Cable Communications System Ltd (HOT), a cable pay television operator. This transaction is still subject to certain conditions and approvals including the approval of the antitrust commissioner.

Cellcom operates nationwide cellular telephone networks based on GSM 1800 MHz/GPRS, D-AMPS, EDGE and UMTS/HSDPA HSUPA technologies. Cellcom commercially launched its UMTS service and handsets in July 2006.

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

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

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

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

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

Information Technology

We depend upon a wide range of information technology systems to support network management, subscriber registration and billing, customer service and marketing and management functions. These systems execute critical tasks for our business, from rating and billing of calls, to monitoring our points of sale and network sites, to managing highly segmented marketing campaigns. As our subscriber base has grown, we have devoted significant resources to expanding and enhancing our information technology systems, adopting and implementing new systems, including Customer Relations Management (“CRM”) systems, which have contributed to our customers’ satisfaction with our service, as well as updating our financial management and accounting system. We believe these systems have been an important factor in our achievements since our commercial launch.

While many of our systems have been developed by third-party vendors, all of them have been modified and refined to suit our particular needs. In certain instances, we have developed critical information technology systems internally to meet our specific requirements. For example, significant segments of our CRM and business information infrastructure were developed internally and were designed to integrate our customer service outreach with our overall sales and marketing effort. In other cases, conversely, we have outsourced responsibility for certain systems to third parties. Our “Vantive” CRM system is in the process of being replaced through a contract with IBM to implement a new CRM system based upon “Siebel” software. The migration to the new CRM system is in progress.

Intellectual Property

We are the registered owners of the trademark “Partner” in Israel with respect to telecommunications-related devices and services as well as additional trademarks. We have also registered several internet Web domain names, including, among others: www.partner.co.il, www.orange.co.il and www.partnergsm.co.il.

We have entered into a brand license agreement with Orange International Developments Limited, a subsidiary of Orange plc. Under this agreement, Orange International appointed us as a permitted user of its trademarks in Israel. Under this license agreement, we have the exclusive right to use the Orange Brand in advertising and promotional materials in Israel. The term of the brand license began on July 1, 1998. The trademark license is royalty-free for the first 15 years of its term. In 2012, the parties are to discuss the royalties to be paid for a five-year term beginning July 1, 2013. In 2017, the parties are to again consider the royalties to be paid for an additional five-year term beginning July 1, 2018. If the parties do not agree on the amount of royalty payments, the determination of royalty payments is referred to an arbitrator. Under this license agreement, we are required to comply with the Orange Brand guidelines established by Orange International. We have the right to use the Orange Brand as long as we are able and legally eligible under the laws of Israel to offer telecommunications services to the public in Israel. However, the license agreement may be terminated by mutual agreement, or at our discretion, or by Orange International if a court determines that we have materially misused the brand and we continue to materially misuse the brand after such determination of material misuse.

We have also entered into a brand support/technology transfer agreement with Orange Personal Communications Services Limited. Under this agreement, Orange Personal will provide us with information and expertise to support the Orange Brand in Israel at an agreed cost. See “Item 3D. Risk Factors–Our marketing strategy is based, in part, upon the international Orange Brand. If our license agreement terminates or is revoked, we will lose one of our main competitive strengths.”

In addition, we are a full member of the GSM Association. In conjunction with the promotion and operation of our GSM network, we have the right to use their relevant intellectual property, such as the GSM trademark and logo, security algorithms, roaming agreement templates, and billing transfer information file formats. We are eligible to remain a member of the GSM Association for as long as we are licensed to provide GSM service.

REGULATION

Overview

We operate within Israel primarily under the Communications Law (Telecommunications and Broadcasting), 1982 (the “Telecommunications Law”), the Wireless Telegraphy Ordinance (New Version), 1972 (the “Wireless Telegraphy Ordinance”), the regulations promulgated by the Ministry of Communications and our license. The Ministry of Communications issues the licenses which grant the right to establish and operate mobile telephone and other telecommunication services in Israel, and sets the terms by which such services are provided. The regulatory framework under which we operate consists also of the Planning and Building Law, 1965, the Consumer Protection Law, 1981, and the Non-Ionizing Radiation Law, 2006. Additional areas of Israeli law may be relevant to our operations, including antitrust law, specifically the Restrictive Trade Practices Law, 1988, the Class Actions Law, 2006, and administrative law.

Telecommunications Law

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

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

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

The Ministry of Communications, with the consent of the Minister of Finance, may also promulgate regulations to determine interconnect tariffs, or formulae for calculating such tariffs. Moreover, the Ministry of Communications may, if interconnecting parties fail to agree on tariffs, or if regulations have not been promulgated, set the interconnect tariff based on cost plus a reasonable profit, or based on each of the interconnecting networks bearing its own costs.

The Telecommunications Law also includes certain provisions which may be applied by the Ministry of Communications to general licensees, including rights of way which may be accorded to general licensees to facilitate the building of telecommunications networks or systems and a partial immunity against civil liability which may be granted to a general licensee, exempting the licensee, inter alia, from tort liability with the exception of direct damage caused by the suspension of a telecommunications service and damage stemming from intentional or grossly negligent acts or omissions of the licensee. The Ministry of Communications has applied the partial immunity provisions to us, including immunity in the event that we cause a mistake or change in a telecommunication message, unless resulting from our intentional act or gross negligence.

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

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

Fair Competition and Antitrust Law

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

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

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

Regulatory Developments

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

In 2004, the Ministry of Communications began authorizing the issuance of licenses to provide domestic land-line (wireline and wireless) services to customers, competing with Bezeq, on a non-universal service basis. Services provided under such license must be precisely defined by the provider, must be provided to customers in a region, or regions, defined by the provider and must be provided to a defined type of customer. Under the terms of such license, the provider must demonstrate aggregate revenues of no less than NIS 50 million within 3 years from the launching of the services. The license term is 20 years. In January 2007, we were granted this license.

The Ministry of Communications has promulgated regulations that, coupled with a change effected in the cellular telephone operators’ licenses, impose a uniform call and SMS interconnect tariff. In November 2004, the Ministry of Communications announced regulatory changes significantly reducing call interconnect tariffs and SMS interconnect tariffs, effective March 1, 2005, with additional reductions mandated for the coming years. In addition, the Ministry of Communications further announced that billing units will be reduced from the present intervals of up to 12 seconds to 1 second, effective December 31, 2008. Furthermore, the Ministry of Communications also indicated that it intends to start implementing a process to bring about unification of rates for calls terminating both on and off an operator’s network, and disallow charging the customer with a separate interconnect tariffs. Preliminary hearings with the cellular operators in Israel on this matter commenced in August 2005, but have been suspended and are expected to be resumed in 2008. See “Item 4B. Information on the Company–Business Overview–Interconnection.”

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

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

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

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

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

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

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

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

Entry of MVNO Operators

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

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

Number Portability

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

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

WiMAX Bandwidth

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

Liberalization of Handset Market

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

Our Mobile Telephone License

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

We were also allocated two additional bands of spectrum: 2 x 10 MHz of GSM 1800 spectrum and 2 x 10 MHz and 1 x 5 MHz of UMTS third generation spectrum. During 2002, we started deploying GSM 1800 MHz band base transceiver stations to enhance the capacity of our GSM 900 MHz network, and to further improve our GSM 900 MHz network’s quality. Following the award of this spectrum, the Minister of Communications amended and extended our mobile telephone license through 2022.

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

In 2004, our license was amended to regulate access to adult voice services through all mobile media including voice, picture, chat and dating services. The access to adult voice services is through a domestic dialing code by a plan set by the Ministry of Communications and a service number that we allocate to the provider of the adult voice services. Access to the adult voice services is automatically barred as a default for all our subscribers unless they specifically request the service and verify that they are over 18 years of age. This amendment has been applied to all cellular operators, to Bezeq and to the international operators. The Ministry of Communications will hold the operators liable and accountable for any infractions of this amendment. Additional amendments during 2006 extended the regulation of access for adult voice services described above to 3G technologies as well, including non-voice and internet services provided (directly and indirectly) either through phone calls to numbers allocated by us or through our internet portal. In April 2007, an additional amendment set forth rules to verify the identity of a customer requesting removal of the bar, as an adult, including a written request with a copy of an official I.D. that identifies the subscriber as an adult or by presenting such an I.D. to the operator, in person.

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

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

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Israeli entities from among our founding shareholders and their approved substitutes must hold at least 5% of our issued share capital and of each of our means of control. “Israeli entities” are defined as individuals who are citizens and residents of Israel and entities formed in Israel and controlled, directly or indirectly, by individuals who are citizens and residents of Israel, provided that indirect control is only through entities formed in Israel, unless otherwise approved by the Israeli Prime Minister or Minister of Communications.

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

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

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

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

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

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

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

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

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

—	observing the provisions of the Telecommunications Law, the Wireless Telegraphy Ordinance, the regulations and the provisions of our license;

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

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

—	using the spectrum allocated to us efficiently, compared to alternative applications.

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

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

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

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

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

Conversely, Partner must allow other network operators to interconnect to its network. See “Item 4B. Information on the Company–Business Overview–Interconnection.”

Service Approval. The Ministry of Communications has the authority to require us to submit for approval details of any of our services (including details concerning tariffs). In addition, we are required to inform the Ministry of Communications prior to the activation of any service on a specified list of services.

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

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

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

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

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

—	voting rights in Partner;

—	the right to appoint a director or managing director of Partner;

—	the right to participate in Partner's profits; or

—	the right to share in Partner's remaining assets after payment of debts when Partner is wound up.

Each of our ordinary shares and ADSs is considered a means of control in Partner.

In addition, Partner, any entity in which Partner is an Interested Party, as defined below, an Office Holder, as defined below, in Partner or an Interested Party in Partner or an Office Holder in an Interested Party in Partner may not be a party to any agreement, arrangement or understanding which may reduce or harm competition in the area of mobile telephone services or any other telecommunications services.

In connection with our initial public offering, our license was amended to provide that our entering into an underwriting agreement for the offering and sale of shares to the public, listing the shares for trading, and depositing shares with the depositary or custodian will not be considered a transfer of any means of control, as defined below. Pursuant to the amendment, if the ADSs (or other “traded means of control,” that is, means of control which have been listed for trade or offered through a prospectus and are held by the public) are transferred or acquired in breach of the restrictions imposed by the license with respect to transfer or acquisition of 10% or more of any means of control, we must notify the Ministry of Communications and request the Minister’s consent within 21 days of learning of the breach. In addition, should a shareholder, other than a founding shareholder, breach these ownership restrictions, or provisions regarding acquisition of control or cross-ownership or cross-control with other mobile telephone operators or shareholdings or agreements which may reduce or harm competition, its shareholdings will be converted into dormant shares, as long as the Minister’s consent is required but not obtained, with no rights other than the right to receive dividends and other distributions to shareholders, and to participate in rights offerings.

The dormant shares must be registered as dormant shares in our share registry. Any shareholder seeking to vote at a general meeting of our shareholders must notify us prior to the vote, or, if the vote is by deed of vote, must so indicate on the deed of vote, whether or not the shareholder’s holdings in Partner or the shareholder’s vote requires the consent of the Ministry of Communications due to the restrictions on transfer or acquisition of means of control, or provisions regarding cross-ownership or cross-control with other mobile telephone operators or shareholders. If the shareholder does not provide such certification, his instructions shall be invalid and his vote not counted.

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

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

—	our Articles of Association include the provisions described in this paragraph;

—	we act in accordance with such provisions;

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

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

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

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

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

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

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

—	The majority of our directors, and our general manager, must be citizens and residents of Israel.

—	Neither the general manager of Partner nor a director of Partner may continue to serve in office if he has been convicted of certain legal offenses.

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No trust fund, insurance company, investment company or pension fund that is an Interested Party in Partner may: (a) hold, either directly or indirectly, more than 5% of any means of control in a competing mobile radio telephone operator without having obtained a permit to do so from the Ministry of Communications, or (b) hold, either directly or indirectly, more than 5% of any means of control in a competing mobile radio telephone operator in accordance with a permit from the Minister, and in addition have a representative or appointee who is an Office Holder in a competing mobile radio telephone operator, unless it has been legally required to do so, or (c) hold, either directly or indirectly, more than 10% of any means of control in a competing mobile radio telephone operator, even if it received a permit to hold up to 10% of such means of control.

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No trust fund, insurance company, investment company or a pension fund that is an Interested Party in a competing mobile radio telephone operator may: (a) hold, either directly or indirectly, more than 5% of any means of control in Partner, without having obtained a permit to do so from the Ministry of Communications; or (b) hold, directly or indirectly, more than 5% of any means of control in Partner in accordance with a permit from the Ministry of Communications, and in addition have a representative or appointee who is an Office Holder in Partner, unless it has been legally required to do so; or (c) hold, either directly or indirectly, more than 10% of any means of control in Partner, even if it received a permit to hold up to 10% of such means of control.

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Partner, an Office Holder or Interested Party in Partner, or an Office Holder in an Interested Party in Partner does not control a competing mobile radio telephone operator, is not controlled by a competing mobile radio telephone operator, by an Office Holder or an Interested Party in a competing mobile radio telephone operator, by an Office Holder in an Interested Party in a competing mobile radio telephone operator, or by a person or corporation that controls a competing mobile radio telephone operator.

Our license may also be revoked, limited or altered by the Ministry of Communications if we have failed to uphold our obligations under the Telecommunications Law, the Wireless Telegraphy Ordinance or the regulations, or have committed a substantial breach of the license conditions. Examples of the principal undertakings identified in our license in this connection are:

—	We have illegally ceased, limited or delayed any one of our services;

—	Any means of control in Partner or control of Partner has been transferred in contravention of our license;

—	We fail to invest the required amounts in the establishment and operation of the mobile radio telephone system in accordance with our undertakings to the Ministry of Communications;

—	We have harmed or limited competition in the area of mobile radio telephone services;

—	A receiver or temporary liquidator is appointed for us, an order is issued for our winding up or we have decided to voluntarily wind up; or

—

Partner, an Office Holder in Partner or an Interested Party in Partner or an Office Holder in an Interested Party of Partner is an Interested Party in a competing mobile radio telephone operator or is an Office Holder in a competing mobile radio telephone operator or in an interested party in a competing mobile radio telephone operator without first obtaining a permit from the Ministry of Communications to do so or has not fulfilled one of the conditions included in such permit. See “Item 4B. Information on the Company–Business Overview–Regulation–Our Permit Regarding Cross Ownership.”

In addition, our amended license, like the licenses of our competitors, provides that if we participate in a future tender for a mobile telecommunications license, we may be required by the terms of a new tender, if we win such tender, to transfer our network to another operator according to terms which the Minister of Communications may decide upon and to cease providing mobile telephony services.

Change in license conditions. Under our license, the Ministry of Communications may change, add to, or remove conditions of our license if certain conditions exist, including:

—	A change has occurred in the suitability of Partner to implement the actions and services that are the subject of our license.

—	A change in our license is required in order to ensure effective and fair competition in the telecommunications sector.

—	A change in our license is required in order to ensure the standards of availability and grade of service required of Partner.

—	A change in telecommunications technology justifies a modification of our license.

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

—	Considerations of public interest justify modifying our license.

—	A change in government policy in the telecommunications sector justifies a modification of our license.

—	A change in our license is required due to its breach by Partner.

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

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

—	“Office Holder” means a director, manager, company secretary or any other senior officer that is directly subordinate to the general manager.

—

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

—	“Controlling Corporation” means a company that has control, as defined above, of a foreign mobile radio telephone operator.

—	“Foreign Mobile Radio Telephone Operator” means an operator of a mobile telephone system abroad, through which mobile telephone services are provided to at least 500,000 subscribers.

—	“Interested Party” means a person who either directly or indirectly holds 5% or more of any type of means of control, including holding as an agent.

Our Permit Regarding Cross Ownership

Our license generally prohibits cross-control or cross-ownership among competing mobile telephone operators without a permit from the Ministry of Communications. In particular, Partner, an Office Holder or an Interested Party in Partner, as well as an Office Holder in an Interested Party in Partner may not control or hold, directly or indirectly, 5% or more of any means of control of a competing mobile radio telephone operator. Our license also prohibits any competing mobile radio telephone operator or an Office Holder or an Interested Party in a competing mobile radio telephone operator, or an Office Holder in an Interested Party in a competing mobile radio telephone operator or a person or corporation that controls a competing mobile radio telephone operator from either controlling, or being an Interested Party in us.

However, our license, as amended on April 14, 2002 also provides that the Ministry of Communications may permit an Interested Party in Partner to hold, either directly or indirectly, 5% or more in any of the means of control of a competing mobile radio telephone operator if the Ministry of Communications is satisfied that competition will not be harmed, and on the condition that the Interested Party is an Interested Party in Partner only by virtue of a special calculation described in the license and relating to attributed holdings of shareholders deemed to be in control of a corporation.

Other Licenses

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

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

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

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

Network Site Permits

Permits of the Ministry of the Environment

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

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

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

Local Building Permits

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

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

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

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

National Building Plan No. 36

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

Under the Non-Ionizing Radiation Law, which imposes criminal sanctions for non-compliance with its dictates, the National Council for Planning and Building was granted the power to determine the level of indemnification for reduction of property value to be undertaken as a precondition for a cellular company to obtain a building permit for a new or existing network site. As a result, the National Council for Planning and Building has decided that until National Building Plan 36 is amended to reflect a different indemnification amount, cellular companies will be required to undertake to indemnify the building and planning committee for 100% of all losses resulting from claims against the committee. Thus, at present, in order to obtain a building permit for a new or existing network site, we must provide full indemnification for the reduction of property value.

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

Other Approvals

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

We, like other cellular telephone operators in Israel, provide repeaters, also known as bi-directional amplifiers, to subscribers seeking an interim solution to weak signal reception within specific indoor locations. In light of the lack of a clear policy of the local planning and building authorities, and in light of the practice of the other cellular telephone operators, we have not requested permits under the Planning and Building Law for the repeaters. However, we have received from the Ministry of Communications an approval to connect the repeaters to our communications network. We have also approached the Ministry of the Environment, asserting that no permits are necessary for the repeaters, based on the Ministry’s previous advice that permits are not necessary for devices with comparable levels of emission called “Fixed Cellular Terminals.”

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

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

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

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

4C. Organizational Structure

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

4D. Property, Plant and Equipment

Headquarters

We lease our headquarter facilities in Rosh Ha-ayin, Israel, as follows:

(1)	Main office at 8 Amal St. – a building of 10,532 square meters plus 6,345 square meters mainly for parking. The lease agreement is for a 20 year period commencing on June 1998. We have an option to shorten the lease period by 3.5 to 8.5 years.

(2)

Main office at 6 Amal St. – a building of 9,172 square meters plus 14,877 square meters of parking and service areas. In 2003, we increased our lease to 18,151 square meters and 14,877 square meters for parking and service areas. In 2004, we increased our lease to 19,000 square meters plus 14,877 square meters for parking and service areas. The lease agreement is for a 16 year period commencing in November 2002. We have an option to terminate the lease on May 31, 2012 or May 31, 2018.

(3)

Main office at 10 Amal St. – 2,468 square meters plus 500 square meters of parking and service areas. The lease agreement is for an initial period of 24 months commencing in December 2002. We have an option to continue the lease period for seven additional periods of 24 months each. The lease for the main office at 10 Amal St. renews automatically at the end of each term.

We lease a call center at 5 Kornas St. in Haifa, a building of 2,525 square meters, as well as an additional 500 square meters. The lease agreements are for 3 year periods commencing in May 2005 and March 2007, respectively. We have the option to extend the leases period for 6 years. We also lease a call center in Jerusalem, a building of 797 square meters. The lease agreement is for a two year period commencing in March 2007.

Network

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

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

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

Service Centers and Points of Sale

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

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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

5A. Operating Results

Overview

Business Developments in 2007

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

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

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

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

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

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

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

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






Revenues (NIS million)	5,123		5,607		6,114
Operating profit (NIS million)	903		1,218		1,405
Income before taxes (NIS million)	557		1,052		1,278
Net income (NIS million)	355		682		940
Capital expenditures, net (NIS million)	486		488		469
Cash flow provided by operating activities
net of investment activities (NIS million)	460		775		916
Subscribers (thousands)	2,529		2,668		2,860
Annual churn rate (%)	13.6	%	15.6	%	15	%
Average monthly usage per subscriber (in minutes)	294		311		336
Average monthly revenue per subscriber (NIS)	156		158		158

Other developments

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

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

Revenues

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

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

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

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

Cost of Revenues

Our principal components of cost of revenues are:

—

interconnect fees paid to the land-line and other telecommunication network operators in Israel and charges paid to foreign GSM network operators;

—

handset and car-kit costs;

—

depreciation of our network and amortization of our license;

—

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

—

leases for our antenna and other network sites;

—

network maintenance;

—

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

—

costs of replacing or repairing damaged handsets; and

—

royalties paid to the Israeli Government under our license.

Selling and Marketing Expenses

Our principal components of selling and marketing expenses are:

—

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

—

advertising and promotion; and

—

sales commissions to dealers.

General and Administrative Expenses

Our principal components of general and administrative expenses are:

—

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

—

provision for bad debts;

—

professional fees and consultancy fees;

—

depreciation and amortization; and

—

insurance.

Financial Expenses

Our principal components of financial expenses, net are:

—

interest on notes and bank loans;

—

exchange rate and linkage differences; and

—

net hedging costs on foreign currency and CPI exposure.

Key Business Indicators (Operating Data)

Our primary key business indicators are described below. These indicators are widely used in the cellular telephone service industry to evaluate performance:

—

number of subscribers;

—

average monthly revenue per subscriber ("ARPU");

—

average monthly minutes of usage per subscriber ("MOU"); and

—

churn rate.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. We also evaluate our estimates, on an ongoing basis. We base our estimates on historical experience and on various other assumptions and information that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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

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

Revenue Recognition

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

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

Long-Lived Assets

We have substantial investments in tangible and intangible long-lived assets, primarily our communications network, our license and spectrum. Changes in technology or changes in our intended use of these assets can cause the estimated period of use or the value of these assets to change. We amortize our communications network by the straight-line method, mainly over 6.7 years (15% per year). For instance, had the percentage of depreciation been decreased by 5%, our operating profit would increase by approximately NIS 124 million and had the percentage of depreciation increased by 5%, our operating profit would decrease by approximately NIS 112 million. We amortize our license by the straight-line method over the utilization period of the license, which is based upon the license period. During 2002, our license was extended by 14 years to 2022. Consequently, the amortized balance of our license is amortized as of 2002 over the period ending in 2022. We review our communications network, license and spectrum for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable through undiscounted future cash flows. If necessary, we write down the assets to their estimated fair values. No write-downs of our long-lived assets have been recorded since incorporation.

Allowance for Doubtful Accounts

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Revenues from services. Revenues in 2006 from services were NIS 5,027.3 million in 2006, representing an increase of 8.8% from 2005 service revenues of NIS 4,619.9 million. Compared with 2005, total network minutes increased in 2006 by 13.2%, partially offset by a 5.5% dilution in the average tariff per minute including incoming calls. The increase in total network minutes was driven primarily by an expanding subscriber base which grew by 5.5% in 2006. The dilution in the average tariff per minute compared with 2005 was driven primarily by the reduction in interconnection tariffs which went into effect in March 2006, as well as by increased competition and the increased weight of business subscribers in our customer base. The average business subscriber generates substantially more minutes of use than post-paid private and prepaid subscribers, whilst their average tariff per minute is lower.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Seasonality

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

	Three months ended
New Israeli Shekels in thousands	March 31		June 30		Sept. 30		Dec. 31



Service Revenues

2006		1,184,208		1,244,492		1,316,420		1,282,190
2007		1,258,315		1,307,610		1,401,057		1,361,757

Impact of Inflation and Exchange Rate Fluctuations

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

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

5B. Liquidity and Capital Resources

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

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

Currently, our main sources of liquidity are:

—

our cash on hand;

—

our operating cashflows; and

—

our senior credit facilities.

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

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

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

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

The Notes are due 2012 and principal and interest payments are linked to the CPI. The annual interest on the notes is 4.25% payable quarterly. Quarterly principal repayments in twelve installments will begin in June 2009. The notes were rated AA- by Maalot, and Aa2 by Midroog, two of Israel’s rating agencies. We used the net proceeds from the offering to pay down some of our existing credit facility, and, as further described below, to repurchase up to 33.3 million shares from our founding Israeli shareholders and to redeem our 13% Senior Subordinated Notes due 2010, originally issued in August 2000.

–

In April 2005, we repurchased approximately 33.3 million of our shares pursuant to an offer received from our founding Israeli Shareholders in February 2005. These shareholders held together approximately 22.5% of the Company’s outstanding shares at the time of the offer. As a result of the repurchase, the collective shareholdings of the founding Israeli shareholders were reduced to approximately 5.4% of our issued and outstanding share capital. The price per share at which these shares were acquired was NIS 32.22 per share. The total consideration paid for the shares was approximately NIS 1,074 million. We cancelled the repurchased shares.

–

In August 2005, we redeemed the outstanding US $175 million 13% Senior Subordinated Notes due 2010. According to the terms of the notes, the redemption price was 106.5% of the principal amount, or $186.375 million. The redemption, which we financed from our new bank facility and funds generated from current operations, concluded the refinancing of our long term debt into lower cost CPI linked shekel-denominated debt.

Dividend payments and share repurchases. In the third quarter of 2005, our Board of Directors and shareholders approved the distribution of our first cash dividend, in the amount of NIS 0.57 per share, totaling approximately NIS 86.4 million. During the years 2006 and 2007, we distributed cash dividends to our shareholders in the amount of NIS 307 million and NIS 631 million, respectively. In February 2008, the Board of Directors approved the distribution of a cash dividend in the amount of NIS 2.02 per share (approximately NIS 318 million ($83 million)) to shareholders of record as of February 20, 2008. Cash dividends are paid in Israeli currency. For further information see “Item 8A. Consolidated Financial Statements and other Financial Information – Dividend Distribution Policy”. In February 2008, the Board also approved a share buy-back plan throughout 2008 in an amount of up to NIS 600 million, subject to appropriate market conditions. As of April 30, 2008, we have repurchased approximately 625,000 of our shares for a total consideration of approximately NIS 49 million. See “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers”.

We believe that funds from our operations, together with funds raised under our credit facility and our cash on hand will provide us with enough liquidity and resources to fund our expected capital expenditure needs, as well as our obligations under our financing agreements, our license payments and our other material commitments, at least for the next 12 months. However, the actual amount and timing of our future requirements may differ materially from our estimates.

5C. Research and Development, Patents and Licenses

We are primarily a user rather than a developer of technology. Accordingly, we did not engage in any significant research and development activities during the past three years.

5D. Trend Information

First quarter of 2008

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

Financial Review

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

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

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

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

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

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

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

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

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

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

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

Funding and Investing Review

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

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

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

Operational Review

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

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

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

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

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

Outlook

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

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

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

5E. Off-Balance Sheet Arrangements

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

5F. Aggregate Contractual Obligations

Set forth below are our contractual obligations and other commercial commitments as of December 31, 2007:

	Payments Due by Period (NIS in thousands)
Contractual Obligations	Total			less than 1 year		1-3 years		3-5 years		more than 5 years



Long-Term Debt*		2,094,099	*		21,463		1,209,038		863,598		-
Capital Lease Obligations		10,264			6,818		3,446		-		-
Operating Leases		1,070,462			197,177		297,477		196,472		379,336

Contribution to funds in respect of
Employee rights upon retirements		43,000			43,000		-		-		-
Handsets		333,000			333,000		-		-		-
Fixed Assets		414,000			298,486		115,514		-		-
Unrecognized tax benefit		7,000			7,000		-		-		-

*Total Contractual Cash Obligations*		*3,971,825*			*906,944*		*1,625,475*		*1,060,070*		*379,336*

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

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6A. Directors and Senior Management

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

Directors

Name of Director	Age	Position




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

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

(2)	Member of the Audit Committee.

(3)	Member of the Compensation Committee.

(4)	External Director under the Companies Law.

(5)	Director appointed by our Israeli founding shareholders.

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

Dr. Michael J. Anghel became a director of Partner in March 2006. From 1977 to 1999, he led the Discount Investment Corporation Ltd. (of the IDB Group) activities in the fields of technology and communications. Dr. Anghel was instrumental in founding Tevel, one of the first Israeli cable television operators and later in founding Cellcom – the second Israeli cellular operator. In 1999 he founded CAP Ventures, an advanced technology investment company. From 2004 to 2005, Dr. Anghel served as CEO of DCM, the investment banking arm of the Israel Discount Bank. He has been involved in various technology enterprises and has served on the Boards of Directors of various major Israeli corporations and financial institutions including Elron, Elbit, Nice, Gilat, American Israeli Paper Mills, Maalot (the Israeli affiliate of Standard and Poor’s) and Hapoalim Capital Markets. He currently serves on the Boards of Directors of Syneron Medical Ltd., ECI Telecom Ltd. and Scopus Ltd. Prior to launching his business career, Dr. Anghel served as a full-time member of the Recanati Graduate School of Business Administration of the Tel Aviv University, where he taught finance and corporate strategy. He currently serves as Chairman of the Tel Aviv University’s Executive Program. Dr. Anghel holds a B.A. (Economics) from the Hebrew University in Jerusalem and an M.B.A. and Ph.D. (Finance) from Columbia University in New York.

Chan Ting Yu was a director of Partner from October 1997 to March 2000 and became a director again in May 2001. He is a member of the Executive Committee and the Compensation Committee. Mr. Chan is an Executive Director of Hutchison Telecommunications International Limited. Since joining the Hutchison Whampoa group, he has been closely involved in the management and development of Hutchison’s telecommunications business internationally. Mr. Chan holds a Bachelor of Arts degree, a Bachelor of Laws degree and a Postgraduate Certificate in Laws. Mr. Chan was nominated as a director, and as a member of the Executive Committee, by Advent Investments Pte Ltd.

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

Uzia Galil has been a director of Partner since August 1999. Mr. Galil currently serves as Chairman and Chief Executive Officer of Uzia Initiatives and Management Ltd., a company specializing in the promotion and nurturing of new businesses associated with mobile communication, electronic commerce and medical information media, which he founded in November 1999. From 1962 until November 1999, Mr. Galil served as President and Chief Executive Officer of Elron Electronics Industries Ltd., an Israeli high technology holding company, which he founded and of which he also served as Chairman of the Board of Directors. From January 1981 until leaving Elron, Mr. Galil also served as Chairman of the Board of Directors of Elbit Ltd., an electronic communication affiliate of Elron, and as a member of the Boards of Directors of Elbit Systems Ltd., a defense electronics affiliate of Elron, and all other private companies held in the Elron portfolio. Mr. Galil currently serves as a member of the Boards of Directors of Orbotech Ltd., NetManage Inc., and as Chairman of Zoran Corporation. From 1980 to 1990, Mr. Galil served as Chairman of the International Board of Governors of the Technion. Mr. Galil holds a M.S. in Electrical Engineering from Purdue University and a B.S. from the Technion. Mr. Galil has also been awarded an honorary doctorate in technical sciences by the Technion in recognition of his contribution to the development of science-based industries in Israel, an honorary doctorate in philosophy by the Weitzman Institute of Science, an honorary doctorate in engineering by Polytechnic University, New York, and an honorary doctorate from the Ben-Gurion University of the Negev in Israel and the Solomon Bublick prize laureate from the Hebrew University of Jerusalem. In 1997 he was awarded the prestigious Israel Prize for his contribution to the development of the Israeli hi-tech industry. Until April 20, 2005, Mr. Galil had been a director nominated by Elbit.COM. Since then, Mr. Galil serves as a director on behalf of Advent Investments Pte Ltd.

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

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

Pesach Shachar has been a director of Partner since May 1998 and is a member of the Executive Committee. For 21 years he was the General Manager, founder, and a shareholder in Nogay Ltd., a telecommunications consulting firm active in numerous high-tech projects in Israel and overseas. In that capacity, he advised Hutchison on the prospects in the cellular market in Israel, established the Partner shareholder consortium and advised Hutchison on the bidding for the license and launch of operations. Mr. Shachar served 28 years in the Israel Defense Forces Signal Corps and Air Force/Telecommunications, reaching the rank of Colonel. Mr. Shachar was nominated as a director, and as a member of the Executive Committee, by Advent Investments Pte Ltd.

Amikam Shorer has been a director of Partner since June 2005. He was nominated as director by our Israeli founding shareholders. Mr. Shorer has served as executive Vice President of Business Affairs and the General Counsel of Eurocom Group, an Israeli leader in telecom and internet products and services, since 2000. Mr. Shorer also serves as a director in several companies within the Eurocom Group. Mr. Shorer holds an LLB degree from Bar-Ilan University.

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

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

Senior Management

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

Name of Officer*	Age	Position




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

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

David Avner was appointed Chief Executive Officer on January 1, 2007, having served as Deputy CEO since April 2005 and Chief Operating Officer since January 2006. Prior to joining the Company, Mr. Avner served as Senior Vice President of Operations and Member of the executive management at Amdocs Limited. Previously, he served at Amdocs as Group President Europe and LATAM & Member of Management. Prior to that, Mr. Avner served at Strauss Dairy Ltd. for 17 years, the last four as General Manager of the Dairy Division. He was also the General Manager of Strauss Ice Creams Ltd., and Manager of Information Systems at Strauss Dairy Ltd. Mr. Avner also served as Active Director of Yotvata Dairies Subsidiary since 1998. He holds a Bachelor of Arts degree in Mathematics/Computer Sciences and Philosophy from Haifa University in Israel and an MBA degree from the Technion, Israel Institute of Technology. David Avner and Emanuel Avner are not related.

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

Iris Beck was appointed Vice President, Marketing in December 2002. Prior to joining the Company, she served as General Manager of Lever Israel (local subsidiary of Unilever). Ms. Beck worked at Lever Israel from 1996 and held senior positions such as Marketing Director and Technical Director before her appointment as General Manager. Ms. Beck worked as Brand Manager at Strauss Ice Cream from 1993 to 1996, and as Project Controller at Kulick & Soffa from 1991 to 1993. Ms. Beck holds a Bachelor’s degree in Economic Science (with distinction) from Haifa University, and Master of Arts degree in Marketing (with distinction) from Bar-Ilan University. Ms. Beck will conclude her service as Vice President Marketing with the Company as of December 31, 2008.

Chaim Beker was appointed as Vice President Operations in January 2004. Since 1998, Mr. Beker has served in a number of positions at Partner, such as: Administration and Purchasing Manager and Deputy Vice President Operations. From 1974 to 1984 Mr. Beker served as Vice President Administration of ARKIA. From 1984 he served as the CEO of several companies such as: Europcar, HaMashbir Agencies and Clal Israel. Mr. Beker holds a Bachelor’s degree in Economics from the Hebrew University.

Alon Berman was appointed Vice President, Technologies in October 2004. Mr. Berman joined Partner as Deputy VP of Engineering in the Technologies division at the end of 2002, after serving 20 years in the Israeli Defense Forces, rising to the rank of Colonel and Head of Technical Department in the Communications Corps. Mr. Berman holds a bachelor degree in Electronic Engineering from the Technion – Israel Institute of Technology (1982), a Master Degree in Electronic Engineering (1991) and MBA (1994) from Tel Aviv University.

Adi Biran joined Partner in October 1997 from his position as team leader of Partner’s bidding group and from April 1998 until November 2007 served as Vice President, Regulation and New Business Development. Mr. Biran came to Partner from Elbit Ltd., where, since 1992, he initiated and headed their effort to enter the telecommunications market as an additional mobile radio operator, using the GSM standard, and in that capacity, he guided and managed the bid preparation process that resulted in Partner’s mobile radio telephone license. Prior to joining Elbit, he was Managing Director of Efrat Future Technology Ltd., a subsidiary of Comverse Technology Inc. He completed his 20-year career in the Israel Air Force as a colonel and as chief of research and development. Mr. Biran holds a Bachelor’s degree in Aeronautical Engineering with distinction from the Israel Institute of Technology (Technion), Haifa, Israel.

Michal Dana serves as Vice President, Human Resources and Operations since May 2006. She worked at Amdocs since 2002, where she served first as the Director of Human Resources for Amdocs’ European and Latin American division, and from 2005 as the Vice President of Human Resources, overseeing the worldwide customer business group for all human resource activities in Europe, Asia Pacific, and Latin America. From 2000 to 2002, Ms. Dana served as the Vice President of Human Resources for Bungee Communications, a start-up wireless broadband telecommunications company. Before that, she served from 1999-2000 as the Director of Human Resources for the Carmel Containers Systems Group, from 1996-1999 as the Director of Human Resources for the Caesarea Development Corporation, and from 1980-1996 as the Senior Human Resource Consultant for Pilat international consulting group. She holds a B.A. in Social Science from the Open University in Israel.

Dan Eldar serves as Vice President, Carrier, International and Investor Relations for Partner. He is also responsible for strategic planning. Dr. Eldar joined Partner in April 1998. Since 1989, Dr. Eldar has served as the managing director of an Israeli consulting firm specializing in strategic planning, negotiation and project management. Dr. Eldar has managed many large-scale projects in the telecommunications and semiconductor industries, as well as in other areas. He holds PhD and M.A. degrees from Harvard University and M.A. and B.A. degrees from the Hebrew University, Jerusalem. Dr. Eldar concluded his service as Vice President with the Company as of December 31, 2007.

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

Roly Klinger, Vice President Legal and Regulatory Affairs and Joint Company Secretary, joined Partner in August 1998 as the Chief Legal Counsel and Joint Company Secretary. Roly Klinger was appointed as Vice President Legal and Regulatory Affairs effective November 1, 2007. From 1993, she served as Legal Advisor and Corporate General Secretary of Keshet Broadcasting Ltd., which holds an operating franchise for Israel’s first commercial television channel. Previously, while practicing in the private sector, she lectured on communications law at the College of Management–Academic Studies, Tel-Aviv. Ms. Klinger received an LL.B degree from Tel Aviv University and is admitted to the Israel Bar.

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

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

Appointments

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

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

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

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

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

6B. Compensation

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

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

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

6C. Board Practices

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

Terms of Directors

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

Alternate Directors

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

External Directors under the Companies Law

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

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

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

Financial Experts under the Companies Law

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

Nasdaq Rule Exemptions

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

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

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

In order to comply with the conditions and restrictions imposed on us by the Ministry of Communications, including in our license, in relation to ownership or control over us, under certain events specified in our articles of association, the Board of Directors may determine that certain ordinary shares are dormant shares. Consequently, we have received an exemption from the requirement set out in Nasdaq’s Marketplace Rule 4351 that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the US Securities Exchange Act cannot be disparately reduced or restricted through any corporate action or issuance.

Executive Committee

Our Executive Committee was nominated by the Board of Directors on July 15, 1998. Our Executive Committee comprises members who are directors appointed by the Board of Directors from time to time. Subject to the provisions of the Companies Law, the Executive Committee is authorized to make all major decisions relating to the business affairs of Partner. The Executive Committee is authorized by the Board of Directors to approve contracts, commitments and other transactions up to a value determined by the Board of Directors from time to time. Ting Chan, Erez Gissin, Dennis Lui, Pesach Shachar, and Moshe Vidman are members of our Executive Committee.

Audit Committee

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

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

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

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

Compensation Committee

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

Security Committee

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

Internal Auditor

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

Fiduciary Duties of an Office Holder

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

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

Approval of Related Party Transactions

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

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

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

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

Duty of a Shareholder

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

Indemnification

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

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

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

(a)

in the context of proceedings filed against him by Partner or on Partner’s behalf or by a third party; or

(b)

in a criminal proceeding in which he was acquitted; or

(c)

in a criminal proceeding in which he was convicted of a felony which does not require a finding of criminal intent.

(3)

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

(a)

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

(b)

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

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

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

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

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

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

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

(4)	criminal fine or penalty imposed on him.

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

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

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

6D. Employees

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

	December 31
	2007		2006		2005



Customer service		2,635		2,228		1,971
Engineering		312		311		442
Sales and sales support		479		452		438
Information technology		136		165		114
Marketing and Content		109		101		103
Finance		81		79		71
Human resources		97		99		89
Remaining operations		282		279		175
TOTAL		4,130		3,714		3,403

Substantially all of our employees have entered into employment contracts with us, terminable at will by either party.

Our employees are not covered by any company-specific collective bargaining agreement. However, we are subject to various Israeli labor laws and practices, as well as orders extending certain provisions of collective bargaining agreements between the Histadrut, currently the largest labor organization in Israel, and the Coordinating Bureau of Economic Organizations, the federation of employers’ organizations. Such laws, agreements and orders cover a wide range of areas and impose minimum employment standards including, working hours, minimum wages, vacation and severance pay, and special issues, such as equal pay for equal work, equal opportunity in employment, and employment of women, youth, disabled persons and army veterans.

We generally contribute funds on behalf of our employees to a fund known as “Managers’ Insurance”. This fund provides a combination of provident fund, insurance and severance pay benefits to the employees, giving the employees a lump sum payment upon retirement and securing most of the severance pay, if legally entitled, upon termination of employment. The employer’s deposits are the property of the Company until termination of employment. Most employees are entitled to participate in the plan upon the start of employment or after an initial period. A participating employee generally contributes an amount equal to 5% of his salary and we contribute between 5% and 15.8% of such employee’s salary.

We also offer to most of our employees the opportunity to participate in a “Continuing Education Fund,” which functions also as a savings plan. Each of the participating employees contributes an amount equal to 2.5% of his salary and we contribute between 5% and 7.5% of such employee’s salary.

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

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

6E. Share Ownership

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

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

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

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

Until November 2003, we granted options to our senior management and other employees pursuant to our 1998 and 2000 Employee Stock Option Plans described below. In November 2003 we amended our stock option plans to conform with recent changes in the Israeli Income Tax Ordinance (New Version), 1961. As a result, any grants of options after November 2003 are subject to the terms of our 2000 Employee Stock Option Plan as so amended, referred to as the 2003 Amended Plan. In addition, in 2004, 2005 and 2006 we granted options to our management and other employees pursuant to the 2004 Employee Stock Option Plan.

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

1998 Employee Stock Option Plan

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

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

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

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

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

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

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

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

2000 Employee Stock Option Plan

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

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

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

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

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

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

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

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

2003 Amended Plan

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

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

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

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

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

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

2004 Employee Stock Option Plan

Under the 2004 Share Option Plan, as amended to date, 5,775,000 ordinary shares are reserved for issuance upon the exercise of 5,775,000 options to be granted without consideration to employees, directors, officers and advisors. The options will be granted to employees under the provisions of the capital gain’s tax route provided for in Section 102 of the Israeli Income Tax Ordinance. The options vest in four equal annual batches, provided the employee is still in the Company’s employ. The option holder may exercise all or part of his options at any time after the date of vesting but no later than the expiration of the exercise period, which will be fixed by the Employee Stock Option Committee and will not exceed ten years from the date of option grant.

In connection with the adoption of the 2004 Share Option Plan, we received an exemption from the requirement set out in Nasdaq’s Marketplace Rule 4350(i)(1)(A) that listed companies receive shareholder approval when certain stock option or purchase plans are to be established or materially amended, or certain other equity compensation arrangement made or materially amended. This exemption was granted based on the fact that the Nasdaq requirement is inconsistent with applicable Israeli legal requirements, which require approval from a company’s Board of Directors upon the establishment or amendment of such a plan unless directors or controlling partners participate in the plan in which case approval of the shareholders meeting would be required upon the grant of options to such directors or controlling partners.

The 2004 Share Option Plan is administered by the Compensation Committee of the Board of Directors. Subject to the restrictions of the Companies Law, the Compensation Committee is authorized, among other things, to exercise all the powers and authorities, either specifically granted to it under the 2004 Share Option Plan or necessary or advisable for the administration of the 2004 Plan.

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

The Board of Directors may amend the 2004 Plan, subject to other sections of the Plan and the rules and/or regulations of any stock exchange applicable from time to time to the Company, by reason of their applicability to its shareholders or otherwise; provided, that the shareholders of the Company must approve (i) provisions of the Plan relating to the matters set out in Rule 17.03 of Chapter 17 of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Ltd , as amended from time to time, that are altered to the advantage of Participants, (ii) any alterations to the terms and conditions of the Plan which are of a material nature or to the Options granted (except where the alterations take effect automatically under the existing terms of the Plan); and (iii) any change to the authority of the Board of Directors of the Company or the Compensation Committee in relation to any alteration to the terms of the Plan.

The Board of Directors may, at any time and from time to time, terminate the 2004 Plan in any respect, subject to any applicable approvals or consents that may be otherwise required by law, regulation or agreement, including by reason of their applicability to the shareholders or otherwise, and provided that no termination of the 2004 Plan shall adversely affect the terms of any option which has already been granted.

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

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

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7A. Major Shareholders

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

Name




Hutchison Telecommunications International Limited, Hutchison
Whampoa Limited, Cheung Kong (Holdings) Limited (1)(2)(3)(4)	78,940,104	50.13	50.33

Israeli founding shareholders (4)	8,057,712	5.12	5.14

Treasury shares (5)	625,000	0.40	--

Public (6)	69,840,537	44.35	44.53

*Total*	157,463,353	100.00	100.00

(1)

Hutchison Telecommunications International Limited (“Hutchison Telecom”), Advent Investments Pte Ltd., (“Advent”), Hutchison Telecommunications International (Netherlands) B.V., (“Hutchison (Netherlands)”), Hutchison Whampoa Limited (“HWL”) and Cheung Kong (Holdings) Limited (“Cheung Kong”). Hutchison Telecom, a company incorporated in the Cayman Islands and whose ordinary shares are listed on the Hong Kong Stock Exchange and ADSs are listed on the New York Stock Exchange, owns Partner shares through two indirect subsidiaries, Advent and Hutchison (Netherlands), which own 65,464,024 and 13,476,080 ordinary shares of Partner, respectively. Advent, incorporated in Singapore, is an indirect wholly-owned subsidiary of Hutchison Telecom, owned through a chain of wholly-owned subsidiaries as follows: Advent is owned by Amber International Holdings Inc., which is owned by Hutchison Telecommunications International (Cayman) Holdings Limited, which is owned by Hutchison Telecom. Hutchison (Netherlands) is also an indirect wholly-owned subsidiary of Hutchison Telecom, owned through a chain of wholly-owned subsidiaries as follows: Hutchison (Netherlands) is owned by Hutchison Telecommunications (Cyprus) Limited, which is owned by Amber International Holdings Inc., which is owned by Hutchison Telecommunications International (Cayman) Holdings Limited, which is owned by Hutchison Telecom.

(2)

Based on publicly available SEC filings by Hutchison Telecom, Advent, Hutchison (Netherlands), HWL and Cheung Kong, HWL, a company incorporated in Hong Kong and whose ordinary shares are listed on the Hong Kong Stock Exchange, owns Partner shares through its direct wholly owned subsidiary Hutchison International Limited, which in turn directly holds 100% of Ommaney Holdings Limited (formerly Hutchison Telecommunications Limited), which in turn directly holds 100% of Hutchison Telecommunications Investment Holdings Limited (“HTIHL”), which in turn directly holds approximately 54.79% and also through its wholly owned subsidiary, Hutchison Telecommunications Holdings Limited (formerly, New Brilliant Holdings Limited), indirectly holds approximately 4.54% of the total outstanding ordinary shares of Hutchison Telecom, which indirectly owns 78,940,104 of the ordinary shares of Partner.

(3)

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

(4)

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

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

(6)

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

Controlling Shareholders

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

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

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

On April 20, 2005, we repurchased approximately 33.3 million shares from our Israeli founding shareholders, as follows: 12,765,190 shares from Elbit, 9,359,915 shares from Eurocom, 7,783,444 shares from Matav Investments and 3,409,384 shares from Polar Communications Ltd. as described in “Item 7B. Related Party Transactions – Repurchase of Shares from Founding Israeli Shareholders”. As a result the shareholdings of Hutchison Telecom increased to 52.15% at completion of the transactions.

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

Other

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

7B. Related Party Transactions

Relationship Agreement

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

License Conditions: Required Minimum Israeli and Founding Shareholder Percentages

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

Foreign Mobile Radio Telephone Operator

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

Compulsory Transfer in the Event of Default

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

Term and Termination

The Agreement continues in full force and effect until we are wound up or cease to exist unless terminated earlier by the parties. The Agreement will terminate in relation to any individual party after it ceases to hold any share beneficially if it is required to comply with the minimum holding requirements for founding shareholders or Israeli founding shareholders, as applicable, and the transfer of the shares was not made in breach of the Relationship Agreement.

Related agreement among Israeli founding shareholders

A shareholders’ agreement among the Israeli founding shareholders, or their approved substitutes, established the procedures, rights and obligations with respect to the appointment of the Israeli director. See “Item 6A. Directors and Senior Management – Appointments”.

Transactions with Affiliates

Agreements with affiliates of Hutchison Telecom

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

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

In August 2002, we signed a Cost-Sharing Agreement (the “CSA”) with certain members of the HWL group of companies for the joint acquisition and development of information technology platforms and software solutions, hardware, content and other services, in connection with the 3G generation business. The CSA allows us to participate in acquisition and development projects with other 3G companies within the HWL and Hutchison Telecom groups, and to benefit from the combined purchasing power and resources of the groups which include companies in Austria, Australia, Denmark, Hong Kong, Ireland, Italy, Sweden and the United Kingdom. As of December 31, 2006, we had given notice of our participation in seven joint contracts. We expect that our share in these contracts in financial terms (including our share of joint expenses and liabilities) is not material. We believe that the CSA gives us an advantage unavailable to our competitors, because the CSA gives us an opportunity to maximize economies of scale and operational efficiencies for development and procurement activities associated with our 3G business. See Note 12(c) to our consolidated financial statements.

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

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

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

Agreements with affiliates of Eurocom

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

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

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

Other Agreements

In March 2005, we entered into an agreement with Cellular Center for Vehicles Ltd., a company wholly owned by Mr. Talmai Cohen, the brother of our former Chief Executive Officer, Amikam Cohen, for the sale, installation and maintenance of car kits in approximately 35 locations.

In April 2005, we entered into a new bank credit facility, replacing our previous bank facility. Bank Hapoalim B.M., Bank Leumi Le-Israel B.M., Israel Discount Bank Ltd. and United Mizrahi Bank Ltd. are participating in the facility, with Bank Hapoalim B.M. serving as facility agent and Bank Leumi Le-Israel B.M. serving as coordinating agent. During 2004, two of our directors served also as directors in banks that are parties to the new credit facility – Mr. Mordechai Keret in Bank Hapoalim B.M. and Mr. Moshe Vidman in Bank Leumi Le-Israel B.M. See “Item 5. Operating and Financial Review and Prospects–Liquidity and Capital Resources.”

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

Registration Rights

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

7C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

8A. Consolidated Financial Statements and Other Financial Information

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

Legal and Administrative Proceedings

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

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

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

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

Dividend Distribution Policy

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

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

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

8B. Significant Changes

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

ITEM 9. THE OFFER AND LISTING

9A. Offer and Listing Details

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

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

	Nasdaq				London Stock Exchange				Tel Aviv Stock Exchange
	($ per ADS)				($ per ADS)*				(NIS per ordinary share)
	High		Low		High		Low		High		Low


2003		7.84		2.56		7.70		2.68		34.46		12.45

2004		8.59		6.36		8.66		6.50		38.40		28.93

2005		9.60		7.13		-		-		41.82		32.70

2006		12.52		7.20		-		-		51.92		33.85
First Quarter		8.58		7.20		-		-		38.95		33.85
Second Quarter		9.49		7.67		-		-		42.98		35.63
Third Quarter		9.94		8.02		-		-		42.65		36.53
Fourth Quarter		12.52		9.91		-		-		51.92		43.71

2007		22.23		11.5		-		-		85.20		48.42
First Quarter		14.89		11.5		-		-		61.30		48.42
Second Quarter		18.81		14.75		-		-		73.19		61.76
Third Quarter		17.58		14.26		-		-		75.11		61.54
Fourth Quarter		22.23		16.64		-		-		85.20		67.80

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

	Nasdaq				London Stock Exchange				Tel Aviv Stock Exchange
	($ per ADS)				($ per ADS)*				(NIS per ordinary share)
	High		Low		High		Low		High		Low


November 2007		20.87		19.01		-		-		79.60		75.48
December 2007		22.23		19.53		-		-		85.20		77.50
January 2008		22.06		19.72		-		-		85.48		72.23
February 2008		22.00		20.79		-		-		78.90		75.52
March 2008		23.45		21.24		-		-		81.10		75.20
April 2008		23.34		21.00		-		-		80.37		76.80

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

9B. Plan of Distribution

Not applicable.

9C. Markets

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

9D. Selling Shareholders

Not applicable.

9E. Dilution

Not applicable.

9F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

10A. Share Capital

Not applicable.

10B. Memorandum and Articles of Association

Purposes and Objects of the Company

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

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

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

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

The Powers of the Directors

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

See “Item 6C. Board Practices–Approval of Related Party Transactions.”

Rights Attached to Shares

Our registered share capital consists of a single class of 235 million ordinary shares, par value NIS 0.01 per share, of which 157,320,770 ordinary shares were issued and outstanding as of December 31, 2007, and 157,463,353 shares were issued and outstanding as of April 30, 2008. All outstanding ordinary shares are validly issued. The rights attached to our ordinary shares are described below.

Dividend Rights

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

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

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

Voting Rights

Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least one third of the voting rights of the issued share capital. In the event that a quorum is not present within thirty minutes of the scheduled time, the shareholders’ meeting will be adjourned to the same day of the following week, or the next business day thereafter, at the same time and place, or such time and place as the Board of Directors may determine. If at such reconvened meeting a quorum is not present at the time appointed for holding the meeting, one or more shareholders present in person or by proxy holding or representing in the aggregate at least 10% of the voting rights in us will constitute a quorum.

Any shareholder seeking to vote at a general meeting of our shareholders must first notify us if any of the shareholder’s holdings in us requires the consent of the Minister of Communications. The instructions of a shareholder will not be valid unless accompanied by a certification by the shareholder as to whether or not the shareholder’s holdings in us or the shareholder’s vote requires the consent of the Ministry of Communications due to a breach by the shareholder of the restrictions on transfer or acquisition of means of control, or provisions regarding cross-ownership with other mobile telephone operators or shareholdings or agreements which may reduce or harm competition. If the shareholder does not provide such certification, his instructions will be invalid and his vote not counted.

An ordinary resolution, such as a resolution for the election of directors, or the appointment of auditors, requires approval by the holders of a majority of the voting rights represented at the meeting, in person or by proxy, and voting thereon. Under our articles of association, resolutions such as a resolution amending our memorandum or articles of association or approving any change in capitalization, liquidation, changes in the objectives of the company, or the name of the company, or other changes as specified in our articles of association, requires approval of a special majority, representing the holders of no less than 75% of the voting rights represented at the meeting, in person or by proxy, and voting thereon.

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

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

Rights in the Company’s Profits

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

Rights in the Event of Liquidation

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

Limitations on Ownership and Control

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

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

Changing Rights Attached to Shares

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

Annual and Extraordinary Meetings

The Board of Directors must convene an annual meeting of shareholders at least once every calendar year, within fifteen months of the last annual meeting. Notice of a general meeting must be sent to each registered shareholder within five days after the record date set by the Board of Directors for that meeting, unless a different notice time is required under applicable law or unless all shareholders who qualify to vote at the time approve in writing of a shorter notice period. An extraordinary meeting may be convened by the Board of Directors, as it decides or upon a demand of any two directors or 25% of the directors, whichever is lower, or of one or more shareholders holding in the aggregate at least 4.99% of our issued capital. An extraordinary meeting must be held not more than thirty-five days from the publication date of the announcement of the meeting. See “Item 10B. Rights Attached to Shares–Voting Rights.”

Limitations on the Rights to Own Our Securities

For limitations on the rights to own our securities see “Item 4B. Information on the Company – Business Overview – Our Mobile Telephone License – License Conditions,” ” – Our Permit Regarding Cross Ownership” and “Item 10B. Rights Attached to Shares –Limitations on ownership and control.”

Limitations on Change in Control and Disclosure Duties

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

Changes in our Capital

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

Share Buy-back Program

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

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

10C. Material Contracts

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

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

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

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

For information on our share repurchase, see “Item 7B. Related Party Transactions – Repurchase of Shares from Founding Israeli Shareholders.” For information on our redemption of the Notes due 2010, see “Item 5. Liquidity and Capital Resources.”

10D. Exchange Controls

There are no Israeli government laws, decrees or regulations that restrict or that affect our export or import of capital or the remittance of dividends, interest or other payments to non-resident holders of our securities, including the availability of cash and cash equivalents for use by us and our wholly-owned subsidiaries, Partner Future Communications 2000 Ltd. and Partner Land-Line Communications Solutions (of which Partner Future Communications 2000 Ltd. serves as the general partner and the Company serves as the limited partner), except or otherwise as set forth under “Item 10E. Additional Information – Taxation.”

Under Israeli law (and our memorandum and articles of association), persons who are neither residents nor nationals of Israel may freely hold, vote and transfer ordinary shares in the same manner as Israeli residents or nationals.

10E. Taxation

Israeli Tax Considerations

The following is a summary of the current tax laws of the State of Israel as they relate to us and to our shareholders and also includes a discussion of the material Israeli tax consequences for persons purchasing our ordinary shares or ADSs, both referred to below as the “Shares”. To the extent that the discussion is based on legislation yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein will accord with any such interpretation in the future. This discussion is not intended and should not be construed as legal or professional tax advice and does not cover all possible tax considerations.

Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of our ordinary shares, including, in particular, the effect of any foreign, state or local taxes.

Israeli Tax Reforms

On July 24, 2002, the Israeli Knesset enacted income tax reform legislation, commonly referred to as the “2003 Tax Reform”. The 2003 Tax Reform has introduced fundamental and comprehensive changes into Israeli tax laws. Most of the legislative changes took effect on January 1, 2003. The 2003 Tax Reform has introduced a transition from a primarily territorial-based tax system to a personal-based system of taxation with respect to Israeli residents. The 2003 Tax Reform has also resulted in significant amendment of the international taxation provisions, and new provisions concerning the taxation of capital markets including the abolishment of currently “exempt investment routes” (e.g., capital gains generated by Israeli individuals from the sale of securities traded on the Tel-Aviv Stock Exchange). Under the 2003 Tax Reform legislation the Shares are no longer regarded and defined as “foreign traded securities” and thus certain associated Israeli tax aspects will accordingly be subject to change as discussed below.

A relatively short time after the 2003 Tax Reform, the Israeli Parliament approved on July 25, 2005 an additional income tax reform legislation (the “2006 Tax Reform”) pursuant to the recommendations of a committee appointed by the Israeli Minister of Finance, which incorporated additional fundamental changes to Israeli tax law. The 2006 Tax Reform, inter alia, includes a gradual reduction of income tax rates for both individuals and corporations through 2010, and outlines a path towards uniformity in the taxation of interest, dividend and capital gains derived from securities. Most of the amendments to the tax law are effective as of January 1, 2006, subject to certain exceptions. Transition rules apply in certain circumstances.

Various issues related to the 2003 Tax Reform and the 2006 Tax Reform remain unclear in view of the legislative language utilized and the lack of authoritative interpretations at this stage. The analysis below is therefore based on our current understanding of the new legislation.

General Corporate Tax Structure

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

Special Provisions Relating to Taxation under Inflationary Conditions

Our taxable income is determined under the Income Tax (Inflationary Adjustment) Law 1985 (the “Inflationary Adjustments Law”), which attempts to overcome some of the problems presented to a traditional tax system by rapid inflation. Generally, the Inflationary Adjustments Law provides tax deductions and adjustments to depreciation deductions and tax loss carry forwards to mitigate the effects resulting from an inflationary economy.

The Inflationary Adjustments Law is highly complex. Its principal features can be described as follows:

—

Where a company’s equity, as calculated under the Inflationary Adjustments Law, exceeds its fixed assets (as defined in the Inflationary Adjustments Law), a deduction from taxable income is permitted equal to the excess multiplied by the applicable annual rate of inflation. The maximum deduction permitted in any single tax year is 70% of taxable income, with the unused portion permitted to be carried forward, and linked to the Israeli consumer price index. The unused portion that was carried forward may be deductible in full in the following year.

—	Where a company’s fixed assets exceeds its equity, then the excess multiplied by the applicable annual rate of inflation is added to taxable corporate business income but not to other income, such as capital gains.

—	Subject to specified limitation, depreciation deductions on fixed assets and losses carried forward are adjusted for inflation based on the change in the consumer price index.

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

The Israeli Income Tax Ordinance and regulations promulgated there under allow Foreign-Invested Companies, to adjust their tax returns based on exchange rate fluctuations of the shekel against the US Dollar rather than changes in the CPI, in lieu of the principles set forth by the Inflationary Adjustments Law. For these purposes, a Foreign-Invested Company is a company in which more than 25% of the share capital in terms of rights to distributions, voting and appointment of directors, and of the combined share capital, including shareholder loans and capital notes, is held by persons who are not residents of Israel. A company that elects to measure its results for tax purposes based on the US Dollar exchange rate cannot change that election for a period of three years following the election. We adjust our tax returns based on the changes in the CPI. Because we qualify as a Foreign-Invested Company, we are entitled to elect measurement of our results for tax purposes on the basis of changes in the exchange rate of the US Dollar in future tax years.

Tax on Capital Gains of Shareholders

—

General. Israeli law imposes a capital gains tax on the sale of capital assets by an Israeli resident and on the sale of capital assets located in Israel or the sale of direct or indirect rights to assets located in Israel, including on the sale of our Shares by some of our shareholders (see discussion below). The Israeli Tax Ordinance distinguishes between “Real Gain” and “Inflationary Surplus”. Real Gain is the excess of the total capital gain over Inflationary Surplus computed on the basis of the increase in the CPI between the date of purchase and the date of sale. In 2006, the Real Gain accrued at the sale of an asset that is purchased on or after January 1, 2003 is taxed at a 25% rate for corporations, and 20% rate for individuals. Additionally, if such shareholder is considered a “Significant Shareholder” at any time during the 12-month period preceding such sale (i.e. if such shareholder holds directly or indirectly, including along with others, at least 10% of any means of control in the company), the tax rate will be 25%. However, the foregoing tax rates will not apply to (i) dealers in securities; and (ii) shareholders who have acquired their shares prior to an initial public offering (that may be subject to a different tax arrangement). Inflationary surplus that accrued after December 31, 1993, is exempt from tax.

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

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

—

Taxation of Israeli Residents. In July 2001 our ordinary shares were listed for trading on the Tel Aviv Stock Exchange. As a result of our dual listing and due to the 2003 Tax Reform (inclusion of new provisions concerning the taxation of capital markets) and that since our ordinary shares are no longer considered “foreign traded securities”, the tax treatment of our shareholders under Israeli law has changed.

The following is a summary of the most significant Israeli capital gains tax implications arising with respect to the sale of our Shares by shareholders who are not engaged in the business of trading securities. As demonstrated below, the timing of the shareholder’s purchase of the shares will determine the tax outcomes in this regard.

Sale of shares purchased after January 1, 2003

Individuals

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

Corporations

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

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

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

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

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

—

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

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

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

—

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

1 –

the income derived from such sale is not classified as business income;

2 –

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

3 –

the shares sold were purchased upon or after the initial public offering.

Dividends

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

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

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

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

Taxation of Residents of the United States under the US Treaty

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

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

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

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

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

Repatriation

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

United States Federal Income Tax Considerations

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

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

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

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

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

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

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

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

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

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

Dividends

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

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

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

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

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

Sale, Exchange or Other Disposition

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

In general, gain or loss recognized by a US holder on the sale, exchange or other disposition of ordinary shares or ADSs will be US source income or loss for US foreign tax credit purposes. Pursuant to the US Treaty, however, gain from the sale or other disposition of ordinary shares or ADSs by a holder who is a US resident, for US Treaty purposes, and who sells the ordinary shares or ADSs within Israel may be treated as foreign source income for US foreign tax credit purposes.

US holders who hold ordinary shares or ADSs through an Israeli stockbroker or other Israeli intermediary may be subject to an Israeli withholding tax on any capital gains recognized if the US holder does not obtain approval of an exemption from the Israeli Tax Authorities. US holders are advised that any Israeli tax paid under circumstances in which an exemption from such tax was available will not give rise to a deduction or credit for foreign taxes paid for US federal income tax purposes. US holders are advised to consult their Israeli stockbroker or intermediary regarding the procedures for obtaining an exemption.

If a US holder receives NIS upon the sale of ordinary shares, that US holder may recognize ordinary income or loss as a result of currency fluctuations between the date of the sale of the ordinary shares and the date the sales proceeds are converted into US dollars.

Passive Foreign Investment Company Rules

A non-US corporation will be classified as a Passive Foreign Investment Company (a “PFIC”) for any taxable year if at least 75% of its gross income consists of passive income (such as dividends, interest, rents, royalties (other than rents or royalties derived in the active conduct of a trade or business and received from an unrelated person), or gains on the disposition or certain minority interests), or at least 50% of the average value of its assets consist of assets that produce, or are held for the production of, passive income. We currently believe that we were not a PFIC for the year ended December 31, 2007. However, this conclusion is a factual determination that must be made at the close of each year and is based on, among other things, a valuation of our ordinary shares, ADSs and assets, which will likely change from time to time. If we were characterized as a PFIC for any taxable year, a US holder would suffer adverse tax consequences. These consequences may include having gains realized on the disposition of ordinary shares or ADSs treated as ordinary income rather than capital gains and being subject to punitive interest charges on certain dividends and on the proceeds of the sale or other disposition of the ordinary shares or ADSs. Furthermore, dividends paid by a PFIC are not eligible to be treated as “qualified dividend income” (as discussed above).

Application of the PFIC rules is complex. US holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership of our ordinary shares or ADSs.

Information Reporting and Backup Withholding

Dividend payments with respect to ordinary shares or ADSs and proceeds from the sale, exchange or other disposition of ordinary shares or ADSs may be subject to information reporting to the Internal Revenue Service (the “IRS”) and possible US backup withholding at a current rate of 28%. Backup withholding will not apply, however, to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification or who is otherwise exempt from backup withholding. US persons who are required to establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-US holders generally will not be subject to US information reporting or backup withholding. However, such holders may be required to provide certification of non-US status (generally on IRS Form W-8BEN) in connection with payments received in the United States or through certain US-related financial intermediaries.

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

10F. Dividends and Paying Agents

Not applicable.

10G. Statement By Experts

Not applicable.

10H. Documents on Display

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

10I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

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

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

Non-Derivative Instruments






NIS linked to the CPI (1)

Long-term fixed Notes due 2012	2,073
Weighted average interest rate payable	4.25	%

Long-term - fixed bank debt	21
Weighted average interest rate payable on fixed rate debt	5.61	%

Capital lease	4
Weighted average interest rate payable	6.2	%

Foreign Currencies (mainly USD) (1)

Payables-trade	253
Weighted average interest rate payable	-

Capital lease	6
Weighted average interest rate payable	5.8	%

Total	2,357

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

Expected Maturity Dates:

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

Foreign Exchange and Inflation

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

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

Our bank credit facility borrowings and Notes due 2012 are currently in shekels, most of which are linked to the CPI. We may not be permitted to raise our tariffs pursuant to our license in a manner that would fully compensate for any increase in the CPI. Therefore, an increase in the rate of inflation may also have a material adverse impact upon us by increasing our financial expenses without an offsetting increase in revenue. We enter into derivative transactions in order to protect ourselves from an increase in the CPI in respect of the principal of the CPI – linked Notes.

The transactions are mainly designated to hedge the cash flows related to payments in respect of purchases of handsets and capital expenditures in foreign currency. However, these contracts do not qualify for hedge accounting under FAS 133.

The notional amount does not necessarily represent amounts exchanged by the parties and, therefore, is not a direct measure of our exposure.

The following table provides information derived from the financial statements about our outstanding foreign exchange instruments. See Note 10b to our consolidated financial statements.

Derivative Instruments

	As of December 31, 2007
	(NIS equivalent in millions)



Forward transactions - for the exchange of: Dollars
into NIS		358	358	(18.5	)
Embedded derivatives - Dollars into NIS		591	450	19
Forward transactions - for changes in the Israeli CPI		1,000	1,000	9

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

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

None.

ITEM 15. CONTROLS AND PROCEDURES

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

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

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

—

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

—

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

—

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

—

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

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

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

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

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

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

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

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

ITEM 16B. CODE OF ETHICS

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

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Kesselman & Kesselman, independent certified public accountants in Israel and a member of Pricewaterhouse Coopers International Limited (“PwC”) have served as our independent public accountants for each of the fiscal years in the three-year period ended December 31, 2007, for which audited financial statements appear in this annual report on Form 20-F.

The following table presents the aggregate fees for professional services rendered by PwC to Partner in 2006 and 2007.






Audit Fees (1)	4,606	4,480	(4)
Audit-related Fees (2)	147	350
Tax Fees (3)	248	202
All other fees	-
TOTAL	5,001	5,032

(1)

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

(2)

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

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

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

Audit Committee Pre-approval Policies and Procedures

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

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

Not applicable.

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

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

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

(1)

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

ITEM 17. FINANCIAL STATEMENTS

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

ITEM 18. FINANCIAL STATEMENTS

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

	Page




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

ITEM 19. EXHIBITS

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

Exhibit No.

Description

>1.1	Partner’s Amended and Restated Articles of Association

*1.2	Partner’s Certificate of Incorporation

*1.3	Partner’s Memorandum of Association

**2.(a).1

Form of Share Certificate

^^2.(a).2

Amended and Restated Deposit Agreement Between Partner and the Bank of New York

^2.(b)

Form of Indenture between Partner and the Trust Company of Union Bank Ltd.

^4.(a).1

Restatement of the Relationship Agreement dated April 20, 2005

**4.(a).2

License from the Israeli Ministry of Communications issued April 8, 1998

**4.(a).4

License Agreement for use of the Orange Brand in Israel dated September 14, 1998

**4.(a).5

Brand Support/Technology Transfer Agreement dated July 18, 1999

**4.(a).6

Agreement with Ericsson Radio Systems AB dated May 28, 1998

#++4.(a).7

Agreement with LM Ericsson Israel Ltd. dated November 25, 2002

^#4.(a).8

Dealer Agreement with Super-Pharm dated February 12, 2004

#4.(a).8.1

Amendment to the Dealer Agreement with Super-Pharm, dated July 8, 2007

**4.(a).9

Lease Agreement with Mivnei Taasia dated July 2, 1998

^^^4.(a).13

Asset Purchase Agreement with Med-1 dated as of January 22, 2006

#***4.(a).14

Amendments Nos. 1 to 6 to our License from the Israeli Ministry of Communications

+4.(a).15

Amendments Nos. 7 to 11 to our License from the Israeli Ministry of Communications

++4.(a).16

Amendments Nos. 12 to 17 to our License from the Israeli Ministry of Communications

+++4.(a).17

Amendments Nos. 18 to 23 to our License from the Israeli Ministry of Communications

^4.(a).18

Amendments Nos. 24 to 31 to our License from the Israeli Ministry of Communications

^^^4.(a).19

Amendments Nos. 32 to 34 to our License from the Israeli Ministry of Communications

>4.(a).20

Amendments Nos. 35 to 44 to our License from the Israeli Ministry of Communications

4.(a).21

Amendment No. 44 to our License from the Israeli Ministry of Communications

4.(a).22

Amendment No. 45 to our License from the Israeli Ministry of Communications

>4.(a).58

Special License from the Israeli Ministry of Communications for the Provision of Fixed-Line Domestic Transmission and Data Communications Services issued August 14, 2006.

>4.(a).59

Amendment No. 1 to Special License for the Provision of Fixed-Line Domestic Transmission and Data Communications Services issued September 10, 2006.

>4.(a). 60

Exclusive General License from the Israeli Ministry of Communication for the Provision of Domestic Transmission and Data Communications Services issued January, 15 2007.

>4.(a). 60.1

Amendment No. 1 to Fixed-Line License from the Israeli Ministry of Communications issued January 14, 2007

>4.(a). 60.2

Amendment No. 2 to Fixed-Line License from the Israeli Ministry of Communications issued January 31, 2007

>4.(a).60.3

Amendment No. 3 to Fixed-Line License from the Israeli Ministry of Communications issued February 19, 2007

4.(a).60.4

Amendment No. 4 to Fixed-Line License from the Israeli Ministry of Communications issued July 11, 2007

4.(a).60.5

Amendment No. 5 to Fixed-Line License from the Israeli Ministry of Communications issued October 10, 2007

^4.(a).64

Facility Agreement dated April 14, 2005

#+++4.(a).65

Purchase Agreement with Nortel Networks Israel (Sales and Marketing) Ltd. dated November 12, 2003.

^4.(a).66

Share Buy Back Agreement dated February 7, 2005

#4.(a).67

Swap Agreement with LM Ericsson Israel Ltd. dated December 20, 2007

6.	See Note 1r to our financial statements for information explaining how earnings (loss) per share information was calculated.

8.	List of Subsidiaries (see "Item 4C - Organizational Structure").

12.(a).1

Certification by CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

12.(a).2

Certification by CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

13.(a).1

Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

14.(a).1

Consent of Kesselman & Kesselman

*	Incorporated by reference to our registration statement on Form F-1 (No. 333-12340).

**	Incorporated by reference to our registration statement on Form F-1 (No. 333-10992).

***	Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2000.

+	Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2001.

++	Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2002.

+++	Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2003.

^	Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2004.

^^	Incorporated by reference to our registration statement on Form F-6 (No. 333-132680).

^^^	Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2005.

>	Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2006.

#	Confidential treatment requested.

Confidential material has been redacted and has been separately filed with the Securities and Exchange Commission.

GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS UPDATE

The following explanations are not intended as technical definitions, but to assist the reader in understanding certain terms as used in this annual report.


AMPS	Advanced Mobile Phone System; the analogue cellular telephone technology adopted in the United States. Also N-AMPS (Narrowband AMPS), a more frequency-efficient variant of AMPS.


Analog Technology	A technology in which some property of an electrical signal is varied proportionally to the input signal being transmitted, stored or processed. Fixed transmitter/receiver equipment in each cell of a cellular


Base Transceiver Station ("BTS")	telecommunications network that communicates by radio with all cellular telephones in that cell.


Base Station Controller ("BSC")	Monitors and controls one or more base stations in order to exchange messages, handover cellular units from cell to cell and perform other system administrative tasks.


Blocked call	Where a cellular phone call fails because no channels are available in the cell in which the user is located.


CDMA	Code Division Multiple Access; a method by which many users sharing the same radio channel can be distinguished by unique code numbers.


Cell	In a cellular telephone system, the coverage area of a single base transceiver station or one sector therein.


Channel	A frequency or time slot in a telecommunications system over which distinct messages can be conveyed.


Churn	The number of customers who are disconnected from a network, either involuntarily, due to payment delinquency or suspected fraudulent use, or voluntarily, as customers switch to competing networks, relocate outside the network's service area, or cease using cellular telephones permanently or temporarily.


D-AMPS	Digital Advanced Mobile Phone System; a digital mobile system first implemented in the United States and intended initially to permit gradual upgrading of AMPS networks.


Dropped call	When a cellular phone call is involuntarily terminated.


GPRS	General Packet Radio Services (GPRS) is a packet-based wireless communication service that enables data rates from 56 up to 114 Kbps and continuous connection to the Internet for mobile phone and computer users. GPRS is based on Global System for Mobile (GSM) communication.


GSM	The Global System for Mobile Communications, a comprehensive digital standard for the operation of all elements of a mobile telephone system. GSM originated in Europe, but is now the most popular digital mobile telephone standard worldwide.


GSM 900	GSM operation in the 900 MHz frequency band; the original frequency band allocated to GSM, later extended by 10 MHz (EGSM).


GSM 1800	GSM operation in the 1800 MHz frequency band; formerly known as DCS 1800 or PCN, first allocated for the expansion of mobile network competition in Europe, now used for the same purpose in many other areas.


GSM 1900	GSM operation in the 1900 MHz band; primarily used in North and South America


GSM Association	Formerly known as the GSM Memorandum of Understanding Association (GSM MoU), an organization of operators, government administrations, and equipment and service suppliers that promotes the development and promulgation of the GSM standard and relations between GSM operators.


HSCSD	High Speed Circuit Switched Data is an infrastructure development which enables the transmission of data at higher speeds than the 9600 Bps speed previously available on GSM networks.


HSXPA	HSXPA technology describes the third generation (UMTS) cellular High Speed Packet Access protocol that combines both the High Speed Downlink Packet Access (HSPDA) and High Speed Uplink Packet Access (HSUPA) modes for high performance ACDMA systems.


Intelligent Network ("IN")	Network architecture that centralizes the processing of calls and billing information of calls.


Cellular Switching Center ("MSC")	A large, computer-based device used to connect calls within a cellular network and as the interface of the cellular network to other networks.


RTT	Real-time technology.


SMS	Short message service, a service which enables cellular telephone users to send and receive written messages on their handsets.


UMTS	Universal Cellular Telecommunications System, the "third generation" of cellular telecommunications standard, also referred to as UMTS.


Virtual Private Network ("VPN")	A private network provided by means of the facilities of a public telephone network but which operates by logic as a closed user group thereby providing the convenience of a private network with the economy of scale of a public network.


WAP	Wireless Application Protocol, a language specifically developed for cellular telephones that facilitates internet usage.

SIGNATURES

The Company hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Partner Communications Company Ltd.

By: /s/ David Avner
——————————————
David Avner
Chief Executive Officer
May 6, 2008

By: /s/ Emanuel Avner
——————————————
Emanuel Avner
Chief Financial Officer
May 6, 2008

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
2007 ANNUAL REPORT

TABLE OF CONTENTS

	Page




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

The amounts are stated in New Israeli Shekels (NIS) in thousands.

Report of Independent Registered Public Accounting Firm

To the Shareholders of

PARTNER COMMUNICATIONS COMPANY LTD.

We have completed integrated audits of Partner Communications Company Ltd.‘s (collectively – “the Company” or “Partner”) 2007 and 2006 consolidated financial statements and of its internal control over financial reporting as of December 31, 2007, and an audit of its 2006 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

We have audited the consolidated balance sheets of Partner as of December 31, 2007 and 2006 and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s Board of Directors and management. Our responsibility is to express an opinion on these financial statements based on our integrated audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company’s Board of Directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the financial position of Partner at December 31, 2007 and 2006, and the results of their operations, changes in shareholders’ equity and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

As discussed in notes 1o and 9h to the consolidated financial statements, effective January 1, 2007 the company changed its method of accounting for uncertainty in income taxes. In addition, as discussed in note 1s, effective January 1, 2006, the company changed its method of accounting for share-based payment.

Internal control over financial reporting

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s Board of Directors and management are responsible for maintaining effective internal control over financial reporting and management is responsible for the assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15(b). Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our integrated audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also includes performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

F - 2

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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






Tel-Aviv, Israel	/s/ Kesselman & Kesselman
May 5, 2008	Certified Public Accountants (Isr.)
	A member of PricewaterhouseCoopers
	International Limited

F - 3

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED BALANCE SHEETS

	December 31
	2006		2007		2007
	New Israeli shekels				Convenience translation into U.S. dollars (note 1a)
	In thousands

A s s e t s
CURRENT ASSETS:
Cash and cash equivalents		77,547		148,096		38,507
Accounts receivable (note 11a):
Trade		964,309		1,120,842		291,431
Other		65,533		55,273		14,371
Inventories (note 11b)		126,466		143,022		37,187
Deferred income taxes (note 9d)		40,495		46,089		11,984

T o t a l current assets		1,274,350		1,513,322		393,480

INVESTMENTS AND LONG-TERM RECEIVABLES:
Accounts receivable - trade (note 11a)		274,608		446,899		116,198
Funds in respect of employee rights upon retirement (note 6)		80,881		88,522		23,017

		355,489		535,421		139,215

FIXED ASSETS, net of accumulated depreciation and
amortization (note 2)		1,747,459		1,734,964		451,108

LICENSE, DEFERRED CHARGES AND OTHER
INTANGIBLE ASSETS, net of accumulated amortization (note 3)		1,247,084		1,153,926		300,033

DEFERRED INCOME TAXES (note 9d)		76,139		93,745		24,375

T o t a l assets		4,700,521		5,031,378		1,308,211

Date of approval of the financial statements: April 7, 2008







David Avner	Emanuel Avner	Moshe Vidman
Chief Executive Officer	Chief Financial Officer	Director

F - 4

	December 31
	2006			2007			2007
	New Israeli shekels						Convenience translation into U.S. dollars (note 1a)
	In thousands

Liabilities and shareholders' equity
CURRENT LIABILITIES:
Current maturities of long-term liabilities (notes 4, 11e)		40,184			28,280			7,353
Accounts payable and accruals:
Trade		690,424			749,623			194,910
Other (note 11c)		281,403			375,510			97,637
Parent group - trade (note 12)		15,830			3,405			885

T o t a l current liabilities		1,027,841			1,156,818			300,785

LONG-TERM LIABILITIES:
Bank loans, net of current maturities (note 4)		272,508
Notes payable (note 5)		2,016,378			2,072,636			538,907
Liability for employee rights upon retirement (note 6)		113,380			131,960			34,311
Other liabilities (note 11e)		15,947			14,492			3,768

T o t a l long-term liabilities		2,418,213			2,219,088			576,986

COMMITMENTS AND CONTINGENT LIABILITIES (note 7)

T o t a l liabilities		3,446,054			3,375,906			877,771

SHAREHOLDERS' EQUITY (note 8):
Share capital - ordinary shares of NIS 0.01 par
value: authorized - December 31, 2006 and 2007 - 235,000,000 shares;
issued and outstanding -
December 31, 2006 - 154,516,217 shares and
December 31, 2007 - 157,320,770 shares		1,545			1,573			409
Capital surplus		2,452,682			2,544,943			661,712
Accumulated deficit		(1,199,760	)		(891,044	)		(231,681	)

T o t a l shareholders' equity		1,254,467			1,655,472			430,440

		4,700,521			5,031,378			1,308,211

The accompanying notes are an integral part of the financial statements.

F - 5

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended December 31
	2005		2006		2007		2007
	New Israeli shekels						Convenience translation into U.S. dollars (note 1a)
	In thousands (except per share data)

REVENUES - net:
Services		4,619,932		5,027,310		5,328,739		1,385,527
Equipment		503,007		579,401		784,905		204,083

		5,122,939		5,606,711		6,113,644		1,589,610
COST OF REVENUES:
Services		3,022,480		3,085,507		3,101,588		806,445
Equipment		743,872		811,760		1,001,488		260,397

		3,766,352		3,897,267		4,103,076		1,066,842

GROSS PROFIT		1,356,587		1,709,444		2,010,568		522,768

SELLING AND MARKETING EXPENSES		272,900		307,592		370,183		96,251
GENERAL AND ADMINISTRATIVE EXPENSES		180,781		183,460		235,865		61,327

		453,681		491,052		606,048		157,578

OPERATING PROFIT		902,906		1,218,392		1,404,520		365,190
FINANCIAL EXPENSES, net (note 11f)		345,448		166,442		126,317		32,844

INCOME BEFORE TAXES ON INCOME		557,458		1,051,950		1,278,203		332,346
TAXES ON INCOME (note 9)		202,898		370,675		338,417		87,992

INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLES		354,560		681,275		939,786		244,354
CUMULATIVE EFFECT, AT BEGINNING OF YEAR, OF A
CHANGE IN ACCOUNTING PRINCIPLES, net of tax				1,012

NET INCOME FOR THE YEAR		354,560		682,287		939,786		244,354

EARNINGS PER SHARE ("EPS"):
Basic:
Before cumulative effect		2.19		4.43		6.01		1.56

Cumulative effect				0.01

		2.19		4.44		6.01		1.56

Diluted:
Before cumulative effect		2.17		4.40		5.96		1.55

Cumulative effect				0.01

		2.17		4.41		5.96		1.55

WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic		161,711,125		153,633,758		156,414,684		156,414,684

Diluted		163,617,272		154,677,685		157,787,009		157,787,009

The accompanying notes are an integral part of the financial statements.

F - 6

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

	Share capital
	Number of shares			Amount			Receivables in respect of shares issued			Capital surplus			Accumulated deficit			Total
				( I n t h o u s a n d s )


New Israeli Shekels:
BALANCE AT DECEMBER 31, 2004		184,037,221			1,840			(2,260	)		2,338,377			(750,882	)		1,587,075
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2005:
Repurchase of Company's shares (including purchase cost of NIS
17,591,000)		(33,317,933	)		(333	)								(1,091,508	)		(1,091,841	)
Exercise of options granted to employees		1,809,000			18			2,260			34,875						37,153
Income tax benefit in respect of exercise of options granted to
employees											4,820						4,820
Employee share-based compensation expenses											10,353						10,353
Dividend														(86,769	)		(86,769	)
Net income														354,560			354,560

BALANCE AT DECEMBER 31, 2005		152,528,288			1,525			--			2,388,425			(1,574,599	)		815,351
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2006:
Exercise of options granted to employees		1,987,929			20						44,312						44,332
Cumulative effect, at beginning of year, of a change in
accounting principles											(1,012	)					(1,012	)
Employee share-based compensation expenses											20,957						20,957
Dividend														(307,448	)		(307,448	)
Net income														682,287			682,287

BALANCE AT DECEMBER 31, 2006		154,516,217			1,545			--			2,452,682			(1,199,760	)		1,254,467
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2007
Exercise of options granted to employees		2,804,553			28						75,509						75,537
Employee share-based compensation expenses											16,752						16,752
Dividend														(631,070	)		(631,070	)
Net income														939,786			939,786

BALANCE AT DECEMBER 31, 2007		157,320,770			1,573						2,544,943			(891,044	)		1,655,472

Convenience translation into u.s. dollars (note 1a):
BALANCE AT JANUARY 1, 2007		154,516,217			402						637,723			(311,950	)		326,175
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2007
Exercise of options granted to employees		2,804,553			7						19,633						19,640
Employee share-based compensation expenses											4,356						4,356
Dividend														(164,085	)		(164,085	)
Net income														244,354			244,354

BALANCE AT DECEMBER 31, 2007		157,320,770			409						661,712			(231,681	)		430,440

The accompanying notes are an integral part of the financial statements.

F - 7

(Continued) - 1

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31
	2005			2006			2007			2007
	New Israeli shekels									Convenience translation into U.S. dollars (note 1a)
	In thousands

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year		354,560			682,287			939,786			244,354
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		683,503			622,434			603,425			156,897
Employee share-based compensation expenses		10,353			20,957			16,752			4,356
Liability for employee rights upon retirement		9,430			11,142			18,580			4,831
Deferred income taxes		198,079			35,231			(23,200	)		(6,032	)
Income tax benefit in respect of exercise of options
granted to employees		4,820
Accrued interest, exchange and linkage
differences on (erosion of) long-term liabilities		108,411			(4,646	)		59,980			15,595
Amount carried to deferred charges		(13,820	)
Capital loss on sale and disposal of fixed assets		493			274			1,267			329
Cumulative effect, at beginning of year, of a change
in accounting principles					(1,012	)
Changes in operating asset and liability items:
Decrease (increase) in accounts receivable:
Trade		(262,262	)		(254,748	)		(328,824	)		(85,496	)
Other		(26,970	)		30,952			10,260			2,668
Increase (decrease) in accounts payable and accruals:
Trade		112,857			(58,568	)		100,817			26,213
Other		(75,884	)		49,923			85,885			22,331
Parent group - trade		10,513			5,317			(12,425	)		(3,231	)
Increase (decrease) in asset retirement obligations		(92	)		1,069			528			137
Decrease (increase) in inventories		(107,667	)		82,857			(16,556	)		(4,305	)

Net cash provided by operating activities		1,006,324			1,223,469			1,456,275			378,647

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(498,851	)		(344,206	)		(531,782	)		(138,268	)
Acquisition of optic fibers activity					(71,125	)
Proceeds from sale of fixed assets		16			73			43			(11	)
Purchase of additional spectrum		(41,542	)		(27,690	)
Payments in respect of land line license					(300	)		(700	)		(182	)
Funds in respect of employee rights upon retirement		(6,315	)		(5,438	)		(7,641	)		(1,986	)

Net cash used in investing activities		(546,692	)		(448,686	)		(540,080	)		(140,425	)

F - 8

(Continued) - 2

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31
	2005			2006			2007			2007
	New Israeli shekels									Convenience translation into U.S. dollars (note 1a)
	In thousands

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease		(1,893	)		(3,620	)		(8,532	)		(2,218	)
Repurchase of company's shares (including purchase
cost of NIS 17,591,000)		(1,091,841	)
Issuance of notes payable under a prospectus, net of
issuance costs		1,929,223
Redemption of notes payable		(793,100	)
Proceeds from exercise of stock options granted to
employees		37,153			44,332			75,537			19,640
Windfall tax benefit in respect of exercise of options
granted to employees					643			1,167			303
Dividend paid		(41,773	)		(352,444	)		(624,015	)		(162,250	)
Long-term bank loans received		359,000
Repayment of long-term bank loans		(857,004	)		(390,155	)		(289,803	)		(75,351	)

Net cash used in financing activities		(460,235	)		(701,244	)		(845,646	)		(219,876	)

INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS		(603	)		73,539			70,549			18,344
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR		4,611			4,008			77,547			20,163

CASH AND CASH EQUIVALENTS AT
END OF YEAR		4,008			77,547			148,096			38,507


SUPPLEMENTARY DISCLOSURE OF CASH
FLOW INFORMATION - cash paid during the year:
Interest		235,854			149,728			99,560			25,886

Income taxes (net of refund of approximately NIS 74
million)		30,840			317,099			301,554			78,407

Supplementary information on investing and financing activities not involving cash flows

At December 31, 2005, 2006 and 2007, trade payables include NIS 90.3 million, NIS 201.8 million and NIS 160 million ($ 42 million), respectively, in respect of acquisition of fixed assets. In addition, at December 31, 2005 trade payables included NIS 27.7 million in respect of acquisition of additional spectrum.

At December 31, 2007, tax withholding related to dividend of approximately NIS 7 million is outstanding.

At December 31, 2005, dividend payable of approximately NIS 45 million was outstanding.

During 2005 and 2007, the Company has undertaken a capital lease with respect to fixed assets in the amount of NIS 15.8 million and NIS 7.4 million ($2 million), respectively.

These balances are recognized in the cash flow statements upon payment.

The accompanying notes are an integral part of the financial statements.

F - 9

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES:

General:

Nature of operations:

Partner Communications Company Ltd. (“the Company”) operates a mobile telecommunications network in Israel. The Company is a subsidiary of Hutchison Telecommunications International Limited (“HTIL”).

The Company was incorporated on September 29, 1997, and operates under a license granted by the Ministry of Communications to operate a cellular telephone network for a period of 10 years beginning April 7, 1998. The Company commenced full commercial operations on January 1, 1999.

The Company paid a “one-time” license fee of approximately new Israeli shekels (NIS) 1.6 billion which is presented under “license, deferred charges and other intangible assets”. The Company is entitled to request an extension of the license for an additional period of six years and then renewal for one or more additional six year periods. Should the license not be renewed, the new license-holder is obliged to purchase the communications network and all the rights and obligations of the subscribers for a fair price, as agreed between the parties or as determined by an arbitrator.

In December 2001, the Company was awarded additional spectrum (2G band (1800MHz) and third generation (3G) UMTS band (1900MHz and 2100MHz)). Following the award of the above spectrum, the Company’s license was amended and extended through 2022.

In consideration for the above additional spectrum the Company paid NIS 180 million for the 2G spectrum, and NIS 220 million for the 3G spectrum.

The Company launched its 3G network on December 1, 2004.

Under the terms of the amended license, the Company provided a bank guarantee in NIS equivalent of USD 10 million to the State of Israel to secure the Company’s adherence to the terms of the license.

On August 14, 2006 the Company was awarded a temporary license from the Ministry of Communications for the offering of transmission services in consideration of NIS 300,000. In August 2007 the temporary transmission services license was converted into the special general license for domestic fixed services. The license is for a period of 20 years. The license was awarded to Partner Land-Line Communication Solutions (“Partner Land Line”) – a limited Partnership under the Company’s control. An additional NIS 700,000 was paid upon the Company’s receipt of the license.

Under the terms of the license, the Company provided a bank guarantee in NIS equivalent of NIS 10 million to the State of Israel to secure the Company’s adherence to the terms of the license.

On July 3, 2006 the Company acquired MED I.C-1 (1999) Ltd. (“Med 1”) transmission activity including 900 kilometers of transmission fiber for approximately NIS 71 million in cash. The Company purchased Med-1 transmission network to lower its transmission expenses and to have the ability to provide its customers with additional services. As from July 3, 2006 the transmission activity has been included in the financial results.

F - 10

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

The Company has adopted Financial Accounting Standards “SFAS” No. 141, Business Combinations. In accordance with the FAS when a corporation and one or more incorporated or unincorporated businesses are combined into one entity, the purchase price paid by an acquiring entity should be allocated to the identifiable individual assets acquired and liabilities assumed based on their fair values, with the remaining unallocated purchase price recorded as goodwill.

The fair value of the acquisition was NIS 106 million. In accordance with SFAS 141, since the fair value exceeds the purchase price, the excess of fair value over the purchase price was allocated pro-rata between the acquired tangible and intangible assets.

The Company allocated the purchase price paid for Med 1‘s transmission activity as follows (see also note 1: e, f):






Fixed assets	52,632	10 years
Customer Relationships
with Carriers	10,669	7 years
Customer Relationships
with Business Customers	7,824	5 years

	71,125

Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting years. Actual results could differ from those estimates.

Functional currency and reporting currency

The functional currency of the Company and its subsidiary and Partnership (together – The Group) is the local currency New Israeli Shekels – NIS. The consolidated financial statements have been drawn up on the basis of the historical cost of Israeli currency and are presented in NIS.

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

The NIS figures at December 31, 2007 and for the period then ended have been translated into dollars using the representative exchange rate of the dollar at December 31, 2007 ($1 = NIS 3.846). The translation was made solely for convenience. The translated dollar figures should not be construed as a representation that the Israeli currency amounts actually represent, or could be converted into, dollars.

Accounting principles

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).

F - 11

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary and Partnership.

Intercompany balances and transactions between the Group’s entities have been eliminated.

Inventories

Inventories of cellular telephones (handsets) and accessories are stated at the lower of cost or estimated net realizable value. Cost is determined on the “first-in, first-out”basis.

The Company determines its allowance for inventory obsolescence and slow moving inventory, based upon expected inventory turnover, inventory aging and current and future expectations with respect to product offerings.

Non-marketable securities

These investments are stated at cost, less provision for impairment losses. The balance of these investments is fully impaired.

Fixed assets:

These assets are stated at cost.

Direct consultation and supervision costs and other direct costs relating to setting up the Company’s communications network and information systems for recording and billing calls are capitalized to cost of the assets.

Interest costs in respect of loans and credit which served to finance the construction or acquisition of fixed assets – incurred until installation of the fixed assets is completed – are capitalized to cost of such assets.

Assets are depreciated by the straight-line method, on basis of their estimated useful life.

Annual rates of depreciation are as follows:

	%




Communications network (*)	10 - 20
	(mainly 15)
Computers, hardware and software for
information systems	15-33
Office furniture and equipment	7-15
Optic fibers (see note 1a(3)) and related assets	6-10

(*)

See 7 below.

Leasehold improvements are amortized by the straight-line method over the term of the lease (including reasonably assured option periods), or the estimated useful life (5-10 years) of the improvements, whichever is shorter.

F - 12

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Fixed assets (continued):

Fixed assets leased by the Company under capital leases are classified as the Company’s assets and are recorded, at the inception of the lease, at the lower of the asset’s fair value or the present value of the minimum lease payments.

Computer Software Costs

The cost of internal-use software which has useful life in excess of one year is capitalized in accordance with Statement of Position (SOP) No. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred. Capitalized computer software costs are amortized using the straight-line method over a period of 3 to 7 years.

On December 20, 2007 Partner has entered into an agreement (the “Agreement”) with LM Ericsson Israel Ltd. (“Ericsson”), for the replacement of third party 3G radio equipment existing in Partner’s network, and for additional investment in the 3G network in addition to the support and maintenance of the Company’s network for a period of three years.

The company allocated the purchase price of USD 65 million to the above deliverables based on their relative fair values. Of this amount, USD 6.6 million related to support and maintenance of the Network.

The purchase price is after deduction of commercial discounts, some of which contingent upon future negotiations for further purchases of purchase of services that are probable.

The replacement process is scheduled to take place during a period ending no later than June 30, 2011. The main part of the replacement is planned to take place during 2008.

As a result of the above change in estimate, the effect on depreciation expenses (included in cost of service revenues), net income and earnings per share was immaterial for 2007.

F - 13

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Fixed assets (continued):

The subsequent accounting treatment of the various elements is as follows:

(a)

Network equipment – the amount attributed will be depreciated over its estimated useful life.

(b)

Support and maintenance services – the amount attributed will be expensed – on a straight line method – over the support and maintenance services agreement period (three years).

License, deferred charges and other intangible assets:

License:

The license (see also 1a(2) above) is stated at cost and is amortized by the straight-line method over the utilization period of the license starting January 1, 1999.

Following the extensions of the license (as described in note 1a(2) above) the unamortized balance of the Company’s existing license as well as the cost of the additional spectrum put into service are amortized over the period ending in 2022.

The costs relating to the 3G band are amortized as of December 1, 2004, by the straight-line method over the period ending in 2022.

Interest expenses which served to finance the license fee – incurred until the commencement of utilization of the license – were capitalized to cost of the license.

Customer relationships relating to Med-1 fiber optic acquisition are amortized over the estimated useful life which is 5-7 years.

Deferred charges:

Costs relating to the obtaining of long-term credit lines are deferred and amortized using the effective interest rate determined for the borrowing transactions over the life of the line of credit.

Issuance costs relating to Notes payable (see note 5) are amortized using the effective interest rate stipulated for the Notes.

Impairment of long-lived assets

The Company has adopted Statement of Financial Accounting Standards No. 144 (FAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets”. FAS 144 requires that long-lived assets, including certain intangible assets, to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Under FAS 144, if the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment loss would be recognized, and the assets written down to their estimated fair values. See also 1e and f.

F - 14

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Cash equivalents

The Company considers all highly liquid investments, which include short-term bank deposits (up to 3 months from date of deposit) that are not restricted as to withdrawal or use, to be cash equivalents.

Comprehensive income

The Company has no comprehensive income components other than net income.

Revenue recognition

Revenues from services primarily consist of charges for airtime, roaming and value added services provided to the Company’s customers, are recognized upon performance of the services, net of credits and adjustments for services discounts. Revenues from pre-paid calling cards are recognized upon customer’s usage of the cards. Revenues from sale of handsets and accessories are recognized upon delivery and the transfer of ownership to the subscriber.

The Company recognizes revenues net of value added taxes.

Revenues from long-term credit arrangements (longer than one year) are recognized on the basis of the present value of future cash flows, discounted according to interest rates at the time of the transaction. The difference between the original credit and its present value is recorded as interest income over the credit period.

Emerging Issues Task Force (“EITF”) Issue 00-21, “Revenue Arrangements with Multiple Deliverables” addresses the accounting, by a vendor, for contractual arrangements in which multiple revenue-generating activities will be performed by the vendor. EITF Issue 00-21 addresses when and, if so, how an arrangement involving multiple deliverables should be divided into separate units of accounting. Based on EITF 00-21, the Company determined that the sale of handsets with accompanying services constitutes a revenue arrangement with multiple deliverables. Accordingly consideration received for handsets, up to their fair value, that is not contingent upon the delivery of additional items (such as the services), is recognized as equipment revenues, when revenue recognition criteria for the equipment as stated above are met. Consideration for services is recognized as services revenue, when earned.

F - 15

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Concentration of credit risks – allowance for doubtful accounts

The Company’s revenues are derived from a large number of customers. Accordingly, the Company’s trade balances do not represent a substantial concentration of credit risk. An appropriate provision for doubtful accounts is included in the accounts of the Company. The allowance charged to expenses (including bad debts), determined as a percentage of specific debts doubtful of collection, based upon historical experience and future expectations, for the years ended December 31, 2005, 2006 and 2007 totaled NIS 28,739,000, NIS 26,470,000 and NIS 43,770,000 ($ 11,381,000) (see note 11a), respectively.

The cash and cash equivalents as of December 31, 2007 are deposited mainly with leading Israeli banks. Therefore, in the opinion of the Company, the credit risk inherent in these balances is remote.

Handsets warranty obligations

The provision for handsets warranty obligations is calculated at the rate of 2% of the cost of the handsets sold, see note 11d. The Company has entered into several agreements under which the supplier does not provide any warranty but rather provides additional handsets to satisfy its warranty obligation. In these cases, the Company provides for warranty costs at the same time as the revenues are recognized.

Advertising expenses

Advertising expenses are charged to the statement of operations as incurred. Advertising expenses for the years ended December 31, 2005, 2006 and 2007 totaled NIS 97,651,000, NIS 105,035,000 and NIS 115,835,000 ($ 30,118,000), respectively.

Deferred income taxes

Deferred taxes are determined utilizing the asset and liability method, based on the differences between the amounts presented in these financial statements and those taken into account for tax purposes, in accordance with the applicable tax laws. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized (see note 9d).

Deferred tax assets and liabilities are presented as current or long-term items in accordance with the nature of assets or liabilities to which they relate.

Deferred tax balances are computed at the tax rates expected to be in effect at the deferred tax asset is utilized or the deferred tax liability is settled, based on the tax laws enacted (see also note 9b).

F - 16

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Uncertainty in Income Taxes :

As of January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 specifies how tax benefits for uncertain tax positions are to be recognized, measured, and derecognized in financial statements; requires certain disclosures of uncertain tax positions; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim-period guidance, among other provisions. On May 2, 2007, the FASB issued FASB Staff Position No. FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48-1” (“FSP FIN 48-1”). FSP FIN 48-1 provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The Company adopted FSP FIN 48-1 As of January 1, 2007

The Company’s policy to include interest and penalties relating to uncertain tax positions, within the provision for income taxes has not change as a result of implementing FIN 48 (see also note 9h).

Foreign currency transactions and balances

Balances in, or linked to, foreign currency are stated on the basis of the exchange rates prevailing at balance sheet dates. For foreign currency transactions included in the statements of operations, the exchange rates at transaction dates are used. Transaction gains or losses arising from changes in the exchange rates used in the translation of such balances are carried to financial income or expenses.

Derivative financial instruments (“derivatives”)

Under FAS 133, which establishes accounting and reporting standards for derivatives, including certain derivatives embedded in other contracts, and for hedging activities, all derivatives are recognized on the balance sheet at their fair value. On the date that the Company enters into a derivative contract, it designates the derivative, for accounting purposes, as: (1) hedging instrument, or (2) non-hedging instrument. Any changes in fair value are to be reflected as current gains or losses or other comprehensive gains or losses, depending upon whether the derivative is designated as a hedge and what type of hedging relationship exists. Changes in fair value of non-hedging instruments are carried to “financial expenses-net” on a current basis. To date, the Company did not have any contracts that qualify for hedge accounting under FAS 133.

The Company occasionally enters into commercial (foreign currency) contracts in which a derivative instrument is “embedded”. This embedded derivative is separated from the host contract and carried at fair value through income statement when (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument (see note 10).

Earning Per Share (EPS)

Basic EPS is computed by dividing net income by the weighted average number of shares outstanding during the years.

F - 17

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Earning Per Share (EPS) (continued):

Diluted EPS reflects the increase in the weighted average number of shares outstanding that would result from the assumed exercise of employee stock options, calculated using the treasury-stock-method.

Share based payment

Prior to January 1, 2006, the company accounted for employees share-based payment under the intrinsic value model in accordance with Accounting Principles Board Opinion No. 25 –“Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations The company disclosed pro forma information assuming the company had accounted for employees share-based payments using the fair value-based method, as required.

Effective January 1, 2006, the company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-based Payment” (“FAS 123 (R)”). FAS 123(R) requires awards classified as equity awards to be accounted for using the grant-date fair value method. The fair values of share-based payment transactions is recognized as expense over the requisite service period, net of estimated forfeitures. The company estimated forfeitures based on historical experience and anticipated future conditions.

The Company elected to recognize compensation cost for an award with only service conditions using the accelerated method.

The Company elected to adopt the modified prospective transition method, permitted by FAS 123(R). Under such transition method, FAS 123(R) has been implemented as from the first quarter of 2006 with no restatement of prior periods. The valuation provisions of FAS 123(R) apply to new awards and to awards modified, repurchased, or cancelled after January 1, 2006. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of January 1, 2006 are recognized over the remaining service period using the grant-date fair value of those awards as calculated for pro forma disclosure purposes under FAS 123.

The Company records deferred tax awards that result in deductions on the Company’s income tax returns, based on the amount of compensation cost recognized and the Company’s statutory tax rate.

Differences between the deferred tax assets recognized and the actual tax deduction reported on the company’s income tax return are recorded in additional paid-in capital (If the tax deduction exceeds the deferred tax asset) or as an expense in the income statement (if the deferred tax asset exceeds the tax deduction and no additional paid-in capital exists from previous awards).

The adoption of FAS 123(R) resulted in a cumulative benefit from accounting change of approximately NIS 1 million which reflects the net cumulative impact of estimating future forfeitures in the determination of period expense, rather than recording forfeitures when they occur as previously permitted under APB 25.

F - 18

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Share based payment (continued)

Share-based employee compensation cost for the year ended December 31, 2005 was determined using the intrinsic value method. The following table provides pro forma financial information as if Share-based employee compensation cost had been computed under FAS 123:

	Year ended December 31,
	2005
	NIS
	In thousands, except per share data

Net income, as reported		354,560
Add: stock based employee
compensation expense-net,
included in reported net
income - net of income taxes		8,023
Deduct: stock based employee
compensation expense-net,
determined under fair value
method for all awards - net of income
taxes		(30,978	)

Pro-forma net income		331,605


Earning per share:
Basic - as reported		2.19

Basic - pro forma		2.05

Diluted - as reported		2.17

Diluted - pro-forma		2.03

Asset retirement obligations

The company recognizes a liability in respect of asset retirement obligation (ARO) associated with the retirement of a tangible long lived asset in the period in which it is incurred and becomes determinable , with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depreciated such that the cost of the ARO is recognized over the useful life of the asset.

The ARO is recorded at fair value, and the accretion expense will be recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash out flows discounted at the Company’s credit-adjusted risk-free interest rate.

F - 19

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Asset retirement obligations (continued):

The Company has adopted, as of January 1, 2006 FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the fair value of the liability can be reasonably estimated. This Interpretation also clarifies that the term Conditional Asset Retirement Obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. According to FIN 47 uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists.

FIN 47 has not had a material impact on the company’s financial condition or results of operations.

The Company is subject to asset retirement obligations associated with its cell sites operating leases. These lease agreements contain clauses requiring restoration of the leased site at the end of the lease term, creating asset retirement obligations, see also note 12e.

Recently issued accounting pronouncements:

In September 2006 the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”) which defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years (as of January 1, 2008 for the Company).

The Company does not expect that the adoption of this statement will have a material effect on its financial position or its results of operations.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities–Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 is expected to expand the use of fair value accounting but does not affect existing standards which require certain assets or liabilities to be carried at fair value. The objective of SFAS 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS 159, a company may choose, at its initial application or at other specified election dates, to measure eligible items at fair value and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years (January 1, 2008, for the Company). If the company is to elect the fair value option for its existing assets and liabilities, the effect as of the adoption date, shall be reported as a cumulative-effect adjustment to the opening balance of retained earnings . The Company is currently assessing the impact that SFAS 159 may have on its financial position.

F - 20

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Recently issued accounting pronouncements (continued):

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)". SFAS 141(R) changes the accounting for business combinations, including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer’s income tax valuation allowance and income tax uncertainties.. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 . Early application is prohibited. the Company will be required to adopt SFAS 141(R) on January 1, 2009.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS 160”).

SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. An ownership interest in subsidiaries held by parties other than the parent should be presented in the consolidated statement of financial position within equity, but separate from the parent’s equity. SFAS 160 requires that changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary should be accounted for similarly as equity transactions. When a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary should be initially measured at fair value, with any gain or loss recognized in earnings.

SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interests. SFAS 160 is effective for fiscal years (including interim periods within those fiscal years) beginning on or after December 15, 2008. Earlier adoption is prohibited. The statement shall be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirement which shall be applied retrospectively for all periods presented. The Company will be required to adopt SFAS 160 on January 1, 2009. The Company is currently assessing the impact that SFAS 160 may have on its results of operations and financial position.

F - 21

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Recently issued accounting pronouncements (continued):

In June 2006, the Emerging Issues Task Force (EITF), reached a consensus on Issue No. 06-01, “Accounting for Consideration Given by a Service Provider to Manufacturers or Resellers of Equipment Necessary for an End-Customer to Receive Service from the Service Provider” (EITF No. 06-01). EITF 06-01 provides guidance on the accounting for consideration given to third party manufacturers or resellers of equipment which is required by the end-customer in order to utilize the service from the service provider. EITF 06-01 is effective for fiscal years beginning after June 15, 2007 (January 1, 2008, for the Company). An entity should recognize the effects of applying EITF 06-01 as a change in accounting principle through retrospective application to all prior periods unless it is impracticable to do so. The Company does not expect the adoption of EITF 06-01 to have a material impact on its results of operations and financial position.

Reclassifications

Certain comparative figures have been reclassified to conform to the current year presentation.

F - 22

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 – FIXED ASSETS:

Composition of fixed assets – net, is as follows:

	December 31
	2006		2007		2007
	NIS				Convenience translation into dollars
	In thousands

Communications network		3,730,768		4,077,703		1,060,245
Computers, hardware and software for
information systems		816,027		837,995		217,887
Optic fibers and related assets		60,591		130,450		33,918
Office furniture and equipment		45,213		41,751		10,857
Leasehold improvements		228,272		262,121		68,154

		4,880,871		5,350,020		1,391,061
Less - accumulated depreciation and amortization		3,133,412		3,615,056		939,953

		1,747,459		1,734,964		451,108

The cost of communication network in the amount of approximately NIS 1,546 million is fully depreciated and still in use.

Depreciation and amortization in respect of fixed assets totaled NIS 575,606,000, NIS 529,560,000 and NIS 509,568,000 ($ 132,492,000) for the periods ended December 31, 2005, 2006 and 2007, respectively. As to change in estimate, refer to note 1e7.

Fixed assets include interest expenses, direct consultation and supervision costs and other direct costs of establishing the cellular communications network and information systems, which were capitalized (before commencing full commercial operations or utilization of the related fixed assets) in respect of:

	December 31
	2006	2007	2007
	NIS		Convenience translation into dollars
	In thousands

Communications network	96,939	96,939	25,205
Computers, hardware and software for
information systems	15,920	15,920	4,139

	112,859	112,859	29,344
L e s s - accumulated depreciation	87,652	91,233	23,721

Depreciated balance	25,207	21,626	5,623

F - 23

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 3 – LICENSE, DEFERRED CHARGES AND OTHER INTANGIBLE ASSETS:

	December 31
	2006	2007	2007
	NIS		Convenience translation into Dollars
	In thousands

License (note 1a(2))	2,048,143	2,048,843	532,720
Less - accumulated amortization	852,474	931,944	242,315

	1,195,669	1,116,899	290,405

Customers relationship	18,493	18,493	4,808
Less - accumulated amortization	1,529	4,620	1,201

	16,964	13,873	3,607

Deferred charges - in respect of obtaining:
Long-term credit lines	69,816	69,816	18,153
Notes payable	34,265	34,265	8,909

	104,081	104,081	27,062
Less - accumulated amortization	69,630	80,927	21,041

	34,451	23,154	6,021

	1,247,084	1,153,926	300,033

License amortization expenses for the years ended December 31, 2005, 2006 and 2007 totaled NIS 79,255,000, NIS 79,395,000 and NIS 79,470,000 ($ 20,663,000), respectively. Amortization expenses on deferred charges for the years ended December 31, 2005, 2006 and 2007 totaled NIS 28,642,000, NIS 11,950,000 and NIS 11,297,000 ($ 2,937,000), respectively. Amortization expenses on deferred charges for the year ended December 31, 2005 includes NIS 11,064,000 in respect of the redemption of the Notes, see also note 5b. Amortization expenses on customers relationship for the years ended December 31, 2006 and 2007 totaled NIS 1,529,000 and NIS 3,091,000 ($ 803,000).

The expected amortization expenses of the license and customers relationship for the next five years are as follows:

	NIS
	In thousands



Year ended December 31:
2008		82,525	21,457
2009		82,525	21,457
2010		82,525	21,457
2011		81,743	21,254
2012		80,961	21,123

F - 24

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 4 – LONG-TERM BANK LOANS

The Company has a senior credit facility with Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel Discount Bank Ltd., in which United Mizrahi Bank Ltd. also participates. The facility is divided into two tranches: a $150 million term loan facility (“Facility A”) and a $100 million revolving loan facility (“Facility B”), both expiring on September 1, 2009. Facility A must be reduced to $50 million by August 31, 2008. Until February 19, 2007, the facilities were secured by a first ranking floating charge on the Company’s assets.

With effect March 1, 2007, the Company reduced Facility A to $75 million (in addition to an advance of approximately $25 million carried over from the Company’s previous facility, which on balance sheet date, was reduced to $4 million), and Facility B to $75 million. As a result, the total maximum availability under the facility is currently approximately $154 million.

The credit facility is a US dollar denominated facility, and advances may be drawn in US dollars and New Israeli Shekels, as set forth in c below.

Status of the credit facility at December 31, 2007 is as follows:

	Total availability
	US Dollars in millions



Facility A		79	4	75
Facility B		75		75

		154	**4	150

The amounts outstanding, classified by linkage terms and interest rates, are as follows:

	December 31
	2007		2006		2007
	Weighted average interest rates		Amount
	%		NIS				Convenience translation into dollars
			In thousands

In NIS - linked to the Israeli
consumer price index (CPI)*		5.6		181,107		21,463		*5,580
In NIS - unlinked				126,500		-		-

				307,607		21,463		5,580
Less - current maturities				35,099		21,463		5,580

				272,508		-		-

Linkage terms apply both to principal and interest.

The difference between the amounts displayed is the difference in exchange rates between the date the amounts were drawn and that at the balance sheet date.

F - 25

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 4 – LONG-TERM BANK LOANS (continued)

Facilities A and B, may be drawn in NIS or US dollars, provided that the amount of principal outstanding in US dollars under the credit facility with respect to each participating lender shall not exceed 10% of that lender’s total commitment unless otherwise agreed in advance.

There is a range of options as to how interest is calculated on borrowings under the credit facility. These options include fixed and variable rates, based upon the lending rates of each participating banks with a margin of 0.85%.

Under the credit facility the Company is required, inter alia, to fulfill certain operational conditions and to maintain certain financial ratios. If the Company defaults on the covenants, the banks are entitled to demand early repayment of the credit facility – in whole or in part. Under the credit facility. The Company believes that it is in compliance with all covenants stipulated in the credit facility.

NOTE 5 – NOTES PAYABLE:

On March 31, 2005, the Company completed an offering of NIS 2,000 million of unsecured notes, which were issued at their NIS par value. The notes have been registered in Israel and are traded on the Tel-Aviv Stock Exchange (TASE). Of these notes approximately NIS 36.5 million were purchased by Partner Future Communications 2000 Ltd., (“PFC”) a wholly owned subsidiary of the Company. PFC also received an additional allocation of notes having an aggregate principal amount of NIS 500 million. These notes that PFC received pursuant to this additional allocation do not confer the right to receive any payment whatsoever on account of principal or interest until they are sold by PFC to a third party.

The net proceeds from the offering were approximately NIS 1,929 million after deducting the notes purchased by PFC, commissions and offering expenses.

The principal amount of the Notes is payable in 12 equal quarterly installments, beginning June 30, 2009.

The Notes bear NIS interest at the rate of 4.25% per annum, linked to the Israeli Consumer Price Index, which is payable quarterly on the last day of each quarter, commencing June 30, 2005.

On December 31, 2007, the Notes closing price was 108.06 points par value.

Commission fees and offering expenses in respect of the offering of the Notes totaled approximately NIS 34 million. These expenses are presented as deferred charges and the amortization in respect thereof is included in “financial expenses, net”.

F - 26

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – NOTES PAYABLE (continued)

On August 10, 2000, the Company completed an offering of $ 175 million of unsecured 13% Senior Subordinated Notes due 2010, which were issued at their dollar par value. The notes were registered under the U.S. Securities Act of 1933.

On August 15, 2005, the Company exercised it right to redeem the notes at a redemption price of 106.5% of their dollar par value – according to the option stipulated in the Notes document. As a result of the redemption of the Notes the Company has recognized as financial expenses an amount of approximately NIS 63 million, which after tax resulted in a decrease of the Company’s net income of NIS 42 million.

NOTE 6 – LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT:

Israeli labor laws and agreements require payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The Company’s severance pay liability to its employees, mainly based upon length of service and the latest monthly salary (one month’s salary for each year worked), is reflected by the balance sheet accrual under the “liability for employee rights upon retirement”. The Company records the liability as if it was payable at each balance sheet date on an undiscounted basis. The liability is partly funded by purchase of insurance policies and the amounts funded are included in the balance sheet under investments and long-term receivables, as “funds in respect of employee rights upon retirement”. The policies are the Company’s assets and under labor agreements, subject to certain limitations, they may be transferred to the ownership of the employees.

The severance pay expenses for the years ended December 31, 2005, 2006 and 2007 were approximately NIS 24 million, NIS 28 million and NIS 48 million (approximately $ 12 million), respectively.

Cash flows information regarding the company’s liability for employee rights upon retirement:

The Company expects to contribute NIS 23 million (USD 7 million) in respect of severance pay in 2008.

Due to the relatively young age of the Company’s employees, benefit payments to employees reaching retirement age in the next 10 years, are not material. The amounts were determined based on the employee’s current salary rates and the number of service years that will accumulate upon their retirement date. These amounts do not include amounts that might be paid to employees who will cease working for the Company before their normal retirement age.

F - 27

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – COMMITMENTS AND CONTINGENT LIABILITIES:

Commitments:

Royalty Commitments

The Company is committed to pay royalties to the Government of Israel on its “income from cellular services” as defined in the “Telecommunications (Royalties) Regulations, 2001” (hereafter – the Regulations), which includes all kinds of income of the Company from the granting of communication services under the license –including airtime, roaming services and non-recurring connection fees, but excluding income transferred to another holder of a communications license and deducting bad debts, payments to another communication licensee in respect of interconnection, payments for roaming services to foreign operators and expenses related to the sale of equipment.

During 2004, a reduction in the percentage of royalties was approved; accordingly, the rate of royalty payments (3.5%) paid by cellular operators is reduced annually by 0.5%, starting January 1st 2006, to a level of 1% at 2010.

The royalty expenses for the periods ended December 31, 2005, 2006 and 2007 were approximately NIS 122,599,000, NIS 114,462,000 and NIS 96,799,000 ($ 25,169,000), respectively, and are included under “cost of services revenues”.

Under the Telegraph Regulations the Company is committed to pay an annual fixed fee for each frequency used. The Company paid a total amount of approximately NIS 47 million, NIS 55 million and NIS 55 million ($ 14 million), for the years 2005, 2006 and 2007, respectively. Under the above Regulations should the Company choose to return a frequency, such payment is no longer due.

Operating leases

The Company has entered into operating lease agreements as follows:

Lease agreements for its headquarters facility in Rosh Ha’ayin for a fifteen-year period (until 2018). The Company has an option to shorten the lease periods by 3.5 to 8.5 years. The rental payments are linked to the Israeli CPI.

Lease agreements for service centers and retail stores for a period of two to five years. The Company has an option to extend the lease periods for up to twenty years (including the original lease periods). The rental payments are linked partly to the dollar and partly to the Israeli CPI. Some of the extension options include an increase of the lease payment in a range of 2%-10%.

Lease agreements in respect of cell sites throughout Israel are for periods of two to three years. The Company has an option to extend the lease periods up to ten years (including the original lease periods). The rental payments fees are partly linked to the dollar and are partly linked to the Israeli CPI. Some of the extension options include an increase of the lease payment in a range of 2%-10%.

F - 28

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – COMMITMENTS AND CONTINGENT LIABILITIES (continued):

Operating lease agreements in respect of vehicles are for periods of three years. The rental payments are linked to the Israeli CPI.

The minimum projected rental payments (including the payments in the periods of the reasonably assured option terms) for the next five years, at rates in effect at December 31, 2007, are as follows:

	NIS
	In thousands



Year ended December 31:
2008		197,177	51,268
2009		164,596	42,797
2010		132,881	34,550
2011		104,939	27,285
2012		91,533	23,800
2013 and thereafter		379,336	98,631

		1,070,462	278,331

The rental expenses for the years ended December 31, 2005, 2006 and 2007 were approximately NIS 185 million, NIS 198 million, and NIS 205 million ($ 53 million), respectively.

At December 31, 2007, the Company is committed to acquire fixed assets, for approximately NIS 414 million (approximately $ 108 million).

At December 31, 2007, the Company is committed to acquire handsets for approximately NIS 333 million (approximately $ 87 million).

As to cost sharing agreement with Hutchison Telecommunications Limited, see note 12b. As to an agreement with H3G PROCUREMENT SERVICES S a’R.L, see note 12c.

As to the Agreement with LM Ericsson Israel Ltd. See note 1e7.

Contingent Liabilities:

On April 8, 2002, a claim was filed against the Company, together with a motion to certify this claim as a class action, alleging a variety of consumer complaints. The amount of the claim against the Company is estimated at approximately NIS 545 million plus additional significant amounts relating to other alleged damages.

On March 14, 2007, the court rejected the class action and negated the claim.

F - 29

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – COMMITMENTS AND CONTINGENT LIABILITIES (continued):

On April 13, 2003, a claim was filed against the Company and other cellular telecommunication companies, together with a request to recognize this claim as a class action, for alleged violation of antitrust law, alleging that no fee should have been collected for incoming SMS messages or alternatively, that the fee collected is excessive and that it is a result of illegal co-operation between the defendants. The amount of the claim against all the defendants is estimated at approximately NIS 120 million (if the court rules that no fee should have been collected) or alternatively NIS 90 million (if the court rules that the fees are excessive).

At this stage, and unless and until the claim is recognized as a class action, the Company and its legal counsel are unable to evaluate the probability of success of such claim, and therefore no provision has been made.

During the year 2006, claims were filed against the Company and other cellular telecommunication companies and, in one of the claims, also against land line telecommunication companies, together with a request to recognize these claims as a class action for collecting undue payment from its customers on calls to land line companies when the receiver of the call hangs up first. The amount of the claims against all the defendants is estimated, in one of the claims at approximately NIS 100 million for the seven year period leading up to the filing of the claim; and in the other claim the amount of the claim against the Company together with land line companies at approximately NIS 53 million. With regard to the claim that was filed also against land-line telecommunications companies, in September 2007 the Court approved a settlement according to which the Company as well as the other cellular operators have been dismissed as defendants.

In August 2006 the Company, together with the other cellular operators, submitted a request to hold an urgent hearing, and a motion for an order nisi against the Government of Israel and the Minister of Communications to explain why they do not act immediately to postpone the date for implementing and activating the number portability plan from September 1, 2006, as provided in the Communications law (Bezeq and Broadcasts) – 1982 (“the Communications Law”).

On December 18, 2007 the file was dismissed.

F - 30

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – COMMITMENTS AND CONTINGENCIES (continued):

On January 25, 2007 a claim of NIS 10.61 billion, together with a request for a certification as a class action, was filed against the Company and against – other Cellular and land line telecommunication Companies.

The claim is that the defendants have not implemented number portability and are in violation of the Communication Law, mandating the implementation of telephone number portability on September 1, 2006. It is claimed that the defendants are thus harming the claimants and consumers of telephone services in general.

The claimants are demanding NIS 1,000 for each of the Company’s 2,626,000 related subscribers for a total demand of approximately NIS 2,600 million.

On March 5, 2008 the claim was dismissed.

On February 27, 2007, a claim was filed against the Company and two other cellular telecommunication companies together with a request to recognize this claim as a class action. The claim is for sums that were allegedly overcharged in breach of the Company licenses, based on intervals larger than the intervals the defendants were allegedly authorized to charge under their licenses, for calls initiated or received by the subscribers while abroad. If the claim is recognized as a class action, the total amount claimed from the defendants is estimated by the plaintiffs to be approximately NIS 449 million, of which, approximately NIS 88 million, is attributed to the Company.

At this stage, and until the claim is recognized as a class action, the Company and its legal counsel are unable to evaluate the probability of success of such claim, and therefore no provision has been made.

In July 3, 2007 a claim was filed against the Company together with a request to recognize this claim as class action. The claim alleges that the Company over- billed one million subscribers. The amount of the claim against the Company is approximately NIS 1.5 billion. Should the court recognized the claim as a class action, the Company estimates that the amount of the claim to be approximately NIS 2.5 million.

On April 16, 2008 the claim was dismissed.

F - 31

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – COMMITMENTS AND CONTINGENCIES (continued):

On August 9, 2007, a claim was filed against the Company, together with a request to recognize this claim as a class action. The claim is that the Company discontinues providing services to Prepaid subscribers that have not used their number for a period of thirteen months and transferred the number to other subscribers. The claimants allege that this violates the terms of the Company’s license as well as the requirements against deception and the disclosure requirements in the Consumer Protection Law.

If the claim is recognized as a class action, the total amount claimed for the defendants is estimated by the plaintiffs to be approximately NIS 197 million.

At this stage, and until the claim is recognized as a class action, the company and its legal council are unable to evaluate the probability of success of such claim, and there fore no provision has been made.

On September 19, 2007, a claim was filed against the Company and two other cellular operators, together with a request to recognize this claim as a class action.

The alleged claim is that the Company charged subscribers for Short Message Service (SMSs) messages sent to specific subscribers who can not receive such messages, and that the Company misled the subscribers who sent those messages as those subscribers received a network message that the message has been sent..

If the claim is recognized as a class action, the total amount claimed for the defendants is estimated by the plaintiffs to be approximately NIS 183 million.

The parties are holding discussions in order to try and find an agreement in insubstantial amounts and therefore no provision has been made.

On November 19, 2007 a claim and a motion to certify the claim as a class action was filed against the Company for allegedly unlawful collection of payments from customers, for content services that the customers did not ask for. Alternatively the plaintiff claims that the Company has not revealed to its subscribers the full details about these services.

The plaintiff’s claim is for a period of 3 years. The total amount of the claim is NIS 381 million. The Company filed its response on April 21, 2008.

At this stage, and until the claim is recognized as a class action, the Company and its legal council are unable to evaluate the probability of success of such claim, and there fore no provision has been made.

F - 32

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – COMMITMENTS AND CONTINGENCIES (continued):

10)

On December 17, 2007 a claim and a motion to certify the claim as a class action was filed against the Company and two other Cellular communications companies.

The plaintiffs allege that cell sites were erected near their properties illegally, causing environmental damage. They seek various remedies, including removal of all allegedly illegal devices, and a sum of NIS 1 Billion (1,000 NIS per person times 1 million people allegedly effected) that would be given to a fund managed by environment and cellular specialists. The Company is scheduled to file its response by June 1, 2008.

11)

On November 29, 2007 a petition was filed in the supreme court against the minister of communication, the attorney general in the ministry of communication and the chief executive officer in the ministry of communication, and also against the Company (as well as two other cellular communications companies) as formal respondents.

The petition deals with the decision of the minister of communication according to which cellular companies are not allowed to market programs that include limitation to 1 minute minimum (programs that charge the subscriber for the whole first minute even if he used only a part of it).

The petitioner’s motion is to implement the above mentioned decision retroactively and alternatively to instruct the cellular companies to forfeit the fines they collect on customers who wish to leave these programs.

At this stage the court has yet to order the cellular companies to respond to the petition.

12)

On March 23, 2008, a claim and a motion to certify the claim as a class action were filed against the Company.

The claim is that the Company overcharges subscribers for calls and that the subscribers’bill includes incorrect and unclear information.

The total amount to be claimed under the class action is not estimated by the plaintiff.

13)

Additional claims were filed against the Company, together with a request to recognize these claims as class actions. The total amount of the claims against the Company is estimated at approximately NIS 117 million.

At this stage, and until the claims are recognized as a class action, the Company and its legal counsel are unable to evaluate the probability of success of such claims and therefore no provision has been made.

F - 33

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – COMMITMENTS AND CONTINGENCIES (continued):

14)

The Company does not have building permits for many of its cell sites and as a result is involved in numerous legal actions (including criminal proceedings against officers and directors) relating to this issue.

Most of these proceedings have been settled under plea bargain arrangements, whereby the Company has paid fines in insignificant amounts.

Management, based upon current experience and the opinion of legal counsel, does not believe that these legal actions will result in significant costs to the Company. The accounts do not include a provision in respect thereof.

15)

Section 197 of the Building and Planning Law states that a property owner has the right to be compensated by a local planning committee for reductions in property value as a result of a new building plan.

In January 2006, the Non-ionizing Radiation Law was published, amending the Planning and Building Law so that local Planning and Building committees must require indemnification letters against reduction in property value from the cellular operators requesting building permits.

Accordingly, on January 3, 2006, the National Council for Planning and Building published an interim decision conditioning the issuance of building permits for cell site permits by local planning and building councils upon provision of a 100% indemnification undertaking by the cellular operators.

This decision shall remain in effect until it is replaced with an amendment to the National Zoning Plan 36.

Between January 3, 2006 and until March 31, 2008 the Company has provided the local authorities with 265 indemnification letters as a pre-condition for obtaining building permits.

Due to the fact that an enactment of law regarding this matter is not yet in place, at this stage the extent of the Company’s exposure from granting indemnification letters can not be evaluated.

However, if the Company shall be required to make substantial payments under the indemnity letters, it could have an adverse effect on the Company’s financial results.

The Company assumes that the requirement to provide indemnification letters might require it to change locations of sites to different, less suitable locations and to dismantle some of their sites. These changes in the deployment of the sites might have an adverse effect on the extent, quality and capacity of our network coverage.

16)

The Company is a party to various claims arising in the ordinary course of its operations. Management, based upon the opinion of its legal counsel, is of the opinion that the ultimate resolution of these claims will not have a material effect on the financial position of the Company, its result of operations and cash flows. The accounts do not include a provision in respect thereof.

F - 34

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – SHAREHOLDERS’ EQUITY:

Share capital:

The Company’s shares are traded on the Tel-Aviv stock exchange (TASE), on the London Stock Exchange (“LSE”) and, in the form of American Depository Receipts (“ADRs”), each represent one ordinary share, on the NASDAQ National Market (“Nasdaq – NM”). During 2001, the Company listed its shares in the TASE according to the dual listing regulations.

Under the provisions of the license granted to the Company (note 1a(2)), restrictions are placed on transfer of Company shares and placing liens thereon. The restrictions include the requirement that the advance written consent of the Minister of Communications be received prior to transfer of 10% or more of the Company’s shares to a third party.

On December 26, 2001, the Company filed a shelf registration statement on Form F-3 with the United States Securities and Exchange Commission for future offerings of its securities. Under the shelf registration, the Company can raise up to $400 million from the issue of ordinary shares and debt securities.

On April 20, 2005, the Company repurchased approximately 33.3 million of its shares pursuant to an offer received from its founding Israeli Shareholders in February 2005. These shareholders held together approximately 22.5% of the Company’s outstanding shares at the time of the offer. As a result of the repurchase, the collective shareholdings of the founding Israeli shareholders was reduced to approximately 5.4% of the Company’s issued and outstanding share capital. The price per share at which these shares were acquired was NIS 32.2216 per share. The shares were cancelled pursuant to the repurchase. The excess of cost over its par value was charged to accumulated deficit.

Employee’s stock option plans:

On March 3, 1999, the Company’s Board of Directors approved an employee stock option plan (hereafter – the “1998 Plan”), pursuant to which 5,833,333 ordinary shares were reserved for issuance upon the exercise of 5,833,333 options to be granted to key employees without consideration. In 2000, options to purchase 729,166 shares were transferred to the 2000 plan which left options to purchase 5,104,167 shares remaining in the 1998 plan. Through December 31, 2007 – 5,505,557 options have been granted pursuant to the 1998 Plan, of which 4,905,028 options have been exercised and 597,139 options were forfeited and 4 expired (options forfeited and expired were available for subsequent grants).

The options vest in five equal annual batches over a period of five years from the beginning of employment of each employee, unless otherwise provided in the grant instrument, provided the employee is still in the Company’s employ. An option not exercised within 8 years from the date of its allotment shall expire. The exercise price per share of the options granted through December 31, 2000, which is denominated in dollars, is $ 0.343. During 2002, the Company granted options under the 1998 Plan in accordance with the terms of the 2000 plan, including the exercise price, vesting schedule and expiration date (see b. below).

As of December 31, 2007 – 195,753 options of the 1998 Plan remain ungranted.

F - 35

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – SHAREHOLDERS’ EQUITY (continued):

In October 2000, the Company’s Board of Directors approved an employee stock option plan (hereafter – the “2000 Plan”), pursuant to which 4,472,222 ordinary shares were reserved for issuance upon the exercise of 4,472,222 options to be granted to employees without consideration. The options vest in four equal annual batches over a period of four years from the date of grant of the option, provided the employee is still in the Company’s employ. The option holder may exercise all or part of his options at any time after the date of vesting but no later than the expiration of the exercise period, which will fixed by the Employee Stock Option Committee and will not exceed ten years from the date of option grant.

The NIS denominated exercise price per share of the options, is equal to the market price of the Company’s shares on the date on which the options are granted.

During November 2003, 419,930 options of this plan were transferred to options under the 2003 amendment Plan (see c. below).

Through December 31, 2007 – 5,317,555 options were granted pursuant to the 2000 Plan, of which 3,626,472 options have been exercised, 1,395,333 options were forfeited and 102,250 expired (options forfeited and expired were available for subsequent grants). As of December 31, 2007 – 232,320 options of the 2000 Plan remain ungranted.

On November 13, 2003, the Company’s Board of Directors approved an amendment to the terms and provision of the 2000 Plan, in order to adjust the terms of the 2000 Plan to comply with new tax legislation that came into force in January 2003. On December 2003, the Company offered the employees, who received options under the 2000 plan, to exchange their unvested options, with the same amount of identical options, under the amended plan and to benefit from the capital gain’s tax route pursuant to Section 102(b)(2) of the Israeli Income Tax Ordinance. Employees holding options to purchase 962,104 ordinary shares accepted this offer.

On December 30, 2003, the Company’s Board of Directors approved the grant of 195,000 options (out of the 419,930 options that were transferred from the 2000 Plan) under the 2003 amended Plan with an exercise price of NIS 20.45 – which was less than the market price on the date of grant. Through December 31, 2007 all 195,000 options that were granted have been exercised. As of December 31, 2007 – 224,930 options of the 2003 amended Plan remain ungranted.

The options vest in four equal annual batches over a period of four years from the date of grant of the option, provided the employee is still in the Company’s employ.

In July 2004, the Company’s Board of Directors approved a stock option plan (hereafter – the “2004 Plan”), pursuant to which 5,775,000 ordinary shares were reserved for issuance upon the exercise of 5,775,000 options to be granted without consideration. The options vest in four equal annual batches, provided the employee is still in the Company’s employ. The option holder may exercise all or part of his options at any time after the date of vesting but no later than the expiration of the exercise period, which will fixed by the Employee Stock Option Committee and will not exceed ten years from the date of option grant.

Through December 31, 2007 – 7,051,000 options have been granted to Company’s employees pursuant to the 2004 Plan, of which 3,023,318 options have been exercised, 1,356,125 options were forfeited and 4,625 options expired (options forfeited and expired are available for subsequent grants).

F - 36

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – SHAREHOLDERS’ EQUITY (continued):

As of December 31, 2007 – 84,750 of the 2004 Plan remain ungranted.

The NIS denominated exercise price per share of the options, is equal to the average market price of the Company’s shares for the 30 trading days preceding the day on which the options are granted, less 15%.

The ordinary shares derived from the exercise of the options confer the same rights as the other ordinary shares of the Company.

The plans are subject to the terms stipulated by Section 102 of the Israeli Income Tax Ordinance. Inter alia, these terms provide that the Company will be allowed to claim, as an expense for tax purposes, the amounts credited to the employees as a benefit in respect of shares or options granted under the plans, as follows:

Through December 31, 2003, the amount that the Company will be allowed to claim as an expense for tax purposes will be the amount of the benefit taxable in the hands of the employee.

From January 1, 2004, the amount that the Company will be allowed to claim as an expense for tax purposes, will be the amount of the benefit taxable as work income in the hands of the employee, while that part of the benefit that is taxable as capital gains in the hands of the employee shall not be allowable.

The aforementioned expense for tax purposes will be recognized in the tax year that the employee is taxed, except as described below.

In December 2002, the Company signed an agreement with the tax authorities concerning the tax liabilities of its employees regarding the benefit arising from the options granted to them and were exercised by December 31, 2002; and/or (2) options that vest by December 31, 2003 and were exercised by March 31, 2004. According to the agreement, the individual tax rate on the taxable income received by the employees in connection with the benefit arising from the options will be reduced; in return, the Company will defer the deduction of such an expense, for a period of 4 years from the date it commences paying income taxes.

The Company will recognize these expenses during 2010.

F - 37

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – SHAREHOLDERS’ EQUITY (continued):

Following is a summary of the status of the plans as of December 31, 2005, 2006 and 2007 and the changes therein during the years ended on those dates:

	Year ended December 31
	2005					2006					2007
	Number			Weighted average exercise price*		Number			Weighted average exercise price*		Number			Weighted average exercise price*
				NIS					NIS					NIS

Balance outstanding at beginning
of year		8,911,305			24.12		7,066,805			25.85		5,072,874			27.78
Changes during the year:
Granted**		518,500			32.75		596,000			33.18		841,000			53.33
Exercised		(1,809,000	)		19.21		(1,987,930	)		22.72		(2,804,553	)		27.00
Forfeited		(525,750	)		26.44		(598,875	)		27.14		(244,000	)		27.33
Expired		(28,250	)		21.49		(3,126	)		26.73		(1,503	)		26.69

Balance outstanding at end of year		7,066,805			25.85		5,072,874			27.78		2,863,818			36.06

Balance exercisable at end of year		2,838,928			23.83		2,377,249			26.57		624,693			28.24

Includes options under the 1998 Plan, the exercise price of which is weighted based on the applicable date’s NIS – dollar exchange rate.

Below market price.

***

The total intrinsic value of options exercised during 2005, 2006 and 2007 is NIS 35.5 million, NIS 36.8 million and NIS 100.3 million, respectively.

The weighted average fair value of options granted using the Black & Scholes option-pricing model during 2005, 2006 and 2007 is NIS 21.36, NIS 10.82 and NIS 12.50 ($ 3.25), respectively. The fair value of each option granted is estimated on the date of grant based on the following weighted average assumptions: weighted average dividend yield of 2005 0%, 2006 – 6.14% and 2007 5.69%; expected volatility of 58%, 39% and 26%, respectively; risk-free interest rate: 2005 – 3.5%, 2006 – 5.5%, 2007 – 4.1%; weighted average expected life: 2005 and 2006 – 5 years and 2007 – 4 years. The expected volatility is based on a historical volatility, by statistical analysis of the daily share price for periods corresponding the option’s expected life. The expected life is expected length of time until expected date of exercising the options, based on historical data on employees’ exercise behavior and anticipated future condition.

The annual tax benefit regarding the exercised options during the years 2005, 2006, and 2007 is NIS 11.3 million, NIS 7.8 million, and NIS 7.6 million respectively.

The annual income tax regarding the granted options for the years 2005, 2006, and 2007 is NIS 0.9 million, NIS 0.9 million, and NIS 2.0 million respectively.

As of December 31, 2007, there was NIS 13.4 million of total unrecognized compensation cost (net of forfeitures) related to non-vested share-based compensation arrangements granted under the plans. The weighted average remaining life of the unrecognized compensation cost is 1.5 years.

F - 38

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – SHAREHOLDERS’ EQUITY (continued):

The following table summarizes information about options outstanding and exercisable at December 31, 2007:

Options outstanding
Range of exercise prices		Number outstanding at December 31, 2007		Weighted average of exercise price		Weighted average remaining contractual life		Aggregate intrinsic value
NIS				NIS		Years		NIS in thousands


	1.32		3,386		1.32		0.2		284
	17.25-21.72		46,500		19.38		2.8		3,061
	26.74		1,092,725		26.74		6.9		63,881
	27.35		147,000		27.35		1.8		8,504
	30.73-42.10		1,033,207		35.75		8.4		51,075
	57.96-64.90		541,000		59.56		9.6		13,869

			2,863,818		36.06		7.6		140,674

Options exercisable
Range of exercise prices		Number outstanding at December 31, 2007		Weighted average of exercise price		Weighted average remaining contractual life		Aggregate intrinsic value
NIS				NIS		Years		NIS in thousands


	1.32		3,386		1.32		0.2		284
	17.25-21.72		46,500		19.38		2.8		3,061
	26.74		270,100		26.74		6.8		15,790
	27.35		147,000		27.35		1.8		8,504
	30.73-42.10		144,957		32.70		8.3		7,604
	57.96-64.90		12,750		57.96		9.5		347

			624,693		28.24		5.8		35,590

Dividends

During the years 2006 and 2007 the Company distributed to its shareholders a cash dividend in the amount of NIS 307 million (NIS 2 per share) and NIS 631 million (NIS 4.03 per share), respectively out of which approximately NIS 7 million tax withholding related to dividend was paid in January 2008.

On February 7, 2008, the Company’s Board of Directors resolved and recommended the distribution of a cash dividend in the amount of NIS 2.02 per share (approximately NIS 318 million ($83 million)) to shareholders of record on February 20, 2008. Cash dividends are paid in Israeli currency.

F - 39

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – SHAREHOLDERS’ EQUITY (continued):

On February 7, 2008, the Company’s Board of Directors resolved and recommended the share buyback of up to NIS 600 million in 2008. Till the date of signing of the financial statements, the Company purchased 625,000 shares.

NOTE 9 – TAXES ON INCOME:

Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985

Under this law, results for tax purposes are measured in real terms, having regard to the changes in the Israeli CPI. The Company and its subsidiary are taxed under this law.

In February 2008, the Knesset (the Israeli parliament), passed a low according to which the provisions of the Inflationary Adjustments Law will no longer apply to the Company in 2008 and thereafter.

Tax rates applicable to income of the Company and its subsidiary

The income of the Company and its Israeli subsidiary is taxed at the regular rate. Through December 31, 2003, the corporate tax was 36%. In July 2004, Amendment No. 140 to the Income Tax Ordinance was enacted. One of the provisions of this amendment is that the corporate tax rate is to be gradually reduced from 36% to 30%. In August 2005, a further amendment (No. 147) was published, which makes a further revision to the corporate tax rates prescribed by Amendment No. 140. As a result of the aforementioned amendments, the corporate tax rates for are as follows: 2005 – 34%, 2006 – 31%, 2007 – 29%, 2008 – 27%, 2009 – 26% and for 2010 and thereafter – 25%.

As a result of the changes in the tax rates, the Company adjusted – in each of the years 2004 and 2005 – at the time the aforementioned amendments were made, its deferred tax balances, in accordance with the tax rates expected to be in effect in the coming years; the effect of the change has been carried to income on a current basis.

Losses carried forward to future years

At December 31, 2007, the subsidiary of the Company had carryforward losses of approximately NIS 14 million (approximately $ 4 million). The carryforward tax losses are linked to the Israeli CPI and can be utilized indefinitely.

F - 40

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – TAXES ON INCOME (continued):

Deferred income taxes

The major components of the net deferred tax asset, current and non-current, in respect of the balances of temporary differences and the related valuation allowance as of December 31, 2006 and 2007, are as follows:

	December 31
	2006			2007			2007
	NIS						Convenience translation into dollars
	In thousands

In respect of carryforward tax
losses (see c. above)		3,321			3,421			890
Subscriber acquisition costs		33,313			41,979			10,915
Allowance for doubtful accounts		35,850			43,225			11,239
Provisions for employee rights		16,297			16,853			4,382
Depreciable fixed assets		(30,691	)		(15,945	)		(4,146	)
Amortized license		38,838			35,810			9,311
Options granted to employees		23,243			21,630			5,625
Other		(216	)		(3,718	)		(967	)

		119,955			143,255			37,249
Valuation allowance - in respect of
carryforward tax losses *		(3,321	)		(3,421	)		(890	)

		116,634			139,834			36,359

* The carryforward tax losses are related to the wholly owned subsidiary.

The changes in the valuation allowance for the years ended December 31, 2005, 2006 and 2007, are as follows:

	2005					2007
	NIS					Convenience translation into dollars
	In thousands


Balance at beginning of year		5,694		3,239	3,321		864
Change during the year		(2,455	)	82	100		26

Balance at end of year		3,239		3,321	3,421		890

A full valuation allowance was provided in respect of the wholly owned subsidiary, as it is more likely than not that its deferred tax assets will not be realized.

F - 41

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – TAXES ON INCOME (continued):

Following is a reconciliation of the theoretical tax expense, assuming all income is taxed at the regular tax rates applicable to companies in Israel (see b. above), and the actual tax expense:

	Year ended December 31
	2005			2006			2007			2007
	NIS									Convenience translation into dollars
	In thousands

Income before taxes on income,
as reported in the income statements		557,458			1,051,950			1,278,203			332,346

Theoretical tax expense		189,536			326,105			370,679			96,380
Increase in taxes resulting from adjustment to
deferred tax balances due to changes in
tax rates, see b above		11,442
Increase (decrease) in tax resulting from
disallowable deductions: *
In respect of previous year					20,115			(29,135	)		(7,575	)
For the current year		3,400			18,156			768			199
Change in the estimated utilization period of
the tax assets		2,935			3,696			2,772			721
Difference between the basis of measurement
of income reported for tax purposes and
the basis of measurement of income for
financial reporting purposes - net		(86	)		(2,159	)		5,302			1,379
Other		(4,329	)		4,762			(11,969	)		(3,112	)

Taxes on income for the reported year		202,898			370,675			338,417			87,992

On October 28 and 29, 2007, the Israeli Supreme Court issued a new ruling readdressing the same issue. The Company re-evaluated the provision in light of the new ruling and decided to reduce the provision of unrecognized tax benefit to an amount of NIS 7 million.

F - 42

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – TAXES ON INCOME (continued):

Taxes on income included in the income statements:

As follows:

	Year ended December 31
	2005		2006		2007			2007
	NIS							Convenience translation into dollars
	In thousands

For the reported year:
Current				315,328		390,752			101,599
Deferred, see d above		202,898		35,232		(23,200	)		(6,032	)
In respect of previous year - current				20,115		(29,135	)		(7,575	)

		202,898		370,675		338,417			87,992

Tax assessments:

Tax returns filed by the Company through the year ended December 31, 2002, are considered to be final.

The subsidiary has not been assessed for tax purposes since incorporation.

Uncertain tax positions:

As described in Note 1o, the Company adopted the provisions of FIN 48 as of January 1, 2007.

As of December, 31 2006, the Company recognized a liability for unrecognized tax benefits in amount of NIS 35 million (See also e above). This amount did not result in a change to the balance of accumulated deficit, since the amount was fully provided for prior to the adoption of FIN 48.

As of December, 31 2007 a provision of NIS 7 million is presented as short term liability in the balance sheet.

In 2007 the Company recognized interest expense, in respect of those underpayments of income taxes and penalties in an immaterial amounts.

Following is a reconciliation of the total amounts of the Company’s unrecognized tax benefits at the beginning and the end of the year ended on December 31, 2007:






Balance at beginning of year	35,000
Increases in unrecognized tax benefits as a result of tax positions
taken during the current period	20,000
Decreases in unrecognized tax benefits as a result of:
Positions taken during a prior period	(28,000	)
Tax positions taken during the current period	(20,000	)

Balance at end of year	7,000

F - 43

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – TAXES ON INCOME (continued):

The amounts of unrecognized tax benefits as of December 31, 2007 and January 1, 2007 that would affect the effective tax rate if recognized are NIS 7 million and NIS 35 million, respectively.

The Company anticipates that it is reasonably possible that over the next twelve months the amount of unrecognized tax benefits could be reduced to zero because the Company is currently under periodical examination by the tax authorities.

NOTE 10 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

Linkage of monetary balances:

As follows:

	December 31, 2007
	In or linked to foreign currencies (mainly dollars)		Linked to the Israeli CPI		Unlinked
	In thousands


NIS:
Assets		2,118		9,074		1,741,769

Liabilities		277,095		2,146,859		763,901


Convenience translation into
dollars:
Assets		551		2,359		452,878

Liabilities		72,048		558,206		198,622

Data regarding the dollar exchange rate and the Israeli CPI:






At December 31:
2007	NIS 3.846	191.15 points
2006	NIS 4.225	184.87 points
2005	NIS 4.603	185.05 points
2004	NIS 4.308	180.74 points
Increase (decrease) during the period:
2007	(9.0)%	3.4%
2006	(8.2)%	(0.1)%
2005	6.8%	2.4%

* Based on the index for the month ending on each balance sheet date, on the basis of 1993 average = 100.

F - 44

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):

Derivative financial instrument – foreign exchange risk management

The Company enters into foreign currency derivative transactions in order to protect itself against the risk that the eventual dollar cash flows resulting from the anticipated payments in respect of purchases of handsets and capital expenditures in foreign currency will be affected by changes in exchange rates. In addition the Company enters into derivative transactions in order to protect itself against the increase in the CPI in respect of the principal of the CPI-linked Notes payable. However, these contracts do not qualify for hedge accounting under FAS 133.

The Company does not hold or issue derivative financial instruments for trading purposes.

As the counterparties to the derivatives are Israeli banks, the Company considers the inherent credit risks remote.

The notional amounts of foreign currency derivatives as of December 31, 2006 and 2007 are as follows:

	December 31
	2006		2007		2007
	NIS				Convenience Translation into dollars
	(In millions)

Forward transactions for the
changes in the Israeli CPI		1,100		1,000		260

Forward transactions for the
exchange of dollars into NIS		351		358		93

Embedded derivatives -
dollars into NIS		153		591		154

The derivative financial instruments are for a period of up to one year. As of December 31, 2007, the remaining contractual lives are for periods up to one year.

Fair value of financial instruments

The financial instruments of the Company as of December 31, 2007 consist mainly of non-derivative assets and liabilities (items included in working capital and long-term liabilities); the Company also has some derivatives, which are presented at their fair value.

In view of their nature, the fair value of the financial instruments included in working capital is usually identical or close to their carrying value. The fair value of long-term loans approximates the carrying value, since they bear interest at rates close to the prevailing market rates. Regarding the fair value of Notes payable see note 5.

The fair value of derivatives as of December 31, 2007, is a liability of approximately NIS 18.7 million (approximately $ 4.9 million) and an asset of approximately NIS 28.6 million (approximately $ 7.4 million) (December 31, 2006 – a liability of approximately NIS 21.2 million and an asset of approximately NIS 7.5 million).

F - 45

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

Accounts receivable:

		December 31
		2006		2007		2007
		NIS				Convenience translation into dollars
		In thousands

1)	Trade (current and long-term)
	The item is presented after the deduction of:
	(a) Deferred interest income*		58,246		82,709		21,505

Long-term trade receivables (including current maturities) as of December 31, 2006 and 2007 in the amount of NIS 661,474,000 and NIS 1,009,065,000 ($ 262,367,000), respectively, bear no interest. These balances are in respect of handsets sold in installments (mostly 36 monthly payments).

Income in respect of deferred interest is the difference between the original and the present value of the trade receivable. The current amount is computed on the basis of the interest rate relevant at the date of the transaction (4.6% – 5.6%) (2006 – 5.85% –6.6%).

(b)

Allowance for doubtful accounts

The changes in the allowance for the years ended December 31, 2005, 2006 and 2007, are as follows:

	2005							2007
	NIS							Convenience Translation into dollars
	In thousands


Balance at beginning of year		86,651		108,800		128,034			33,290
Utilization during the year		(6,590	)	(7,236	)	(8,689	)		(2,259	)
Change during the year		28,739		26,470		43,770			11,381

Balance at end of year		108,800		128,034		163,115			42,412

Other:

	December 31
	2006		2007		2007
	NIS				Convenience translation into dollars
	In thousands

Inventory held by dealers		20,497		21,142		5,497
Government institutions		11,796
Prepaid expenses		5,162		18,149		4,719
Derivative instruments		305		9,245		2,404
Sundry		27,773		6,737		1,751

		65,533		55,273		14,371

F - 46

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

Inventory:

	December 31
	2006		2007		2007
	NIS				Convenience translation into dollars
	In thousands

Handsets		82,987		104,060		27,057
Accessories and other		25,438		18,660		4,852
Spare parts		18,041		20,302		5,278

		126,466		143,022		37,187

Accounts payable and accruals – other:

	December 31
	2006		2007		2007
	NIS				Convenience translation into dollars
	In thousands

Employees and employee institutions		106,900		134,911		35,078
Provision for vacation and recreation pay		25,873		20,737		5,392
Government institutions		71,162		133,384		34,681
Unrecognized tax benefit				7,000		1,820
Income received in advance		41,375		52,546		13,663
In respect of derivative instruments		21,201		18,724		4,868
Handsets warranty		1,763		1,089		283
Sundry		13,129		7,119		1,852

		281,403		375,510		97,637

Provision for warranty – the changes in the provision for warranty for the years ended December 31, 2005, 2006 and 2007, are as follows:

	2005							2007
	NIS							Convenience translation into dollars
	In thousands


Balance at beginning of year		1,734		1,064		1,763			458
Product warranties issued for
new sales		2,420		2,837		1,886			490
Utilization during the year		(3,090	)	(2,138	)	(2,560	)		(665	)

Balance at end of year		1,064		1,763		1,089			283

F - 47

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

Other liabilities:

Asset retirement obligations – the changes in the asset retirement obligations for the years ended December 31, 2005, 2006 and 2007, are as follows:

	2005							2007
	NIS							Convenience translation into dollars
	In thousands


Balance at January 1,		7,567		8,157		9,717			2,527
Liability incurred during the
year		682		620		1,028			267
Liability settled during the year		(751	)	(618	)	(603	)		(157	)
Accretion expenses		659		1,558		904			235

Balance at December 31,		8,157		9,717		11,046			2,872

Capital lease:

	December 31
	2006		2007		2007
	NIS		NIS		Convenience translation into U.S dollars
	In thousands

Total commitment		12,160		10,582		2,751
Less - deferred interest expenses		845		318		82

Long term lease *		11,315		10,264		2,669
Less - current maturities		5,085		6,818		1,773

		6,230		3,446		896

* To be paid until April 2009.

The commitments for capital lease are presented in the balance sheet as follows:

	December 31
				2006		2007		2007
	Weighted average interest rates			Amount
	%			NIS				Convenience translation into dollars
				In thousands

Linked to the USD		5.8	%		11,315		5,829		1,516

Linked to the CPI		6.2	%				4,435		1,153


					11,315		10,264		2,669

F - 48

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

Financial expenses, net:

	Year ended December 31
	2005			2006			2007			2007
	NIS									Convenience translation into dollars
	In thousands

Financial income:
In respect of trade receivables		(2,153	)		(9,780	)		(24,985	)		(6,496	)
Other		(5,934	)		(4,065	)		(9,978	)		(2,594	)
Financial expenses		213,020			160,627			132,374			34,418
Expenses relating to the
redemption of notes, note 5b		62,615
Derivative instruments		(40,968	)		31,169			(10,266	)		(2,669	)
Exchange rate differences		49,839			(11,326	)		(24,449	)		(6,357	)
CPI Linkage differences		69,029			(183	)		63,621			16,542

		345,448			166,442			126,317			32,844

Diluted EPS

Following are data relating to the net income and the weighted average number of shares that were taken into account in computing the basic and diluted EPS:

	Year ended December 31
	2005		2006		2007		2007
	NIS						Convenience translation into dollars


Net income used for the computation of
basic and diluted EPS (in thousands) :
Before cumulative effect		354,560		681,275		939,786		244,354
Cumulative effect				1,012

Net income		354,560		682,287		939,786		244,354

Weighted average number of shares used
in computation of basic EPS		161,711,125		153,633,758		156,414,684		156,414,684
Add - net additional shares from assumed
exercise of employee stock options		1,906,147		1,043,927		1,372,325		1,372,325

Weighted average number of shares used in
computation of diluted EPS		163,617,272		154,677,685		157,787,009		157,787,009

F - 49

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES:

Transactions with related parties:

	Year ended December 31
	2005		2006		2007		2007
	NIS						Convenience translation into dollars
	I n t h o u s a n d s

Acquisition of handsets from related
parties		180,412		158,114		46,333		12,047

Financial expenses, mainly in respect
of the Facility agreement, net		7,145


Selling commissions, maintenance and
other expenses		14,221		26,525		6,616		1,720

As to the repurchase of Company’s share, see note 8a.

The transactions are carried out in the ordinary course of business. Management believes that such transactions were carried out under normal market conditions.

F - 50

PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES (continued):

Cost sharing agreement

The Company entered, on August 15, 2002, into a Cost Sharing Agreement (the “Agreement”) with Hutchison Telecommunications Limited, or HTL, and certain of its subsidiaries (hereafter -“the Hutchison group”). The principal purpose of the Agreement is to regulate the sharing of costs associated with various joint procurement and development activities relating to the roll out and operation of a 3G Business.

The Agreement sets out the basis upon which expenses and liabilities are paid or discharged by the Hutchison group companies in connection with the joint procurement or development activities. Under the Agreement, the Company has the right to decide, and give notice of, which of the joint projects it wishes to participate in. As of December 31, 2007, the Company had given notice of its participation in 8 projects.

The Company has entered into a framework agreement with H3G procurement services S a’ R.L concerning the purchase of 3G handsets.

F - 51

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 20-F

PARTNER COMMUNICATIONS COMPANY LTD.

TABLE OF CONTENTS

INTRODUCTION

FORWARD-LOOKING STATEMENTS

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

ITEM 3. KEY INFORMATION

3A. Selected Financial Data

3B. Capitalization and Indebtedness

3D. Risk Factors

RISKS RELATING TO THE REGULATION OF OUR INDUSTRY

RISKS RELATING TO OUR BUSINESS OPERATIONS

RISKS RELATED TO OUR CONTROLLING SHAREHOLDER

Our company is controlled by a single shareholder.

ITEM 4. INFORMATION ON THE COMPANY

4A. History and Development of the Company

4B. Business Overview

4C. Organizational Structure

4D. Property, Plant and Equipment

ITEM 4A. UNRESOLVED STAFF COMMENTS

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5A. Operating Results

Overview

5B. Liquidity and Capital Resources

5C. Research and Development, Patents and Licenses

5D. Trend Information

Outlook

5E. Off-Balance Sheet Arrangements

5F. Aggregate Contractual Obligations

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6A. Directors and Senior Management

6B. Compensation

6C. Board Practices

6D. Employees

6E. Share Ownership

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7A. Major Shareholders

7B. Related Party Transactions

7C. Interests of Experts and Counsel

ITEM 8. FINANCIAL INFORMATION

8A. Consolidated Financial Statements and Other Financial Information

8B. Significant Changes

ITEM 9. THE OFFER AND LISTING

9A. Offer and Listing Details

9B. Plan of Distribution

9C. Markets

9D. Selling Shareholders

9E. Dilution

9F. Expenses of the Issue

ITEM 10. ADDITIONAL INFORMATION

10A. Share Capital

10B. Memorandum and Articles of Association

10C. Material Contracts

10D. Exchange Controls

10E. Taxation

Sale of shares purchased after January 1, 2003

10F. Dividends and Paying Agents

10G. Statement By Experts

10H. Documents on Display

10I. Subsidiary Information

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Non-Derivative Instruments

Derivative Instruments

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

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

ITEM 15. CONTROLS AND PROCEDURES

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

ITEM 16B. CODE OF ETHICS

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

ITEM 17. FINANCIAL STATEMENTS

ITEM 18. FINANCIAL STATEMENTS

ITEM 19. EXHIBITS

GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS UPDATE

SIGNATURES

Report of Independent Registered Public Accounting Firm

PARTNER COMMUNICATIONS COMPANY LTD.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549