PARTNER COMMUNICATIONS CO LTD [PTNR] Filings

20-F 1 zk2227367.htm PARTNER COMMUNICATIONS CO LTD

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

ANNUAL REPORT

FILED PURSUANT TO SECTION 12, 13 or 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

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As filed with the Securities and Exchange Commission on February 28, 2022

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

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

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

For the fiscal year ended December 31, 2021

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

For the transition period from ____________ to ____________

☐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

AFEK INDUSTRIAL PARK

ROSH-HA’AYIN 48103

ISRAEL

(Address of Principal Executive Offices)

Sarit Hecht, Adv.

Vice President, Chief Legal Counsel & Corporate Secretary

Telephone: +972-54-7813888

Partner Communications Company Ltd.

8 Amal Street

Afek Industrial Park

Rosh-Ha’ayin 48103

ISRAEL

ExecutiveOffices@partner.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	Trading Symbol	Name of each exchange on which registered
American Depositary Shares, each representingone ordinary share, nominal value NIS 0.01 per share	PTNR	The NASDAQ Global Select Market
Ordinary Shares, nominal value NIS 0.01 per share*		The NASDAQ Global Select 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 183,678,220

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

Yes ☐ No ☒

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

Yes ☐ No ☒

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

Large Accelerated Filer ☐		Accelerated Filer ☒		Non-Accelerated Filer ☐
				Emerging Growth Company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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

U.S. GAAP ☐

International Financial Reporting Standards as issued by the International Accounting Standards Board ☒

Other ☐

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 ☐ Item 18 ☐

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 ☐ No ☒

TABLE OF CONTENTS

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		31
ITEM 4A. UNRESOLVED STAFF COMMENTS		66
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		67
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		93
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		117
ITEM 8. FINANCIAL INFORMATION		120
ITEM 9. THE OFFER AND LISTING		126
ITEM 10. ADDITIONAL INFORMATION		127
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		138
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		140
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		141
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		141
ITEM 15. CONTROLS AND PROCEDURES		141
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT		142
ITEM 16B. CODE OF ETHICS		142
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES		142
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		143
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		143
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACOUNTANT		143
ITEM 16G. CORPORATE GOVERNANCE		143
ITEM 16H. MINE SAFETY DISCLOSURE		143
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS		144
ITEM 17. FINANCIAL STATEMENTS		144
ITEM 18. FINANCIAL STATEMENTS		144
ITEM 19. EXHIBITS		145

INTRODUCTION

As used herein, references to “we,” “our,” “us,” the “Group,” “Partner” or the “Company” are references to Partner Communications Company Ltd. and (i) its wholly-owned subsidiaries, Partner Future Communications 2000 Ltd., Partner Land-Line Communications Solutions LP, Partner Business Communications Solutions LP, Get Cell Communication Products LP (formerly Partner Communication Products 2016 LP), 012 Smile Telecom Ltd. ("012 Smile"), (ii) 012 Smile's wholly-owned subsidiary, 012 Telecom Ltd. and (iii) PHI (as defined below), except as the context otherwise requires. Partner Future Communications 2000 Ltd. serves as the general partner and the Company serves as the limited partner of each of the limited partnerships.

Pursuant to a 15-year Network Sharing Agreement that the Company entered into with HOT Mobile Ltd. ("HOT Mobile") in 2013, the parties created a 50-50 limited partnership, P.H.I. Networks (2015) Limited Partnership ("PHI"). Starting January 1, 2019, we began to account for PHI as a joint operation. See “Item 4B.8 OUR NETWORK ”, "Item 5A.1c Network Sharing Agreement with HOT Mobile" and note 9 to our financial statements.

In the context of cellular services, references to "our network" refer to Partner's cellular telecommunications network which includes our core network, as well as the shared radio access network with HOT Mobile which is operated by PHI and any other Company infrastructure which enables our cellular service.

In addition, references to our “financial statements” are to our consolidated financial statements, unless the context requires otherwise.

The Company currently provides telecommunications services in the following two segments: (1) cellular telecommunications services (“Cellular Services”) and (2) fixed-line communication services (“Fixed-Line Services”) as described in Item 4B. Business Overview. Unless the context indicates otherwise, expressions such as “our business,” “Partner’s business” and “the Company’s business” or “industry” refer to both Cellular and Fixed-Line Services.

In this document, references to “$,” “US$,” “US dollars,” “USD” and “dollars” are to United States dollars, and references to “NIS” and “shekels” are to New Israeli Shekels. We maintain our financial books and records in 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 exchange rate on December 31, 2021, of NIS 3.110 = US$1.00 as published by the Bank of Israel, unless otherwise specified.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

Our financial statements included in this Annual Report are prepared in accordance with International Financial Reporting Standards (“IFRS”) published by the International Accounting Standards Board (“IASB”). 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, revenues or margins, market share or reduction of expenses, regulatory developments, 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 and fixed-line telephone usage, trends in the Israeli telecommunications industry in general, the impact of current global economic conditions and possible regulatory and legal developments. For a description of some of the risks see “Item 3D Risk Factors”, “Item 4 Information On The Company”, “Item 5 Operating And Financial Review And Prospects”, “Item 8A.1 Legal And Administrative Proceedings” and “Item 11 Quantitative And Qualitative Disclosures About Market Risk”. 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

Our consolidated financial statements for the years ended December 31, 2019, 2020 and 2021, have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The tables below at and for the years ended December 31, 2019, 2020 and 2021 set forth selected consolidated financial data under IFRS. The audited consolidated financial statements at December 31, 2020 and 2021 and for the years ended December 31, 2019, 2020 and 2021, appear at the end of this report and have been audited by Kesselman & Kesselman, our independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited.

	Year ended December 31,
	2019		2020			2021		2021
	New Israeli Shekels in millions (except per share data)							US$ in millions(1)
Consolidated Statement of Income Data

Revenues, net		3,234		3,189			3,363		1,081
Cost of revenues		2,707		2,664			2,732		878
Gross profit		527		525			631		203
Selling and marketing expenses		301		291			323		104
General and administrative expenses		149		145			164		52
Credit losses		18		23			9		3
Other income, net		28		30			28		9

Operating profit		87		96			163		53

Finance income		7		8			4		1
Finance expenses		75		77			68		22
Finance costs, net		68		69			64		21

Profit before income tax		19		27			99		32

Income tax income (expenses)		*		(10	)		16		5

Profit for the year		19		17			115		37

Earnings per ordinary share and per ADS

Basic:		0.12		0.09			0.63		0.20
Diluted:		0.12		0.09			0.62		0.20

Weighted average number of shares outstanding (in thousands)

Basic:		162,831		182,331			183,203		183,203
Diluted (for calculation above):		163,608		183,188			184,334		184,334

(*) Representing an amount of less than 1 million.

	Year ended December 31,
	2019			2020			2021			2021
	New Israeli Shekels in millions									US$ in millions(1)
Capital expenditures (2)		578			595			680			219

Adjusted EBITDA (3)		853			822			922			296

Statement of Cash Flow Data

Net cash provided by operating activities		837			786			774			249

Net cash used in investing activities		(1,181	)		(581	)		(727	)		(234	)

Net cash provided by (used in) financing activities		227			(128	)		(115	)		(37	)

Financial Position Data (at year end)

Current assets		1,664			1,496			1,489			480

Non current assets		3,351			3,629			3,904			1,255

Lease - right of use		582			663			679			218

Property and equipment		1,430			1,495			1,644			529

Intangible and other assets		538			521			472			152

Goodwill		407			407			407			131

Deferred income tax asset		41			29			34			11

Total assets		5,015			5,125			5,393			1,735

Current liabilities (4)		1,489			1,334			1,422			457

Non current liabilities (4)		2,109			2,068			2,112			680

Total liabilities		3,598			3,402			3,534			1,137

Total equity		1,417			1,723			1,859			598

Total liabilities and equity		5,015			5,125			5,393			1,735

(1)

The NIS figures at December 31, 2021, and for the 12-month period then ended have been translated throughout this Annual Report into dollars using the representative exchange rate of the dollar at December 31, 2021 (USD 1 = NIS 3.110). The translation was made solely for convenience, is supplementary information, and is distinguished from the financial statements. The translated dollar figures should not be construed as a representation that the Israeli currency amounts actually represent, or could be converted into, dollars.

(2)	Capital Expenditures represent additions to property and equipment (see note 10 to our consolidated financial statements) and intangible assets (see note 11 to our consolidated financial statements).

(3)

Adjusted EBITDA represents Earnings Before Interest (finance costs, net), Taxes, Depreciation and Amortization (including amortization of intangible assets, deferred expenses-right of use and impairment charges) and Other expenses (mainly amortization of share-based compensation). Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies. Adjusted EBITDA may not be indicative of the Group's historic operating results nor is it meant to be predictive of potential future results. The usage of the term "Adjusted EBITDA" is to highlight the fact that the Amortization includes amortization of deferred expenses – right of use and amortization of employee share-based compensation and impairment charges.

(4)	See Note 15 to the consolidated financial statements for information regarding long-term liabilities and current maturities of long-term borrowings and notes payable.

The tables below at and for the years ended December 31, 2019, 2020 and 2021, set forth a reconciliation between Profit and Adjusted EBITDA.

	Year ended December 31,
	2019		2020			2021		2021
	New Israeli Shekels in millions							US$ in millions (1)

Reconciliation Between Profit and Adjusted EBITDA
Profit		19		17			115		37
Depreciation and amortization expenses		751		714			744		239
Finance costs, net		68		69			64		21
Income tax income (expenses)		*		(10	)		16		5
Other (**)		15		12			15		4
Adjusted EBITDA (2)		853		822			922		296

(*)	Representing an amount of less than 1 million.

(**)	Mainly amortization of employee share-based compensation.

(1)	The translations of NIS amounts into US dollars appearing throughout this Annual Report have been made at the exchange rate on December 31, 2021, of NIS 3.110 = US$1.00 as published by the Bank of Israel, unless otherwise specified.

(2)

	At December 31,
	2019			2020			2021

Cellular Industry Data

Estimated population of Israel (in millions) (1)		9.1			9.3			9.4
Estimated Israeli cellular telephone subscribers (in millions) (2)		10.4			10.4			10.9
Estimated Israeli cellular telephone penetration (3)		114	%		113	%		116	%

	Year Ended December 31,
	2019			2020			2021

Company's Data
Cellular subscribers (000’s) (at period end) (4) (5)		2,657			2,836			3,023
Pre-paid cellular subscribers (000’s) (at period end) (4)		291			341			352
Post-paid cellular subscribers (000’s) (at period end) (4)		2,366			2,495			2,671
Share of total Israeli cellular subscribers (at period end) (5)		25	%		27	%		28	%
Average monthly revenue per cellular subscriber including roaming (“ARPU”) (NIS) (6)		57			51			48
Churn rate for cellular subscribers (7)		31	%		30	%		28	%
TV subscribers (000’s) (at period end) (8)		188			232			226
Infrastructure-based internet subscribers (000’s) (at period end) (9)		268			329			374
Fiber-optic subscribers (000’s) (at period end) (10)		76			139			212
Homes Connected (HC) to the fiber-optic infrastructure (000’s) (at period end) (11)		324			465			700
Estimated cellular coverage of Israeli population (at period end) (12)		99	%		99	%		99	%
Number of employees (full time equivalent) (at period end) (13)		2,834			2,655			2,574

(1)	The population estimates are as published by the Central Bureau of Statistics in Israel as of December 31, 2021.

(2)	We have estimated the total number of Israeli cellular telephone subscribers based on Partner subscriber data as well as information contained in published reports and public statements issued by operators and data regarding the number of subscribers porting between operators.

(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, as well as SIM cards used in modems, datacards and other cellular devices.

(4)

In accordance with general practice in the cellular telephone industry, we use the term “subscriber”, unless the context otherwise requires, to indicate a subscription that provides access to the PSTN using cellular technology, rather than either a bill-paying customer who may have a number of subscriptions, or a cellular device user who may share the device with a number of other users. Subscribers include customers of both post-paid and pre-paid services under the Partner and 012 Mobile brands, and also include subscribers to dedicated data packages for use with data cards or USB modems. A pre-paid subscriber is recognized as such only following the actual use of his pre-paid SIM card and only once they have generated revenues in the amount of at least one shekel (excluding VAT).

In view of the expected growing impact of M2M (Machine to Machine) activity on our business, M2M subscriptions are included in the post-paid subscriber base on a standardized basis, according to which the number of M2M subscriptions included is calculated by dividing total revenues from M2M subscriptions by the average revenue from a dedicated data package subscriber for the relevant period.

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 cellular subscribers.

(6)

We have calculated our average monthly revenue per cellular subscriber by (i) dividing, for each month in the relevant year, the total cellular segment service revenues during the month by the average number of our cellular subscribers during that month, and (ii) dividing the sum of all such results by the number of months in the relevant period.

(7)

We define the “churn rate” as the total number of cellular subscribers (excluding M2M subscriptions) 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 cellular 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.

(8)

TV subscribers – active subscriptions to Partner TV, each of which may have a number of users over a number of different platforms. TV subscribers include subscriptions within time-limited trial periods without charge to the customer. In the second quarter of 2021, the Company removed from its TV subscriber base approximately 21,000 subscribers who had remained in trial periods of over six months without charge or usage.

(9)

Infrastructure-based internet subscribers – active subscribers to an end-to-end service including both infrastructure access and access to the internet. Access to the internet is provided primarily through Partner’s fiber-optic infrastructure network, as well as through Partner’s connection to the wholesale market on Bezeq and Hot's infrastructure.

(10)	Fiber-optic subscribers – active subscribers to an end-to-end service including both Partner’s fiber-optic infrastructure and access to the internet.

(11)	Homes Connected (HC) to the fiber-optic infrastructure – The total number of residential households within buildings connected to Partner's fiber-optic infrastructure.

(12)

We measure cellular 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. Population estimates are published by the Central Bureau of Statistics in Israel.

(13)

A full-time employee is contracted to work a standard 182 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. Starting in 2019, the number of full-time employees also includes the number of full-time employees of PHI on a proportional basis of Partner's share in the subsidiary (50%). See also "Item 6D Employees".

Exchange Rate Data

On December 31, 2021, the exchange rate was NIS 3.110 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 this Annual 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.

RISK FACTOR SUMMARY

Our business is subject to a number of risks and uncertainties, including those risks discussed at length below. These risks include among others the following:

RISKS RELATING TO THE REGULATION OF OUR INDUSTRY

We operate in a highly regulated telecommunications market. The regulator:

imposes limitations on our flexibility in managing our business and seeks to increase industry competition;

limits our ability to compete by, among other measures, giving preference to new competitors; and

also limits our ability to expand our business and develop our network.

Such measures may adversely affect our business and results of operations.

We set forth below examples of the principal regulatory risks we face:

It is not certain that the regulator will effectively prevent other telecommunications companies from abusing their competitive positions, in particular as regards service providers which, for historical reasons, have highly developed fixed-line infrastructures in addition to mobile networks.

The regulator might limit our use of spectrum ranges already allocated or which we require.

The regulator may add new regulatory burdens, including on TV content.

The regulator may limit our ability to charge customers for certain services, such as interconnect or roaming charges.

Other regulatory risks include:

possible early termination of our agreement for a shared network;

possible failure to comply with data protection requirements;

possible disagreements with the regulator over the interpretation of applicable regulations; and

possible non-compliance with building or environmental permits applicable to our cellular network sites.

RISKS RELATING TO OUR BUSINESS OPERATIONS

Largely as a result of changes in our regulatory and business environment, our results of operations have declined significantly. Should existing trends continue, our operating results may continue to decline.

We set forth below examples of the principal business risks we face:

intense competition has caused significant price erosion both in cellular services and profits from equipment sales;

competition may continue to decrease service tariffs and increase subscriber acquisition and retention costs or otherwise adversely affect our business and results of operations;

cyber attacks could have an adverse effect on our business;

further downward pressure on prices may also cause impairment in the value of our assets;

the Coronavirus ("COVID-19") crisis may have a material harmful effect on our results of operations and financial position for 2022 and create difficulties in the recruitment and retention of personnel;

Covid-induced work patterns and changes in the labor market due to competition for technical and professional personnel have also created substantial difficulties in the recruitment and retention of personnel;

equipment or system failures, natural disasters and hostile events may materially adversely affect our results of operations; and

we are exposed to, and currently engaged in, a variety of legal proceedings, including class actions and requests to approve lawsuits as class actions.

Other business risks include:

our level of indebtedness,

dependence on a limited number of suppliers,

relations with our employees and their union,

purchase commitments for i-Phones, and

the possible early termination of our network sharing agreement.

3D.1 RISKS RELATING TO THE REGULATION OF OUR INDUSTRY

We operate in a highly regulated telecommunications market in which the regulator imposes substantial limitations on our flexibility in managing our business and continues to seek to increase industry competition. At the same time, the regulator limits our ability to compete by, among other measures, giving preference to new competitors, and limits our ability to expand our business and develop our network. Such measures may continue to increase our costs, decrease our revenues and adversely affect our business and results of operations.

3D.1a If the structural separation provisions which apply to Bezeq are not enforced or are removed (in part or in whole) before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations.

Bezeq-The Israel Telecommunication Corp. Ltd. ("Bezeq") owns and operates the largest fixed-line infrastructure in Israel, and is also one of the largest providers of mobile telephone, internet connection, and other telecommunications services, such as television. Bezeq’s license provides that it maintain structural separation between itself and its subsidiaries (Pelephone Communications Ltd. ("Pelephone"), DBS Satellite Services (1998) Ltd. ("Yes") and Bezeq International). This requires, inter alia, that Bezeq keep its management, assets and employees fully segregated from those of its subsidiaries.

On June 30, 2020, the Ministry of Communications ("MoC") published the report of the inter-departmental team (the "Team”) tasked with examining the structural separation provisions applicable to the Bezeq and Hot Telecom LP ("HOT Telecom") groups. The Team found that the time is not yet ripe for the total removal of structural separation provisions in the Bezeq group. The Team’s MoC members stated that the current provisions applicable to Bezeq have been effective thus far and cancelling them would severely harm competition and the welfare of consumers.

However, the Team found that it is possible to make certain changes in the overall regulation that could potentially improve the service provided to the public and which will influence the structural separation provision applicable to Bezeq. Within this scope, the Team has recommended that the Minister of Communications consider changing the current separation in Israel between the infrastructure service and ISP (internet service providers) service.

Following this recommendation, the MoC published a hearing regarding a reform in the structure of the Internet market. The hearing was aimed at ending the separation between the infrastructure service and the ISP service, thus allowing Bezeq and Hot Telecom to market a unified product (comprised of both infrastructure and ISP components).

In June 2021, the MoC published its decision in this hearing. See "Item 4B.12e - v Decision regarding a reform in the structure of the Internet Market". In its decision, the MoC outlined a process for ending the split of the Internet market into two tiers and allowing Bezeq and Hot Telecom to market a unified product, while ensuring that Bezeq and Hot provide the wholesale Internet service at non-discriminatory terms (in relation to the retail Internet services provided by Bezeq and Hot). Allowing Bezeq and Hot Telecom to market a unified service (as opposed to the marketing of such services separately by its subsidiaries), may enable them to offer bundled services more effectively than we can, and thereby gain a competitive advantage which could adversely affect our results of operations.

At this stage, the Company is unable to fully evaluate the impact of the decision on the Company's business due to, among others, the dependence of such impact on the results of the calibration stage and on the enforcement of the key performance indicators ("KPIs") and compensation mechanisms by the MoC.

Furthermore, if the MoC removes the structural separation provisions applicable to Bezeq altogether, before we have firmly established ourselves in the fixed-line telecommunications services market (in both fixed-line telephony, passive infrastructures and broadband) and the multi-channel TV market, Bezeq may be able to offer bundled services more effectively than we, and thereby gain a competitive advantage which could adversely affect our results of operations.

The current structural separation provisions also require Bezeq to equally market all ISPs when selling service bundles which include its infrastructure services and ISP services. Bezeq has failed to provide the relevant ISPs with the customer information required to continue service provision once Bezeq stops billing for the ISPs (after the first year of the bundle). If the MoC fails to enforce its decisions on this matter, this may adversely affect our results of operations.

3D.1b The MoC might require us to terminate the use of certain spectrum ranges which have been allocated to us, limit our use of such spectrum, fail to respond to our demands for the allocation of additional spectrum, or conduct the tender for additional frequencies in an unsuitable format. Such eventualities may adversely affect our business and results of operations.

The MoC might prevent us from using some of our existing spectrum, may limit our ability to use such spectrum (whether by demanding we share such use with others or placing other limits on such use) or may fail to respond to our demands for the allocation of additional spectrum or for the refarming of our existing spectrum (the conversion of existing frequencies to a different technology). The MoC might also require us to cease use of certain bands and require us to shift to other bands, which may involve investment in new radio infrastructure. The MoC has recently published a call for comments regarding the possibility of granting spectrum to private 5G networks. See "Item 4B.12e - xi Hearings and Examinations- Call for comments regarding 5G private networks". Such private 5G networks may decrease our revenues, reduce the availability of new spectrum for our own 5G services and adversely affect our business and results of operations.

Such actions may interfere with our ability to effectively manage our licensed spectrum, reduce our ability to adequately provide services to our subscribers, increase our costs due to evacuation of such spectrum and place us at a competitive disadvantage. These possible eventualities may adversely affect our business and results of operations.

3D.1c New regulatory initiatives may continue to increase the regulatory burden and intensify competition, which could negatively affect our business and results of operations.

The implementation of the Telecommunications Law, 1982, ("Telecommunications Law"), the Wireless Telegraph Ordinance [New Version], 1972 (" Wireless Telegraph Ordinance") and other laws and regulations, as well as the provisions of our licenses, are all subject to interpretation and change. New laws, regulations or government policies, changes to current regulations, or a change to the interpretation thereof, may be adopted or implemented in a manner which damages our business and operating results. Such measures may include new limits on our ability to market our services, new safety and health related requirements, new limits on the construction and operation of cell towers, new requirements, standards, consumer protection provisions, privacy provisions, cyber provisions, roaming services regulation, coverage terms and other conditions or limits applicable to the services we provide. Such measures may negatively affect our business and results of operations. Furthermore, if such measures would benefit our competitors or are applied only to us (and not to our competitors), we may be placed at a competitive disadvantage. For information regarding the principal regulations and regulatory developments affecting our business, see "Item 4B.12e Regulatory Developments".

3D.1d The State may impose regulations on TV content services provided over the Internet, which may negatively affect our business and results of operations.

The State may impose regulations on nascent TV content services provided over the Internet ("OTT") and which are currently unregulated.

In September 2020, the Minister of Communications appointed a committee assigned with re-examining the overall regulatory regime applicable to the broadcasting segment in Israel (the “Folkman Committee”). In July 2021, the Folkman Committee submitted its recommendations to the Minister of Communications. These recommendations would increase regulation of the audio-visual content providers which could increase our costs and impact our competitive position. See "Item 4B.12e - iv Folkman Committee Recommendations".

If the State places burdensome regulations on our OTT services (such as a requirement to invest a percentage of our income from this activity in original local productions), this might increase our costs, raise the cost of operations in this segment and, if applied only to Israeli OTT providers, place us at a competitive disadvantage, in each case with potential negative effects on our business and results of operations.

3D.1e The Network Sharing Agreement we entered into with HOT Mobile may be terminated earlier than we expected due to regulatory intervention. In such case we will be required to split the shared network with HOT Mobile. The resources, time and expense it may take us to have our own network on a nation-wide coverage may be substantial and could also materially harm our business and the results of operations at such time.

In 2013, we entered into a long term network sharing agreement (“Network Sharing Agreement”) with HOT Mobile pursuant to which the parties created a limited partnership, under the name P.H.I. Networks (2015) Limited Partnership ("PHI"). The purpose of PHI is to operate and develop a radio access network to be shared by both parties.

In 2014 and 2015, respectively, the Competition Commissioner and the Ministry of Communications approved the Network Sharing Agreement, subject in each case to a number of conditions (respectively, the "Competition Commissioner Approval" and the "MoU Approval").

However, the Network Sharing Agreement may terminate or expire prior to the lapse of the 15-year period due to regulatory intervention in one of the following circumstances:

Pursuant to the Competition Commissioner Approval - as of April 22, 2021, the Competition Commissioner will be entitled to notify Partner and HOT Mobile that the network sharing is terminated, if at that time the Competition Commissioner will be of the opinion that PHI or its activities may adversely affect competition, in which case the parties will be required to cease sharing the active part of the shared network within two years and the passive parts within five years from the Competition Commissioner's notice to that effect;

In the event we are found to be in breach of any of the conditions set out in the Competition Commissioner Approval or in the MoU's Approval, the Competition Commissioner Approval or the MoU Approval might be terminated, which could create significant uncertainty as to the management of the shared radio access network;

PHI is operating under a special license granted by the Ministry of Communications on August 9, 2015. The term of the license is 10 years from the grant thereof. If the term of the license will not be extended, we may not be able to continue sharing the network.

If and when the network sharing will end, we will need to split the shared network with HOT Mobile and the resources, time and expense it may take to have our own network on a nation-wide coverage, may be substantial and could materially harm our business and results of operations at such time. See also "Item 3D.2m If the Network Sharing Agreement entered into with HOT Mobile is unilaterally terminated by HOT Mobile earlier than we expect, we will be required to split the shared network with HOT Mobile and the resources, time and expense it may take us to have our own network in a nationwide coverage would be substantial and could also materially harm our business and the results of operations at such time." and “Item 4B.8a Overview - Cellular Network Sharing Agreement”.

3D.1f If the Ministry of Communications fails to enforce its fixed-line wholesale market reforms on Bezeq and HOT Telecom, fails to lower the wholesale price for use of their fixed-line networks, or fails to prevent Bezeq or HOT Telecom from lowering their retail prices for fixed-line services (to the point of not allowing the necessary margin for their competitors in this segment), our business and results of operations may be materially adversely affected.

In the past, the MoC has failed to enforce its fixed-line wholesale market reforms ("Wholesale Market Reform") on Bezeq and HOT Telecom, the two largest fixed-line infrastructure operators in Israel. If the MoC fails to enforce the most important components of its wholesale market reform, or if it rolls back (partially or in-whole), or fails to enforce, its decisions regarding wholesale access to Bezeq and HOT Telecom's networks, or adopts other regulation unfavorable to companies, such as Partner, which must rely on the two wholesale suppliers for access to their fixed line networks, such actions may negatively affect our business and results of operations.

The wholesale tariffs for the BSA services on Bezeq and HOT Telecom's existing networks, as well as wholesale tariffs for use of Bezeq's Fiber to the Home (FTTH) network, are set by the MoC. If the MoC fails to set these prices according to their costs, fails to update or lower these tariffs in accordance with relevant developments, this may adversely affect our business and results of operations. See "Item 4B.12e Regulatory Developments".

In addition, the infrastructure owners (Bezeq and HOT Telecom) may lower their infrastructure retail prices thereby narrowing the margin between their retail prices and the wholesale price which we are required to pay them to use their fixed-line infrastructure. This may erode our margin to the point of eradicating the economic feasibility of continuing such operations. If the MoC fails to prevent such conduct by the infrastructure owners, this may adversely affect our business and results of operations.

3D.1g The Ministry of Communications has published a hearing outlining its intention to reduce and ultimately cancel interconnection charges, which would negatively affect our income.

In September 2021, the MoC published a hearing outlining its intention to gradually reduce interconnection tariffs (for both mobile and fixed-line calls) over a period of three years, after which interconnection payments will be cancelled and each operator will bear its own costs for calls terminating on its network (a "bill and keep" regime). The starting date for the 3-year period has not yet been announced.

The Company filed its position regarding this hearing and argued against the change to the current tariff regime and against the suggested reduction timeline. The Company’s results of operation may be negatively affected if the actions described in this hearing are carried out.

3D.1h Data protection legislation and the evolving legal environment regarding privacy protection, which have imposed and may continue to impose a heavier regulatory burden on us, could negatively affect our business and results of operation.

Data protection regulations impose wide obligations with respect to data privacy protection. Our business requires us to hold and use certain personal data of our customers, and we believe we are in compliance with all currently applicable laws, regulations, policies and legal obligations, although future interpretation of these measures by the relevant authorities may vary from our own interpretation. In addition, measures to ensure compliance may require us to invest additional modifications to our solutions to comply with such regulations and might delay offerings of new products and services.

If we fail or are unable to comply with applicable privacy and data security laws, regulations, self-regulatory requirements or industry guidelines, or our terms of use with our customers, we may be subject to penalties, fines, legal proceedings by governmental entities or other enforcement actions, loss of reputation, legal claims by individuals and customers and significant legal and financial exposure, any of which could materially and adversely affect our business and our results of operations. See the claim number 6 alleging harm to customer privacy disclosed in "Item 8A.1 LEGAL AND ADMINISTRATIVE PROCEEDINGS".

3D.1i We are subject to monitoring and enforcement measures by the Ministry of Communications and other relevant authorities, which may adversely affect our business and results of operations.

Although we believe that we are currently in compliance with all material requirements of the relevant legislation and our licenses, disagreements have arisen and may arise in the future between the MoC and us regarding the interpretation and application of the requirements set out in relevant legislation and our licenses. The MoC is authorized to levy significant fines on us for breaches of the Telecommunications Law, relevant regulations and our licenses. Our operations are also subject to the regulatory and supervisory authority of other Israeli regulators which have the authority to impose criminal and administrative sanctions against us.

We currently have several enforcement proceedings pending or in process. 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 as well as administrative sanctions. All such enforcement measures may adversely affect our financial condition or results of operations. For information regarding on-going litigation and legal proceedings, see “Item 8A.1 Legal and Administrative Proceedings”.

3D.1j We have had difficulties obtaining some of the building and environmental permits required for the erection and operation of our cellular network sites, and some building permits have not been applied for or may not be fully complied with. 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, or in a manner that deviates from the applicable permit, may result in criminal or civil liability to us or to our officers and directors.

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, 2021, less than 10% of our network sites were operating without local building permits or exemptions which, in our opinion, are applicable. In addition, some of our network sites are not built in full compliance with the applicable building permits.

Network site operation without required permits or that deviate from the permit 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.1 Legal and Administrative Proceedings”. In the future, we may face additional demolition orders, monetary penalties (including compensation for loss of property value) and criminal charges. The prosecutor’s office has a national unit that enforces 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 difficulties in obtaining approvals for the erection and operation of network sites and other network infrastructure, this could have an adverse effect on the extent, coverage and capacity of our network, thus impacting the quality of our cellular voice and data services, and on our ability to continue to market our services effectively.

Uncertainties regarding requirements for repeaters and other small devices. We, like the other cellular 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 operators, we have not requested permits under the Planning and Building Law, 1965 (“Planning and Building Law”) for the repeaters. However, we have received an approval to connect the repeaters to our communications network from the Ministry of Communications and have received from the Ministry of Environmental Protection permit types for all our repeaters. If the local planning and building authorities determine that permits under the Planning and Building Law are also 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 Environmental Protection 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.

3D.1k We can only operate our business for as long as we have licenses from the Ministry of Communications.

We conduct our operations pursuant to licenses granted to us by the Ministry of Communications, which may be extended for additional periods upon our request to the Ministry of Communications and confirmation from the Ministry that we have met certain performance requirements. On November 18, 2021, the Ministry of Communications informed the Company that our cellular license had been extended until February 2032. We cannot be certain that our licenses will not be revoked, will be extended when necessary, or, if extended, on what terms an extension may be granted. See “Item 4B.12f Our Mobile Telephone License ”.

3D.1l Our cellular 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. If the obligations or restrictions are not respected by our shareholders, we could be subject to significant monetary sanctions or 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 is not complied with, we could be found to be in breach of our license and be subject to significant monetary sanctions, even though ensuring compliance with this restriction may be beyond our control. See “Item 4B.12f Our Mobile Telephone License”.

Our general mobile telephone license requires that our "founding shareholders or their approved substitutes", as defined in the license, hold at least 26% of the means of control in the Company.

Until February 2021, our general mobile telephone license included two additional obligations (which are also included in the Company’s Articles of Association):

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at least 5% of our issued and outstanding share capital and of each of our means of control had to have been held by Israeli entities from among our founding shareholders and their approved substitutes;

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in addition, at least 10% of our Board of Directors had to be appointed by Israeli entities, provided that if the Board of Directors was comprised of up to 14 members, only one such director must be so appointed, and if the Board of Directors was comprised of between 15 and 24 members, only two such directors must be so appointed.

However, on July 7, 2020, the MoC published an amendment to our cellular license which provides that these two obligations may be replaced by an order issued by virtue of the Communications Law (Telecommunications and Broadcasting), 1982. During February 2021, the Company was issued with such an order.

In addition, according to our license, 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 Minister of Communications. Nevertheless, under certain licenses granted, directly or indirectly, to Partner, a notice to the Minister of Communications may be required for holding any means of control in Partner. 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 Minister of Communications, which may limit certain persons from acquiring our shares. Shareholdings in breach of these restrictions relating to transfers or acquisitions of means of control or control of Partner could result in the following consequences: the shares will be converted into “dormant” shares as defined in the Israeli Companies Law, 1999 (“Israeli Companies Law”), 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 Minister of Communications has been obtained and our license may be revoked.

3D.2 RISKS RELATING TO OUR BUSINESS OPERATIONS

3D.2a As a result of substantial and continuing changes in our regulatory and business environment, our operating financial results, profitability and cash flows have remained at relatively low levels in recent years. Our operating financial results may decline further in the future, which may adversely affect our financial condition.

Profit before income tax for the year 2021 totaled NIS 99 million (US$ 32 million), compared with profit before income tax of NIS 27 million for the year 2020, the increase largely reflecting the positive impact of the growth in the cellular subscriber base in 2021 and the negative impact of the COVID-19 crisis on the results for 2020. Net cash provided by operating activities totaled NIS 774 million (US$ 249 million) in 2021 compared with NIS 786 million in 2020, a decrease of 2%. The principal factor leading to the relatively low profit levels in recent years has been the intense competition resulting largely from regulatory developments intended to enhance competition in the Israeli communications market, including both the cellular and fixed-line markets.

Because the regulatory and business environment continues to evolve, generally with the objective of further increasing competition in the various markets in which we operate, depending on past and future regulatory and market developments, these factors may continue to negatively impact our business through 2022 and beyond, which may adversely affect our financial condition by, among other things, increasing the risk of a substantial impairment in the value of our communications assets. See also “Item 5D.2 Outlook”.

3D.2b Competition resulting from the full service offers by telecommunications groups and additional entrants into the telecommunications market, as well as other actual and potential changes in the competitive environment and communications technologies, may continue to cause a further decrease in mobile and fixed-line service tariffs as well as an increase in subscriber acquisition and retention costs, and may reduce our subscriber base and increase our churn rate, each of which could adversely affect our business and results of operations.

Competition in the cellular market. Over the past few years, the entrance of new operators and regulatory changes at the time of their entrance which removed portability barriers between cellular operators, combined with various benefits and leniencies awarded to new entrants by the MoC, have resulted in increased competition in the market and have continued to lead to high levels of portability of cellular subscribers between cellular operators, which has negatively affected, and may continue to negatively affect, our results of operations.

Recently, in October 2021, Cellcom Israel Ltd. ("Cellcom") reported that as part of the insolvency proceedings of Marathon 018 Xfone Ltd. ("Xfone"), its network sharing agreement with Xfone has been updated. According to Cellcom's report, under the updated agreement, Cellcom's revenue from Xfone may be reduced. Such reduction may lower Xfone's costs, thereby enabling it to compete more effectively, which could negatively affect our results of operations.

Competitive advantages of the two fixed-line infrastructure groups. The Bezeq Group and the HOT Group are the only Israeli telecommunications providers that have their own nationwide fixed-line telecommunications infrastructures. See "Item 3D.1a If the structural separation provisions which apply to Bezeq are not enforced or are removed (in part or in whole) before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations."

Because the Bezeq Group and the HOT Group operate their own nationwide broadband internet access and transmission infrastructures, they do not depend on any third party for broadband internet access. Partner (and other telecommunications services providers who do not have their own nationwide independent broadband internet access infrastructure) is unable to independently provide these services to most households, and is dependent on Bezeq and HOT in providing these services, substantially limiting our ability to compete.

Fixed-line infrastructure market. Our participation in the fixed-line infrastructure market since August 2017 entails ongoing significant long-term investments associated with infrastructure deployment. Bezeq has executed a substantial part of the investments required for the deployment and operation of its own fiber-optic network, and commenced services in March 2021, which might substantially increase competition in this market. In addition, IBC Israel Broadband (2013) Ltd. ("IBC") is expected to continue its fiber rollout, which will also increase competition. See also "Item 4B.9b Competitors in Fixed-line Services".

ISP market. The fixed internet access market in Israel was historically divided into two tiers of services: infrastructure services and ISP (internet service provider) service. In June 2021, the MoC published its decision regarding a reform in the structuring of the Internet market. See "Item 4B.12e - v Decision regarding a reform in the structure of the Internet Market." In its decision, the MoC outlined a process for ending the separation between the infrastructure service and the ISP service, thus allowing Bezeq and Hot Telecom to market a unified product (comprised of both infrastructure and ISP components). This will allow Bezeq and Hot to offer bundled services more effectively than we, and thereby gain a competitive advantage which could adversely affect our results of operations. See "Item 3D.1a If the structural separation provisions which apply to Bezeq are not enforced or are removed (in part or in whole) before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations.".

TV market. Keshet Broadcasting Ltd., producer of Israel's leading commercial channel, and R.G.E Group Ltd., producer of leading Israeli sports and children channels, have announced their intention of entering the local multi-channel TV market as part of their merger. Disney Plus announced in February 2022 that they will be launching their streaming services in Israel in the summer of 2022. According to local media reports, Disney has signed an exclusive agreement with YES TV, that may increase YES TV's competitiveness in the market. The entry of new players into the TV market may increase competition and negatively affect our market share in this segment.

Competition in Roaming Services. Some competing service providers use alternative technologies for roaming that bypass the existing method of providing roaming services. See "Item 3D.2p The telecommunications industry is subject to rapid and significant changes in technology and industry structure which could reduce demand for our services."

3D.2c Cyber attacks impacting our networks or systems could have an adverse effect on our business.

Cyber-attacks against telecommunications companies targeting their infrastructure and economic assets as well as their reputation have increased, and are intensifying in their frequency and complexity. These attacks have significant potential to lead to prevent the provision of services to customers, cause breaches of our customers' data privacy and damage to the business continuity of the Company and its financial situation. In the event we are unable to provide services to our customers for any period of time, there may be a material negative impact on our results of operations and financial condition.

Like many other telecommunication companies, we have experienced an increase in cyber incidents over the past few years, which are increasing in their frequency, sophistication and intensity, some of which penetrated our cyber defenses, although no significant damage or loss of customer data resulted. Moreover, the Company implements third-party vendor systems, and cyber-attacks against these vendors, their products and services might adversely affect the Company, its daily operations and financial condition. We have integrated protective systems and prepared Disaster Recovery Plans (“DRP”) to mitigate such and other related risks, and we regularly consider our defensive systems and evaluate their effectiveness, including through simulated cyber penetrations; however, it is not possible to determine in advance whether our defense systems and recovery plans will continue to be entirely effective, or how quickly we will be able to restore any affected service.

Furthermore, we cannot be sure that our insurance policies with respect to cyber risk will adequately cover or include the damages or losses (whether direct or consequential) resulting from successful cyber attacks or if we will be able to renew such insurance.

3D.2d Continued increases in the level of competition may bring further downward pressure on prices, which has caused us in the past, and might cause us in the future, to recognize substantial impairment in the value of our assets.

Continued increases in the level of competition for cellular or fixed-line services may bring further downward pressure on prices which may require us to perform further impairment tests of our assets. Such impairment tests may lead to recording additional significant impairment charges, which could have a material negative impact on our operating profit and profit.

3D.2e The Coronavirus ("COVID-19") crisis had a material harmful effect on the Company's business in 2020 and 2021, including a significant reduction in revenues from roaming services. Should trends continue or worsen, this may have a material harmful effect on our results of operations and financial position for 2022.

As for other telecommunications companies in Israel and around the world, the novel COVID-19 disease has had a harmful effect on the Company's business from March 2020, in particular due to the significant fall in the volume of international travel by our customers, which caused a very significant decrease in revenues from roaming services. In addition:

the closure of shopping malls for limited periods during 2020 and changes in general consumer behavior negatively affected the volume of sales of equipment;

delays in global shipping and shortages in raw materials and production have negatively affected our supply chain and increased our costs for handsets, spare parts, accessories, fixed-line network equipment, fixed-line products, terminal equipment, and other items sold or relied upon as part of our normal business;

we have experienced human resource shortages due to employee absences from illness or the need for quarantine. In addition, Covid-induced changes in work patterns have created new difficulties in recruiting and retaining personnel. See also “Item 3D.2f Covid-induced work patterns and changes in the labor market due to competition for technical and professional personnel have created substantial difficulties in the recruitment and retention of personnel.”

The net impact on the Company's results for the year 2020 was material, but was partially mitigated by a set of measures implemented by the Company, including cutting costs in a number of areas and temporarily reducing the workforce by sending a significant number of employees on temporary unpaid leave during the year and by an increase in other revenue streams, in particular in the fixed-line market.

As of the end of the first quarter of 2021, shopping malls reopened and the extent of general domestic economic activity largely returned to levels experienced prior to the COVID-19 crisis. Regarding roaming services, revenues from roaming services began to moderately increase in the second half of 2021 as a result of a moderate increase in the volume of international travel by the Company’s customers. However, as of the date of this Annual Report, revenues from roaming services continue to be significantly restrained, largely related to the impact of the Omicron variant on international travel, and remain significantly below pre-COVID-19 crisis levels.

Further, based on recent experience in several countries, a sharp spike in the number of affected persons may occur without warning, and the ultimate extent of the disease’s spread cannot be foreseen. As a result, the final impact of the disease on our results of operations and financial position cannot be assessed at this time.

3D.2f Covid-induced work patterns and changes in the labor market due to competition for technical and professional personnel have created substantial difficulties in the recruitment and retention of personnel.

Covid-induced changes in work patterns, in particular the significant expansion of working on-line from home, have changed employee expectations. New and existing personnel have expressed a resistance to accepting or resuming traditional on-site employment practices. As a result, the Company’s ability to fill open positions on-site and maintain its normal processes of business and employee management has been negatively affected.

Furthermore, as the demand for technical and professional personnel increases generally, and large high-tech employers expand their recruitment efforts, the Company’s ability to attract and retain adequately trained and experienced technical and professional personnel has suffered. In addition, the labour cost for such employees has increased, and employee turnover has accelerated. As a result, the Company has experienced difficulties staffing technical and professional positions at junior, middle and senior levels. If the Company is not able to acquire needed human resources to maintain and develop its operations and infrastructure, its business and financial results may be materially negatively impacted.

If this trend continues, and we are unable to hire and retain employees, or if mitigation measures we may take to respond to a decrease in labor availability do not succeed, our business could be adversely affected.

3D.2g Equipment failures, system failures, natural disasters and hostile events such as acts of war or terror events may materially adversely affect our results of operations.

Our ability to provide ongoing services to our subscribers, bill for services rendered and protect company and subscriber data are all vulnerable to various types of risks.

Such risks may include equipment failures, network and infrastructure failures, cyber attacks on our infrastructure, data or services or on one of our important supply chain partners, computer and IT system failures (including failures to End of Life/End of Support systems, maintained by the Company), transmission outages, spectral interferences, failures or dysfunctions at third-party systems and networks and colocation data centers, natural disasters (such as fire, extreme weather and earthquakes), hostile events (such as acts of war, terror-attacks, see “Item 3D.2r The political and military conditions in Israel may adversely affect our financial condition and results of operations.”), and data breaches whether by employees or other third parties. If any such events do occur, they could have a material adverse effect on our operations. See also "Item 3D.2c Cyber attacks impacting our networks or systems could have an adverse effect on our business."

System upgrade and moving into virtualized architecture of the network. During 2022, we will continue to upgrade our mobile core networks into a virtualized solution provided by Mavenir Systems Limited ("Mavenir"). See "10C Material Contracts". During the upgrade, we are operating our existing Ericsson network and the new Mavenir network in parallel to aid in the transition to the upgraded network until all phases of the upgrade are completed. During the upgrade we will experience an increased risk of major system or business disruptions. Interruptions and/or failure of this upgraded network could disrupt our operations and impact our ability to provide our services, retain customers, attract new customers, or negatively impact overall customer experience, damage our reputation and result in legal proceedings and as a result might adversely affect our business and results of operations. See "Item 3D.2j We depend on a limited number of suppliers and vendors for key equipment and services. Our results of operations could be adversely affected if our suppliers and vendors fail to provide us with needed services and adequate supplies of network equipment, handsets and other devices or maintenance support on a timely and cost effective basis.”

As threats to our network, services and data continue to evolve, we may be required to expend significant efforts and resources to enhance our control environment, processes, practices and other protective measures.

If despite such efforts, we are unable to operate our networks even for a limited period of time or provide some or all of the telecommunications services to a substantial portion of our customers, whether temporarily or for an extended period of time, or if data of our customers and others is lost or accessed by third parties, we may be exposed to legal claims and liability, we may be found to be in breach of our legal obligations towards our customers, our brand and reputation may be damaged, we may suffer a loss of customers, our ability to attract new customers may be impaired, and we may be required to compensate our customers (see "Item 8A.1 LEGAL AND ADMINISTRATIVE PROCEEDINGS). Such eventualities may negatively affect our business, and our short- and long- term results of operations may be materially adversely affected. See also "Item 3D.2c Cyber attacks impacting our networks or systems could have an adverse effect on our business."

3D.2h We are exposed to, and currently engaged in, a variety of legal proceedings, including class actions and requests to approve lawsuits as class actions.

In the ordinary course of business, we are involved in a significant number of legal and administrative proceedings, and we have been named as defendants in a number of civil and criminal proceedings related to our network infrastructure. These proceedings may result in civil liabilities or criminal penalties against us or our officers and directors. We also must defend ourselves against customer claims, including class actions and requests to approve lawsuits as class action suits, regarding, among other matters, alleged breaches of the Consumer Protection Law and the Telecommunications Law as well as breaches of provisions of our licenses. Such claims and lawsuits are costly to defend and may result in significant monetary damages. See also "Item 3D.1i We are subject to monitoring and enforcement measures by the Ministry of Communications and other relevant authorities, which may adversely affect our business and results of operations." During the last few years, additional requests to approve lawsuits as class actions have been filed against the Company and we expect this trend to continue in light of various amendments to the Consumer Protection Law and the stricter regulatory policies that have been adopted. In cases where the courts have accepted the plaintiff's position, it may determine that we have breached our licenses or the law, which may adversely affect our financial results. The costs that may result from these lawsuits are only accrued when it is more likely than not that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. The amount of the provisions recorded is based on a case-by-case assessment of the risk level, and events arising during the course of legal proceedings may require a reassessment of this risk. The Company’s assessment of risk is based both on the advice of legal counsel and on the Company’s estimate of the financial exposure if the verdict is in favor of the plaintiff. If the requests to certify lawsuits against us as class actions are approved and succeed or if we underestimate the potential exposure, our financial results will be adversely affected. See “Item 8A.1 Legal and Administrative Proceedings".

We are also 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 television, video and music content, which we have purchased or licensed from third parties who present themselves as the owners or official licensors (or as the representatives of owners or licensors) of the intellectual property rights included in the content, when in fact they may not be. Any potential claims may require us to initiate or defend protracted and costly litigation, regardless of the merits of these claims. Should any of these potential claims succeed, we may be forced to pay damages or may be required to obtain licenses for the infringing content, product or service, which may affect our financial results. If we cannot obtain all necessary licenses on commercially reasonable terms, we may be forced to cease using, distributing or selling the relevant products and services.

3D.2i Our level of indebtedness could adversely affect our business, profits and liquidity. Furthermore, difficulties in generating sustainable cash flow may impair our ability to repay our debt and reduce the level of indebtedness.

As of December 31, 2021, total borrowings and notes payables amounted to NIS 1,676 million, (US$ 539 million) compared to NIS 1,595 million as of December 31, 2020. See also “Item 5B.4 Total net financial debt ”. The terms of the Company’s borrowings and notes payable require the Company to comply with financial covenants and other stipulations for existing borrowings. The existing borrowing agreements allow the lenders to demand an immediate repayment of the borrowings in certain events (events of default), including, among others, a material adverse change in the Company’s business and non-compliance with the financial covenants set in those agreements. These events of default include non-compliance with the financial covenants, as well as other customary terms. See “Item 5B.2 Long-Term Borrowings ”.

In addition, our need for cash to service our substantial existing debt may in the future restrict our ability to continue offering long-term installment plans to promote sales of equipment. As a result, our ability to continue benefiting from one of the current contributors to total Company profits may be limited. (See also “ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS”).

Our indebtedness could also adversely affect our financial condition and profitability by, among other things:

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requiring us to dedicate a substantial portion of our cash flow from operations to service our debt, thereby reducing the funds available for financing ongoing operating expenses and future business development;

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limiting our flexibility in planning for, or reacting to, changes in our industry and business as well as in the economy generally;

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increasing the likelihood of a downgrade in the rating of our notes by the rating company;

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increasing the risk of a substantial impairment in the value of our telecommunications assets; and

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limiting our ability to obtain the additional financing we may need to serve our debt, operate, develop and expand our business on acceptable terms or at all.

If our financial condition is affected to such an extent that our future cash flows are not sufficient to allow us to pay principal and interest on our debt, we might not be able to satisfy our financial and other covenants, and may be required to refinance all or part of our existing debt, use existing cash balances or issue additional equity or other securities. We cannot be sure that we will be able to do so on commercially reasonable terms, if at all.

3D.2j We depend on a limited number of suppliers and vendors for key equipment and services. Our results of operations could be adversely affected if our suppliers and vendors fail to provide us with needed services and adequate supplies of network equipment, handsets and other devices or maintenance support on a timely and cost effective basis.

Network suppliers. Our network equipment, such as switching equipment, base station controllers and base transceiver stations and network software were purchased from LM Ericsson Israel Ltd. (“Ericsson”). See “Item 4B.8g Suppliers”. In January 2019, we entered into an agreement with Mavenir Systems Limited ("Mavenir") for the upgrade and improvement of the performance of our LTE network. As a result of our equipment having been provided by Ericsson and our current reliance on Mavenir, we are substantially dependent on these vendors and our operations and business results could be materially adversely affected if they do not provide us with the required service and maintenance. See "Item 3D.2g Equipment failures, system failures, natural disasters and hostile events such as acts of war or terror events may materially adversely affect our results of operations."

Handset, infrastructure and other equipment suppliers. We purchase the majority of our handsets and other equipment from a limited number of suppliers.

TV equipment, content services and core network. We purchase our TV set top boxes and applications from a single supplier, and we purchase the rights to distribute sports and premium content and our TV core network systems, such as encoding, back office and content management and video content systems, from a limited number of suppliers. See "Item 4B.8g Suppliers."

We cannot be certain that we will be able to obtain contracted services, equipment or handsets from one or more alternative suppliers on a timely basis in the event that any of our suppliers is unable to satisfy our requirements for services, equipment or handsets, or that the equipment provided by such alternative supplier or suppliers will be compatible with our existing equipment. Our handset and equipment suppliers may experience inventory shortages from time to time.

Our results of operations could be adversely affected if any of our key suppliers fails to provide us with contracted services or adequate supplies of handsets, equipment, as well as ongoing maintenance and upgrade 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. If the availability of handsets and other equipment furnished by our suppliers is insufficient to meet our customers’ demands, we may lose opportunities to benefit from demand for these products, and our unserved customers may purchase the equipment from other suppliers, which may adversely affect our revenues. In addition, the constant development of new handsets and other equipment can render existing handsets and other equipment obsolete resulting in high levels of slow moving inventory.

3D.2k The unionization of our employees has negatively affected and may continue to negatively affect our financial results.

The 3-year collective employment agreement that we signed in 2016 with the employees' representatives and the Histadrut, the labor union representing the Company’s employees, was renewed in March 2019, and again in December 2021 for a period of three years (2022-2024). The unionization of our employees has resulted in increased costs and negatively affected our financial results, and may continue to do so in the future. It may also lead to disruptions in our operations or cause work stoppages and has limited management’s flexibility to efficiently run our business and adjust operations to market conditions, including the ability to execute organizational and personnel changes.

In addition, the provisions in the 2022-2024 employment agreement regarding salary increases and participation in the Company's profits mechanism are valid for a period of only one year and are to be renegotiated for the years 2023 and 2024 towards the end of each preceding year. Furthermore, in the event of a change of control of the Company, Israeli labour law, as well as the provisions of the employment agreement, does not prevent employees from raising for negotiation any matters of collective interest (“claims”) regardless of whether they have been covered by the collective employment agreement. In January 2022, a letter from the labor union and the employees' representatives stating various claims was presented to the Company in light of the possible Transaction by the Offerer (as defined below) described in Item 3D.3a. The Company responded that the claims presented are only relevant in light of a change of control, which has not yet occurred. Satisfaction of employee demands for salary increases and participation in profits, or of collective claims by employees as a result of a change of control, or a failure to reach agreement with the employees, could have a material negative effect on the Company’s business results and financial condition.

3D.2l Our purchase commitments pursuant to our non-exclusive agreement with Apple for the purchase and resale of iPhone handsets in Israel may adversely affect our financial results.

We entered into a non-exclusive agreement with Apple Distribution International, effective April 1, 2021, for the purchase and resale of iPhone handsets in Israel and the purchase of a minimum quantity of iPhone handsets per year, for a period of three years. These purchases represent a significant portion of our expected handset purchases over that period. If we fail to meet the minimum quantities and do not reach an agreement with Apple regarding this matter, we may be in breach of the agreement which may involve payment of damages, which would increase our costs.

3D.2m If the Network Sharing Agreement entered into with HOT Mobile is unilaterally terminated by HOT Mobile earlier than we expect, we will be required to split the shared network with HOT Mobile and the resources, time and expense it may take us to have our own network in a nationwide coverage would be substantial and could also materially harm our business and the results of operations at such time.

Pursuant to the terms of the Network Sharing Agreement that we entered into with HOT Mobile, as of April 2022, either party is entitled to notify of termination of the Network Sharing Agreement for convenience by notifying the other party to that effect two years in advance. If and when the network sharing will end, we will need to split the shared network with HOT Mobile and the resources, time and expense it may take to have our own network on a nation-wide coverage would be substantial and could materially harm our business and results of operations at such time.

See also "Item 3D.1e The Network Sharing Agreement we entered into with HOT Mobile may be terminated earlier than we expected due to regulatory intervention. In such case we will be required to split the shared network with HOT Mobile. The resources, time and expense it may take us to have our own network on a nation-wide coverage may be substantial and could also materially harm our business and the results of operations at such time."

3D.2n We could be subject to legal claims due to discrepancies between our marketing offerings and the bills processed by our information systems.

In order to attract and retain the maximum number of subscribers in our highly competitive market, we design specific tariff 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 plan, as well as accurate database management and operation of a very large number of tariff plans. From time to time, we have detected some discrepancies between certain tariff 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 or lower charge. We have invested substantial resources to refine and improve our information and control systems and ensure that our tariff plans are appropriately processed by our information systems. We have also taken steps to remedy the identified discrepancies. Despite our 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 tariff 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.

3D.2o 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.

The Ministry of Health published in 2008 recommendations regarding precautionary measures when using cellular handsets. The Ministry of Health indicated that although the findings of an international study on whether cellular phone usage increases the risk of developing certain tumors were not yet finalized, partial results of several of the studies were published, and a relationship between prolonged cellular phone usage and tumor development was observed in some of these studies. These studies, as well as the precautionary recommendations published by the Ministry of Health, have increased concerns of the Israeli public with regards to the connection between cellular phone exposure and illnesses.

In 2011, the International Agency for Research on Cancer (“IARC”), which is part of the World Health Organization (“WHO”), published a press release according to which it classified radiofrequency electromagnetic fields as possibly carcinogenic to humans based on an increased risk for adverse health effects associated with wireless phone use.

In 2011, WHO published a fact sheet (no. 193) in which it was noted that “A large number of studies have been performed over the last two decades to assess whether mobile phones pose a potential health risk. To date, no adverse health effects have been established as being caused by mobile phone use. It was also noted by WHO that “While an increased risk of brain tumors is not established, the increasing use of mobile phones and the lack of data for mobile phone use over time periods longer than 15 years warrant further research of mobile phone use and brain cancer risk in particular, with the popularity of mobile phone use among younger people, and therefore a potentially longer lifetime of exposure.” WHO notified that in response to public and governmental concern it will conduct a formal risk assessment of all studied health outcomes from radio frequency fields exposure by 2014. We are not aware that such an assessment has been published.

We have complied and are committed to continue to comply with the rules of the authorized governmental institutions with respect to the precautionary rules regarding the use of cellular telephones. We refer our customers to the precautionary rules that have been recommended by the Ministry of Health, as may be amended from time to time.

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, and not for each and every 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 repaired handsets. See also “Item 4B.12g Other Licenses”. Furthermore, our network sites comply with the International Council on Non-Ionizing Radiation Protection standard, a part of the WHO, which has been adopted by the Israeli Ministry of Environmental Protection.

Several lawsuits have been filed in the past against operators and other participants in the wireless industry alleging adverse health effects and other claims relating to radio frequency transmissions from sites, handsets and other mobile telecommunications devices, including lawsuits against us.

A class action was filed against us and three other operators alleging, among other things, that health effects were caused due to a lack of cell sites, resulting in elevated levels of radiation, mainly from handsets. The plaintiffs stressed that health damages are not a part of the claim. Another class action was also filed against us and three other operators alleging, among other things, that the supply of accessories that are intended for carrying cellular handsets on the body are sold in a manner that contradicts the instructions and warnings of the cellular handset manufacturers and the recommendations of the Ministry of Health, and without disclosing the risks entailed in the use of these accessories when they are sold or marketed. In these two class actions, Partner and the plaintiff filed a settlement agreement, which the court approved.

In 2009, a municipal court ruled against one of our competitors, stating that there is no need for the standard burden of proof to prove damages from a cellular network site, and that under certain circumstances it would be sufficient to prove the possibility of damage in order to transfer the burden of proof to the cellular companies. To the best of our knowledge, the defendant appealed the ruling and the ruling was dismissed as part of a settlement between the parties. Although we were not a party to this proceeding, such rulings could have an adverse effect on our ability to contend with claims of health damages as a result of the erection of network sites.

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 or otherwise in installing mobile telecommunication devices. If it is ever determined that health risks existed or that there was a deviation from radiation standards which would result in a health risk from sites, other telecommunication devices 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. Furthermore, we do not expect to be able to obtain insurance with respect to such liability.

3D.2p The telecommunications industry is subject to rapid and significant changes in technology and industry structure which could reduce demand for our services.

We face competition from existing or future technologies that have the technical capability to handle mobile, fixed-line and international long distance telephone calls, and to interconnect with local and international telephone networks and the Internet. Such technologies include fixed-line and broadband wireless access services, Over the Top or Internet-based voice and multimedia services, Wi-Fi technologies and VoC. For example, the use of Global SIM cards and internet-based services that provide user experience largely equivalent to our offerings, such as Voice over IP (“VoIP”), messaging services (such as WhatsApp and Skype), and video services (YouTube, video portals) are already available. The rapid development of technologies that allow international calls to be placed over the Internet without the need to use the services of an ILD has caused a decrease in the amount of international call minutes placed through the ILD services and also serve as an alternative for fixed-line communications. In particular, the risk posed by VoIP is that the purchase of a data package alone will partially replace the provision of most cellular voice, data and messaging services. In addition, the eSIM technology, which allows for a simple switch to a local operator SIM card in mobile phones, might adversely affect our revenues from the cellular segment and increase volatility in the telecommunications sector.

The effect of emerging and future technological changes, including the convergence of technologies, on 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 disruptive technologies in the future. Competition from new technologies in the future may have a material adverse impact on our business and results of operations.

Moreover, global equipment vendors and Internet providers have expressed their interest in penetrating the cellular telephone industry and strengthening their position along the value chain. They have expressed their intention, and some have already begun, to provide direct access to the end-user to a wide variety of applications and services (e.g Apple with iTunes and Google with the Android market). This has already changed our competitive position and may further increase the dominance of those new providers at the expense of cellular service providers. Changes in the industry value chain structure might result in an increase in our expenses as well as a decrease in our revenues.

3D.2q We are dependent upon our ability to interconnect with other telecommunications carriers. We also depend on Bezeq and other suppliers for transmission services and some of our Fixed-Line Services are dependent on our having access to Bezeq and the HOT Group’s fixed-line network. The failure of these carriers to provide these services on a consistent and cost effective basis could have a material adverse effect on us.

Our ability to provide commercially viable fixed-line and cellular telephone services depends upon our ability to interconnect with the telecommunications networks of existing and future fixed-line, cellular telephone and international operators in Israel in order to complete calls between our customers and parties on the fixed-line or other cellular telephone networks. All fixed-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 interconnect relations with all the Israeli operators, including Bezeq and HOT Telecom, and we also depend on their internet broadband access infrastructure in order to provide TV, ISP services and VoB fixed telephony services. See “Item 3D.1f If the Ministry of Communications fails to enforce its fixed-line wholesale market reforms on Bezeq and HOT Telecom, fails to lower the wholesale price for use of their fixed-line networks, or fails to prevent Bezeq or HOT Telecom from lowering their retail prices for fixed-line services (to the point of not allowing the necessary margin for their competitors in this segment), our business and results of operations may be materially adversely affected.” and "Item 3D.1a If the structural separation provisions which apply to Bezeq are not enforced or are removed (in part or in whole) before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations."

We are also dependent on the submarine infrastructure made available by TI Sparkle Israel (formerly Med Nautilus), which provides mutual international transmission based on fiber-optics between Israel and other countries, as well as Tamares Telecom Ltd. We also depend on foreign operators that provide us with interconnection to the global internet network.

We also rely on agreements to provide ILD services to our subscribers. However, we cannot control the quality of the service that other foreign telecommunication companies provide or whether they will be able to provide the services at all, and it may be inferior to our quality of service.

Our television services are provided over the internet. Because a significant proportion of our television subscribers are also subscribers to our wholesale internet infrastructure service, any growth in the volume of data such television subscribers (as well as ISP and wholesale market subscribers) consume during peak hours translates into an increase in the payment to the infrastructure holders for access to their infrastructure.

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. Disruptions, stoppages, strikes and slowdowns experienced by them may significantly affect our ability to provide telecommunication services. The failure by our suppliers to provide reliable interconnections and transmission services to us on a cost effective and consistent basis could have a material adverse effect on our business, financial condition or results of operations.

3D.2r 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. During the last decade, there has been a high level of violence between Israel and the Palestinians, including missile strikes by Hamas against Israel, which led to an armed conflict between Israel and the Hamas over the past few years. In the last few years, Iran has threatened to attack Israel with nuclear weapons. There is evidence that Iran has a strong influence among extremist groups in areas that neighbor Israel, such as Hamas in Gaza and Hezbollah in Lebanon and Syria. This situation may potentially escalate in the future to violent events which may affect Israel and us. 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. During such periods, incoming and outgoing tourism may be affected which consequently may have an adverse effect on our financial results. In particular, in recent conflicts, missile attacks have occurred in 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. In addition, in the event political unrest and instability in the Middle East, including changes in some of the governments in the region, causes investor concerns resulting in a reduction in the value of the shekel, our expenses in non-shekel currencies may increase, with a material adverse effect on our financial results.

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. In addition, some of our employees may be forced to stay at home during emergency circumstances in their area. We cannot assess the full impact of these requirements on our workforce and business if conditions should change.

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. Under the Equipment Registration and Mobilization to the Israel Defense Forces Law, 1987, the Israel Defense Force may mobilize our engineering equipment for their use, compensating us for the use and damage. This may materially harm our ability to provide services to our subscribers in such emergency circumstances, and would thus have a negative impact on our revenues and results of operations.

Moreover, the Prime Minister of Israel may, under powers which the Telecommunications Law grants him for reasons of state security or public welfare, order us to provide services to the security forces, to perform telecommunications activities and to set up telecommunications facilities required by the security forces to carry out their duties. While the Telecommunications Law provides that we will be compensated for rendering such services to security forces, the government is seeking a change in the Telecommunications Law which would require us to bear some of the cost involved with complying with the instructions of security forces. Such costs may be significant and have a negative impact on our revenues and results of operations.

3D.2s Operating a 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 telecommunications services and avoid paying for them partially or at all. 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, fraudulent activities may in the future materially affect our financial condition and results of operations.

3D.2t Our business may be impacted by shekel exchange rate fluctuations and inflation.

Nearly 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 or denominated in non-shekel currencies, mainly the US dollar. These expenses, where the price paid by us is based mainly in US dollars, included the acquisition of equipment and devices sold, payments for roaming services and payments to content suppliers. In addition, our capital expenditures include payments that are incurred in, or linked to, non-shekel currencies, mainly US dollars. A decline in the value of the shekel against the dollar (or other foreign currencies) could have an adverse impact on our results, which may be material if we are unable to pass on higher costs to our customers in the Israeli market. Material changes in exchange rates may cause the amounts that we must invest to increase materially in shekel terms.

We have not entered into any derivative transactions in recent years to hedge underlying exposure to foreign currencies. As a matter of policy, we do not enter into transactions of a speculative or trading nature.

We have also entered into a number of operating leases whose rental payments are linked to the Israeli CPI. A significant increase in the rate of inflation may therefore have a material adverse impact upon us by increasing our financial expenses. See “ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK” for more information regarding the Company’s exposure to exchange rate fluctuations and inflation.

3D.2u 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 require substantial resources, management time and attention. We expect these efforts to require a 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, 2021, we may identify material weaknesses or other disclosable conditions relating to internal control over financial reporting in the future. 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.

3D.2v There can be no assurance that dividends will be declared or, if they are, at what level. No dividends have been distributed since 2013, although we repurchased 6,501,588 shares of the Company in 2018 for a cost of NIS 100 million.

There is no assurance that we will declare dividend distributions in the future or regarding the level of any dividend distribution which may be declared. No dividends have been distributed since 2013, although we repurchased 6,501,588 shares of the Company in 2018 for a cost of NIS 100 million. A distribution of dividends that may result in a significant reduction of our future reserves could prevent us from complying with existing or future financial covenants, or limit our ability to fund capital expenditures. We may also be required to increase our financial indebtedness to obtain needed liquidity, which may not be possible on commercially reasonable terms or at all.

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

3D.2w Our tax liability may be greater than expected.

We are subject to taxation in Israel, and significant judgment is required in determining our provisions for taxes on income. We are also subject to audits by the Israeli tax authorities, including in relation to VAT payments. In such audits, it is possible to present our case according to our interpretation of tax legislation, and the relevant tax authorities may disagree, and then also challenge the amount of our profits subject to tax in Israel.

While we believe that our estimates are reasonable, the final outcome of these audits and related legal litigations, in so much as they may occur, may differ from the amount of our provisions for taxes and therefore may affect our operating results. See also note 25 to our consolidated financial statements

3D.3 RISKS RELATED TO OUR PRINCIPAL SHAREHOLDER

3D.3a Approximately 27% of our issued and outstanding shares and voting rights are held by a receiver (under Israeli law). The purchase of these shares by a third party has been approved by the Court and is pending MoC approval.

On November 12, 2019, the District Court of Tel Aviv (the "Court") issued a court order (the "Court Order") under which attorney Ehud Sol (the “Receiver") was appointed as receiver for 49,862,800 of the Company's shares, representing as of February 1, 2022, approximately 27% of our issued and outstanding share capital and the largest block of shares held by a single shareholder. The shares (the “Pledged Shares”) had been purchased by S.B. Israel Telecom Ltd. ("S.B. Israel Telecom") from Advent Investments Pte Ltd (“Advent”) in 2013; in connection with the purchase, S.B. Israel Telecom assumed certain debt owed to Advent, and agreed that such debt would be secured by, among other things, the Pledged Shares. S.B. Israel Telecom defaulted on the payment, and on November 11, 2019, consented to enforcement and foreclosure proceedings with respect to the Pledged Shares.

The Court Order was issued due to an application filed by Advent ("Advent's Application") and granted the Receiver substantial rights related to the Pledged Shares, including the right to participate in our shareholders’ meetings, to vote the Pledged Shares, to receive dividends, and any contractual right related to the Pledged Shares, although as noted below, the Receiver may not sell or transfer the Pledged Shares without the Court’s approval. Without derogating from those rights of the Receiver, S.B. Israel Telecom remains the holder of legal title to the Pledged Shares. On December 9, 2019, the Ministry of Communications granted, within its powers, a permit to the Receiver to exercise means of control of the Company by himself. As a result, the Receiver has the power to substantially influence the nomination of the Company’s Board of Directors and to play a preponderant if not decisive role in other decisions taken at meetings of our shareholders. The Receiver is expected to hold such rights until the Pledged Shares are sold or transferred to Advent, actions that would require the Court’s approval according to the Court Order and Advent's Application.

On December 14, 2021, the Court granted an approval in principle, effective as of December 15, 2021, for the purchase of the Pledged Shares by a group of parties led by the Phoenix group, Mr. Avi Gabbay and Mr. Shlomo Rodav (jointly, the “Offeror”), on an “as is” basis, in consideration for US $ 300,000,000 (the “Transaction"), as proposed by the Offeror. On January 9, 2022, the Competition Authority granted its approval. The Transaction is still subject to the approval of the Ministry of Communications.

The Receiver is to exercise the rights associated with the Pledged Shares based on its judgment and subject to the Court’s orders and approvals. Neither the Receiver nor Advent, as applicable, is obligated 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 other shareholders and noteholders, and it may engage in activities that conflict with such interests. If the interests of the Receiver or Advent, as applicable, conflict with the interests of our other shareholders and noteholders, those shareholders and noteholders could be disadvantaged by the actions that it may pursue. However, the Receiver or Advent, as applicable, are subject to the fairness duty of a controlling shareholder under the Israeli Companies Law, and, in the context of related party transactions, to vote for the approval of transactions which are in favor of the Company. See "Item 6C.9 Duties of a Shareholder".

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 were marketed under the “Orange” brand until February 16, 2016, when it was replaced with the “Partner” 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 addresses are www.partner.co.il, www.012mobile.co.il and https://www.012.net/. Information contained on our websites does not constitute a part of this Annual Report. Our authorized U.S. representative is Puglisi and Associates, 850 Library Avenue, Suite 204, Newark, Delaware, 19711 and our agent for service in the United States is CT Corporation System, 28 Liberty St., New York, New York 10005.

Since our incorporation, we have achieved a number of important milestones:

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

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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 March 2008, we voluntarily delisted our ADSs from the London Stock Exchange.)

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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. These notes were redeemed in August 2005.

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

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In December 2001, the Ministry of Communications awarded us two bands of spectrum: one band of GSM 1800 spectrum and one band of 2100 UMTS third generation spectrum.

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

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In December 2004, we commercially launched our 3G network.

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

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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.

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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 March 2006, we launched services based on the High Speed Downlink Packet Access (“HSDPA”) technology.

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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, 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 fixed-line services.

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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.

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In December 2008 and January 2009, we launched three additional non-cellular business lines: VoB telephony services, ISP services and Web VOD (video on demand).

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In October 2009, Scailex Corporation Ltd. ("Scailex') became our principal shareholder through acquiring the entire interest in the Company of our previous controlling shareholder.

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In February 2010, following the District Court’s approval, a total amount of NIS 1.4 billion or approximately NIS 9.04 per share was paid on March 18, 2010, to shareholders and ADS holders of record on March 7, 2010, as a special dividend distribution.

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In March 2011, we acquired all of the outstanding shares of 012 Smile Telecom Ltd., a leading provider of broadband and traditional telecommunications services in Israel. The acquisition of 012 Smile supported our strategy of becoming a leading comprehensive communications group, expanding our range of services and products.

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In January 2013, S.B. Israel Telecom Ltd. ("S.B. Israel Telecom"), an affiliate of Saban Capital Group, a private investment firm, based in Los Angeles, California, specializing in the media, entertainment and communications industries, became our principal shareholder through acquiring 30.87% of our issued and outstanding shares, principally from our previous controlling shareholder, Scailex.

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In November 2013, we entered into a 15-year Network Sharing Agreement with HOT Mobile pursuant to which the parties agreed to create a 50-50 limited partnership to operate and develop a cellular network to be shared by both parties (among others, as a result of pooling both parties’ radio access network infrastructures to create a single radio access network). The Network Sharing Agreement was approved by the Israeli anti-trust authorities, subject to conditions in May 2014, and by the Ministry of Communications in April 2015. Following approval by the Minister of Communications, the Network Sharing Agreement with HOT Mobile entered into effect. See “Item 4B.8 Our Network”.

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In July 2014, we commercially launched limited 4G services in Israel over a frequency band of only 5 MHz in the 1800 spectrum.

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In March 2015, the acting Minister of Communications approved the results of the tender bid process in which we won an additional 5 MHz in the 1800 spectrum (in addition to our 10 MHz frequency bands in the 1800 spectrum).

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In February 2016, we rebranded our products and services that were previously under the “Orange” brand to be under the new “Partner” brand.

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In June 2017, we launched Partner TV service based on Over the Internet (OTT) platform which completed our offering as a comprehensive communications company.

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In August 2017, we launched the commercial phase and accelerated deployment of our fiber-optic infrastructure in residential areas throughout the country.

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In November 2019, the MoC appointed a permanent receiver for the Company shares held by S.B. Israel Telecom and granted the receiver a permit to exercise means of control of the Company by himself. See "Item 3D.3a Approximately 27% of our issued and outstanding shares and voting rights are held by a receiver (under Israeli law)."

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In August 2020, the Company acquired through an MoC tender 2x5 MHz in the 700 band, 2x10 MHz in the 2600 band and 50 MHz in the 3500 band (as the 5G frequency).

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In February 2022, our cellular license was extended until February 2032.

For information on our capital expenditures for the last three financial years, and for the principal capital expenditures currently in progress, see “Item 4B.8 Our Network” and “Item 5B.4 Total Net Financial Debt- Capital Expenditures”.

4B. Business Overview

Partner Communications Company Ltd. is a leading Israeli telecommunications company, providing a wide integrated and customized range of cellular and fixed-line communication services, including infrastructure, international long distance (ILD), internet services provider (ISP), television and other services as well as related equipment. We offer our subscribers a full range of products and services to address a broad range of communications needs based on advanced technologies and competitive tariff plans.

As a comprehensive communications group, we supply our services through two business segments:

the cellular segment, our main business, which represents the largest portion of our total revenues. The cellular business segment includes cellular communications services such as airtime calls, international roaming services, text messaging, internet browsing, value-added and content services, handset repair services and services provided to other operators that use the Company's cellular network. The Company also sells and leases a range of equipment related to cellular services. See "Item 4B.5a Cellular Services and Products".

At December 31, 2021, we had approximately 3,023 thousand cellular subscribers, representing an estimated 28% of total Israeli cellular telephone subscribers at that date. As of that date, approximately 88% of our subscriber base (approximately 2,671 thousand subscribers) subscribed to post-paid tariff plans and 12% (approximately 352 thousand subscribers) subscribed to pre-paid tariff plans. (For a definition of “subscriber”, see “Item 3A Selected Financial Data”).

Our 3G and 4G network covers 99% of the Israeli population, and our 5G network covers 30% of the Israeli population in line with the deployment milestones in our license. We currently operate our GSM network in the 900 MHz and 1800 MHz bands, the UMTS network in the 900 MHz and 2100 MHz band, the LTE network in the 700, 1800, 2100 and 2600 MHz bands and 5G (NSA) on the 3.5 MHz band. We already deployed 800 LTE sites in the 700MHz band. Our services provided on our network include standard and enhanced services, as well as value-added services and products. See “Item 4B.5 SERVICES AND PRODUCTS".

We market our cellular services and products mainly under the Partner brand as well as under the 012 Mobile brand;

and

the fixed-line segment, which includes a number of services provided over fixed-line networks including (a) Internet services including access to the internet through both fiber-optics and wholesale broadband access, ISP services, internet Value Added Services (“VAS”) such as cyber protection, anti-virus and anti-spam filtering, and fixed-line voice communication services provided through Voice Over Broadband (“VOB”); (b) Business solutions including SIP voice trunks, Network Termination Point Services ("NTP") – under which the Group supplies, installs, operates and maintains endpoint network equipment and solutions, including providing and installing equipment and cabling within a subscriber's place of business or premises, hosting services, transmission services, Primary Rate Interface (“PRI”) and other fixed-line communications solution services; (c) International Long Distance services (“ILD”): outgoing and incoming international telephony, hubbing, roaming and signaling and calling card services; (d) television services over the Internet ("TV"); and (e) connections and data transfer services provided to international telecommunications operators over the fiber-optic infrastructure. In addition, this segment includes sales and leasing of telecommunications, audio-visual, and internet-related devices including cellular handsets, phones, tablets, laptops, modems, data cards, domestic routers, servers and related peripherals, equipment and integration projects. See also "Item 4B.5b Fixed-line Services and Products".

Our fixed-line services are marketed under the Partner and 012 brands.

In 2021, Partner was named by Marketest, a multi-discipline research and consulting firm, as the leading company among the largest telecommunications companies in Israel for its customer service.

In 2021, we were named by the Maala organization in their highest platinum plus category for corporate social responsibility ESG for the fourteenth consecutive year.

In 2021, Partner was awarded the diversity award from the Lautman Foundation for employment of people with disabilities.

4B.1 SPECIAL CHARACTERISTICS OF THE CELLULAR TELECOMMUNICATIONS INDUSTRY IN ISRAEL

We believe that the following special characteristics differentiate the Israeli market from other developed cellular telecommunications markets. In particular, as noted below, on-going, significant changes in regulations applicable to cellular operators have created a complex environment specifically intended to substantially increase competition:

•	High Rate of Unlimited Packages. Israeli cellular operators provide, among other price-competitive offers, a particularly high rate of unlimited voice and text packages, and various data packages consisting of relatively high volumes of data at competitive prices.

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Lack of Migration Barriers, High Churn and Recruitment Rate of Subscribers. The Israeli cellular market to date has limited migration barriers. There is full number portability. Operators are prohibited from selling SIM locked handsets and are no longer able to link the sale of handsets to services. In addition, operators are no longer allowed to charge exit fees from residential or small business customers or offer better tariff plans to new customers. As a result of this, as well as the entrance of new competitors, there is a high rate of churn and recruitment rate of subscribers in the Israeli cellular market.

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Multiple Operators in a Small Market. The regulatory changes in the telecommunications industry, particularly with respect to additional entrants that include cellular operators and MVNOs, have created multiple operators in a relatively small market, which has led to a high level of competition in the industry.

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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, maintenance and subsequent upgrades of a cellular network in a cost effective manner.

4B.2 SPECIAL CHARACTERISTICS OF THE FIXED-LINE TELECOMMUNICATIONS INDUSTRY IN ISRAEL

Bezeq and HOT Telecom are the only telecommunications services providers with their own nationwide fixed-line infrastructure. IBC, along with the infrastructure that it acquired from Cellcom, is deploying its fiber-based fixed-line services and is obligated to reach a 68% deployment by February 2026, five years from the grant of its license. Partner is deploying its fiber-optic lines in selected areas across Israel.

Fixed-line telephony Services

Bezeq is the incumbent provider of fixed-line telephony services in Israel and holds a majority of the market. The remaining portion of the market is divided between HOT Telecom, the next largest provider, Cellcom and Partner.

Broadband and Internet services. The fixed-line internet access market used to be divided into two tiers of services: infrastructure services and ISP service. Since 2015, with the launch of the wholesale market reform, ISPs have begun to market bundled packages which include both (Bezeq's) infrastructure and ISP components. Since 2019, HOT Telecom began to offer wholesale services on its cable infrastructure.

The Ministry of Communications declared its intention to provide an incentive for Bezeq to implement the wholesale market by reducing the regulations requiring Bezeq to maintain a “structural separation” between its fixed-line and its TV services and other telecommunications operations. See “Item 3D.1a If the structural separation provisions which apply to Bezeq are not enforced or are removed (in part or in whole) before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations. "

In September 2020, Cellcom announced that, together with the Israel Infrastructure Fund, it had entered into an investment transaction with Hot Telecommunication Systems Ltd ("HOT") in IBC. According to Cellcoms’ announcement, HOT shall become an equal partner in IBC, and hold indirectly 23.3% of IBC’s share capital. This merger was approved by the Competition Authority and approved subject to certain conditions by the MoC. See "Item 4B.9b Competitors in Fixed-line Services".

Internet access is currently provided by three major Internet service providers, or ISPs: Netvision from the Cellcom Group, Bezeq International, and Partner, as well as some other niche players. All three major providers are also suppliers of ILD services (see below).

Following a hearing held by the MoC regarding a reform in the structure of the ISP market, in June 2021 the MoC published its decision in this hearing in which it outlined a process for ending the split of the Internet market into two tiers and allowing Bezeq and Hot Telecom to market a unified product, while ensuring that Bezeq and Hot provide the wholesale Internet service at non-discriminatory terms. See "Item 4B.12e - v Decision regarding a reform in the structure of the Internet Market".

International long distance services

The three major players in ILD services in Israel are: Partner, Bezeq International and Cellcom. The other players are Xfone and Telzar 019 International Telecommunications Services Ltd., which commenced operations in 2011, and Hashikma Communications Marketing Ltd., Golan Telecom and HOT Mobile, that commenced operations in 2012. Beginning in 2012, as part of the unlimited packages that the cellular companies began offering their customers, most of them, including the Company, included ILD services to certain destinations in these packages.

4B.3 OUR STRATEGY

Partner’s strategy is to further reinforce its position as a leader in the Israeli telecommunications market by striving to provide the best service and cutting-edge technology. Our objective is to create, protect and promote fixed and mobile connections for our customers helping them to smartly manage their digital lifestyle. Therefore, we primarily offer our customers the connectivity they need through simple products and services while protecting their data and managing it in a responsible way. We also see opportunities due to the broadened understanding created by the COVID-19 crisis of the importance of quality communication services, with an emphasis on stable and fast internet services and acceleration of the Company's independent fiber-optic infrastructure and 5G deployment.

Partner Group's strategy aims to enhance value through the following:

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Fiber and 5G deployment – In fiber, the Company is accelerating its independent fiber-optic infrastructure deployment with the goal of reaching approximately 1 million connected households by the end of 2022. In 5G, the Company is continuing the deployment of our 5G network, with the goal of reaching population coverage of over 40% by the end of 2022, which will help Partner to continue to maintain high quality services for home offices and a higher consumption of entertainment services.

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Connectivity - This is the enabler for all digital services. Partner provides a wide range of services over connectivity through a fixed and mobile bundled offer which includes video and digital services. We offer our customers additional data in order to amplify services through unique, simple and clear offers.

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Customer service - Focusing on customers’ needs, to improve their experience and deepen customer engagement. Driving revenue growth by providing 360 - degree customer service through expanded online services which offer simplified, transparent processes on any digital platform used by the customer.

4B.4 MARKETING AND BRAND

We are primarily a B2C (Business - to- Consumer) company, and therefore rely heavily on branding and our ability to make a difference.

Our brand promise is to bring a better future to our customers. The better future concept has been the core idea of our branding since its inception. Our brand values are innovation, optimism, simplicity and fairness. In our opinion, these are the values and attributes which appeal to our customers and the type of customers we want to attract.

The Partner brand stands for high quality networks, fair prices and great customer service. We believe in providing great service to customers who appreciate the level of service and network performance that we provide.

We continuously utilize a variety of marketing tools, techniques and channels in order to strengthen our brand image and promote sales and customer loyalty. We advertise our brand and services in a variety of media channels including press, television, radio, digital and social media. Our advertising emphasizes leading and innovative product services and technologies and is targeted at various market segments. Our marketing work features high value production, futuristic scenes, and good vibe and atmosphere that celebrate our products and entice customers to choose us as their telecom providers.

In 2021, we formulated a new branding strategy in order to bolster our positioning as the most innovative telecommunications company in Israel. We formed a new iconic language and adopted the 5G icon, integrating it with our brand name, which is now Partner 5G.

4B.5 SERVICES AND PRODUCTS

In 2021, approximately 68% of our revenues (excluding inter-segment revenues) was derived from our cellular segment and approximately 32% of our revenues (excluding inter-segment revenues) was derived from our fixed-line segment.

4B.5a Cellular Services and Products

Cellular Services

Our main business is cellular telephony - including the basic cellular telephony services of voice calls, text messaging, internet browsing and data transfer-- as well as a variety of content services, roaming services, handset repair services, services provided to other operators that are permitted to use the Company's cellular network and Machine to Machine (M2M) and Internet of Things (IOT) services. Cellular content and value-added services offered include but are not limited to multimedia messaging, cyber protection, cloud backup, ringtones, music streaming services and a range of business services.

International Roaming

We offer our customers roaming services abroad, which allow a mobile phone subscriber to place and to receive cellular services while in the coverage area of foreign networks owned by operators with whom we have commercial roaming agreements. Our roaming packages allow our customers to benefit from attractive rates in over 180 destinations. We offer data-only packages as well as packages that combine calls, data and SMS.

At December 31, 2021, we had commercial roaming relationships with 564 operators in 181 countries or jurisdictions, 335 3G roaming agreements in 177 countries, 145 4G roaming agreements in 78 countries and 22 5G roaming agreements in 22 countries. 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. The 3G and 4G roaming agreements enable our 3G roamers to initiate video calls, high speed data and video and audio content while abroad.

Although GSM (2G), UMTS (3G), LTE (4G) and 5G are standardized, the frequency allocation for each technology varies from one country to another. Currently we operate our GSM services on the 900 MHz and 1800 MHz bands, UMTS on 900 MHz and 2100 MHz bands, LTE on 700, 1800, 2100 and 2600 MHz bands and 5G (NSA) on the 3.5 MHz band. All 4G and 5G handsets which we sell, support all the above listed technologies and bands while 2G and 3G handsets support the above listed bands for GSM and UMTS. Most of the handsets support 700 Mhz, depending on the vendor. While roaming, there is a possibility that a subscriber’s handset will not support all the technologies due to lack of support of a country’s specific frequency bands; however, this is rare in GSM and UMTS, due to technology maturity. Standardization bodies allow for more than 27 different LTE bands and since LTE in many countries utilizes reframed GSM and UMTS bands, there may be cases where handsets do not support the frequency allocated for LTE and 5G in specific countries.

Cellular Equipment and Devices

Equipment and device sales in the cellular segment include sales and leases of cellular handsets and related cellular devices and accessories, mainly to retail customers but also to some wholesale customers.

4B.5b Fixed-line Services and Products

Fixed-Line Services and Infrastructure

We offer fixed-line services that include internet services, ILD services, transmission services, telephony services (including SIP services), TV services and high speed broadband fiber-optic infrastructure.

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ISP services. As an internet service provider providing access to the World Wide Web, we offer our customers, in addition to access, additional ISP services including email accounts, Wi-Fi networking as well as additional value added services such as anti-virus and anti-spam filtering. We also offer a bundled package that includes infrastructure and ISP access services following the wholesale market reform, a triple package that includes in addition to the bundled package also TV services and since 2017, we also offer access services over our own fiber-optic fixed-line infrastructure in certain parts of the country, with speeds up to 3 GB. Furthermore, we offer our business customers additional tailored value services that combine an entire array of solutions including: network and data infrastructures, advanced information security solutions, integration solutions, designated services for customers with multiple branches and commercial networks, business information storage in a secured and advanced data center and cloud services. ISP services include the leasing of related equipment including modems and routers.

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ILD services. As an international long distance provider, we offer our residential and business customers international telephony services including direct international dialing services, international and domestic pre-paid and post-paid calling cards, and call-back services. Most of the pre-paid calling cards are sold to foreign workers in Israel. In addition, we offer our business customers international toll-free numbers that offer fixed rates on calls from many countries around the world. As an international long distance provider, we also provide hubbing traffic routing between network operators for termination of long distance calls outside of Israel.

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Transmission. We provide fixed-line transmission and data capacity services. Our fixed-line capacity also includes capacity which we lease from other fixed-line telecommunications service providers as well as inland fiber-optic infrastructure and complimentary micro wave radio links. The services we offer include primarily connectivity services, on an SDH (Synchronous Digital Hierarchy) transmission network, by which we provide high quality, dedicated, point-to-point connection for business customers and telecommunications providers, as well as fixed-line services to business customers. We also provide international transmission services to our business customers between Israel and other countries.

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VoB and PRI. The VOB service allows business and residential customers to make and receive telephone calls over the Internet through an internet connection. The PRI is a landline network service connecting organizational switchboards to Partner's network and allows business customers to make multiple calls simultaneously. We offer traditional voice services to business customers throughout Israel.

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Television services. In June 2017, we launched our OTT television services that provide our customers with an enhanced user interface experience of television services based on an open platform, Android TV. Partner TV service offers our customers dozens of live linear channels, including "catch up" capability of up to 14 days, video on demand library, Network Personal Video Recorder (NPVR), direct access to YouTube, Netflix, Spotify and Amazon Prime Video content through a dedicated button on our remote control allowing our customers to access their favorite show with a simple click. We also enable customers to subscribe and pay for Netflix and Amazon Prime Video through the Partner TV bill. Our TV service also includes a fully supported 4K set-top box with an Android TV operating system which enables the viewer to add content, games and music applications directly from the Google Play store. Our full TV service can also be accessed by smartphones, tablets, Apple TV boxes, Smart TVs and personal computers (“TV everywhere”) and we continue to work on developing our smart TV offerings. Over 80% of our TV subscribers have bundled offerings with internet services. Since 2019, we offer an addressable TV advertisement system based on an integrated advertising management platform-Google Ad manager that enables the targeting of specific audiences and maximizes the ability of the Android TV set top boxes. Our strategy is to offer our customers unique television services, by partnering with world-leading media service providers, at attractive prices. As part of our strategy, we continue to be a super aggregator which enables our customers the ability to access the leading streaming services in the world including Netflix, Amazon Prime Video, Spotify and YouTube, using a single interface as well as cloud gaming services.

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High speed broadband fiber-optic based network. In 2017 we launched the commercial phase and acceleration of our fiber-optic infrastructure in residential areas throughout the country, which provided for the first time a more advanced and cost-effective alternative to the existing fixed infrastructure in Israel. As of year-end 2021, 700 thousand households were able to connect to Partner's fiber services and the number of fiber-optic subscribers totaled 212 thousand. As of the date of this Annual Report, 740 thousand households were able to connect to Partner's fiber services and the number of fiber-optic subscribers totaled 225 thousand. See "Item 4B.8d Fiber-optic infrastructure". In February 2022, we signed an agreement with two wholesale telecommunication suppliers, which enables them to provide fiber services on our fiber-optic network to their subscribers. In addition, we have entered into IRU (Indefeasible Right of Use) agreements with international telecommunications operators and large international business customers for the sale of IRUs and lease of certain fiber-optics in our fiber-optic infrastructure ("dark fibers"), as well as maintenance and operation services with respect to such fibers. See "Item 4B.8d Fiber-optic infrastructure".

Value-Added Services

In addition to standard fixed-line value-added services, we offer a variety of value-added services such as defense and security services for the computer and e-mail that include, among others, parental monitoring control, firewall, web hosting, anti-virus and site filtering based on the customer’s restriction definition, and other value- added internet services including hosting, cloud-based hosted services and virtual switchboard. We also offer an upgraded data center that provides customers with business solutions on a secure site including hosting services (storage and maintenance of physical and virtual servers, website hosting, information storage and disaster recovery site), management communication services, and integrated services.

Fixed-Line Equipment and Devices

Equipment and device sales in the fixed-line segment include sales and rental of modems, domestic routers, servers and related equipment, including a device to increase wi-fi coverage, tv screens, integration project hardware and a variety of digital audio-visual devices, audio accessories and related devices. In addition, we provide our business customers with office communication Private Branch Exchanges (PBX). This service, available on the premises or cloud-based, provides all telephony services including unified communication features as well as Direct Inward Dialing (DID), which provides a block of telephone numbers for calling into the customer’s PBX system. DID allows us to offer our customers individual phone numbers for each person or workstation within the company without requiring a physical line into the PBX for each possible connection.

4B.5c Tariff Plans

Cellular service tariff plans

As of December 31, 2021, approximately 88% of our cellular subscriber base (approximately 2,671 thousand subscribers) subscribed to post-paid tariff plans, and 12% (approximately 352 thousand subscribers) subscribed to pre-paid tariff plans. Revenues from post-paid subscribers accounted for over 90% of total cellular service revenues in the year 2021.

Post-paid cellular tariff plans. Most of our post-paid cellular tariff plans for private customers are bundles including large amounts of call minutes (usually 5,000 minutes) and SMS as well as browsing packages. Many of these bundles also include a limited amount of international call minutes and other value-added services such as cybersecurity, antivirus, cloud backup and other solutions and extended handset warranty plans. In addition, we offer a limited number of bundles with fixed amounts of call minutes and SMS and browsing packages. The elements of our cellular tariff plans for post-paid private customers are packaged and marketed in various ways to create tariff packages attractive to target markets, including families, military personnel, youth, students, family members of business customers and other sectors. We also offer dedicated plans for data usage (eg. for use with dongles or with cellular routers and modems) which offer large browsing packages. Generally, our post-paid customer subscriber agreements do not have any commitment periods. However, some of our contracts with large business customers with over 100 subscribers include commitment terms with exit fees for early termination.

The Company also markets post-paid cellular tariff plans under an alternative brand, “012 Mobile”. Under this brand, the Company offers plans mainly under a digital self-service model through a dedicated website (including web-chat with customer representatives) at competitive prices.

Pre-paid cellular tariff plans. Under our pre-paid plans, upon purchase of a SIM card or phone card or prepayment by credit card or cash, 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 pre-paid cellular services market.

Fixed-line tariff plans.

For our Fixed-Line services, we have a wide range of diverse plans and bundles to meet the needs of the various sub-markets-ISP, ILD, transmission, TV, fiber, VOB and PRI. In the ILD services market we have tariff plans based on call destinations and level of use. Our Internet Service prices and our wholesale infrastructure and fiber-optic infrastructure services prices are based on bandwidth speed. We offer a variety of internet solutions for home and business use according to each customer's needs.

4B.6 SALES AND DISTRIBUTION

4B.6a Customer Care

We apply a multi-channel approach to target various market segments and to coordinate our cellular and fixed-line sales and services strategy for both our business as well as private customers. Our customer support and service provides several channels for our customers: call centers, Interactive Voice Response (“IVR”), walk-in centers, service through Whatsapp, self services by Web and mobile applications and service through social media such as Facebook, Instagram and Twitter.

Call Centers. Guided by our aim to provide high quality service, our call-center services are divided into several sub-centers including business, private and pre-paid for cellular and fixed-line services, and specialized support and services (finance, network, international roaming, TV services and support and infrastructure fiber internet service and support). The call center services are provided in several languages and also provide digital and self services through the Company’s websites and mobile applications. These services are provided internally by company employees as well as by outsourcing services.

Walk-in Centers. We currently operate 20 service and sales centers across Israel and 21 Partner stands in shopping centers throughout the country. 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, fixed-line sales, accessories sales fixed-line services (such as Internet and TV) and other services (such as finance, rate-plan changes and subscription to new services).

Self-Service. We provide our customers with various self-service channels, such as IVR, web-based services, and services via SMS, mobile, smartphone applications and WhatsApp. The services provided through these channels include general and specific information, tariff plan information and the ability to update them, account balance, billing-related information, roaming tariffs and payment of past due bills. They also provide customers with information regarding trouble shooting and handset operation, and enable customers to activate services as well as to purchase various services.

Technical support. The Company's technicians provide our customers with support services and initial TV and fiber installation and repair services.

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.

Management Systems. Our management systems are certificated and monitored by IQC (The Institute for Quality Control, an RVA accredited Certification Body authorized by Bureau Veritas Quality International) to the appropriate international standards:

ISO 9001:2015, which focuses on fulfillment of clients and legal requirements;

ISO 14001:2015, which coordinates our commitment to habitat and environment;

ISO 45001:2018, which directs our efforts to provide a safe and healthy work environment at our premises; and

ISO 27001:2013, which focuses on the management of information security.

4B.6b Sales and Distribution Channels

We distribute our services and products through direct sales channels and indirect sales channels.

4B.6b - i

Direct Sales Channels

Sales and Service Centers: Our walk-in centers in stores and malls also serve as sales centers. The face-to-face contact enables customers to get the “touch and feel” of new handsets, tablets, accessories and services demonstrated by our representatives.

Direct Sales Force: Our sales force is comprised of sales and service representatives.

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A team of representatives and customer account managers that support small to medium-sized businesses;

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A team of corporate representatives and customer account managers who support large corporate customers;

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A Small Medium Enterprises (“SME”) sales-force team focuses on individual and small business customers;

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A telemarketing department conducts direct sales by phone (to private and business customers) and initiates contacts with prospective customers.

Door-to-door teams that specialize in the sale of fiber and infrastructure services.

Our sales force undergoes regular training to improve their skills in selling advanced solutions such as cellular data, intranet extension and connectivity, virtual private networks, location based services, M2M services, TV, fiber, internet infrastructure and other value-added services that appeal to corporate customers.

4B.6b - ii

Indirect Sales Channels

We have agreements with many traditional dealers that provide over 38 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. These dealers specialize in sales for post-paid customers, handset sales, TV, fiber, infrastructure and internet.

In addition, we have agreements with prepaid distributors that specialize in sales for pre-paid customers and distribution of pre-paid plans to sub-dealers.

We also 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 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 commissions; however, dealers are not entitled to commissions for any customers that terminate their service within 90 days of activation.

4B.6b - iii

Online Sales Channels

Our cellular and fixed-line services are also available to be purchased online. We also manage an online service for the purchase of handsets and other equipment.

4B.7 POST-PAID CUSTOMER CONTRACTS AND CREDIT POLICY

Our standard customer agreements with most of our private customers do not include commitment periods, since they are generally not permitted under Israeli law. Some of our business customers that have more than 100 cellular subscribers enter into an agreement with a commitment period of up to 36 months, as do some of our fixed-line customers with monthly invoices of over NIS 7,000. Customers are billed monthly for charges per services. Roaming access for direct debit cellular customers is subject to credit scoring by our credit supervisors with the assistance of outside credit agencies and may require additional guarantees or deposits.

Our customers pay for their services by credit card or by direct bank debit. 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 customer 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, after receiving our prior notice of such limitation or suspension, until we receive a cash deposit or guarantee from the customer.

Most of our customers pay for equipment devices with long-term financing plans whereby the customer pays for the equipment through monthly payments (generally between 12 and 36 months), which are charged directly to their credit card or to their monthly bill. Where the customer opts to pay the monthly payments via their monthly bill, the outstanding installment payments are not secured. Customers acquiring more than a certain number of device sales are subject to a credit scoring review performed by Partner’s credit supervisors with the assistance of outside credit agencies. During 2019, changes were made to the credit scoring review process whereby stricter requirements were imposed for customers to be accepted for long-term financing plans. These changes significantly reduced the level of sales of equipment with long-term financing plans.

4B.8 OUR NETWORK

4B.8a Overview

We have built an extensive, resilient and advanced cellular network to provide cellular, fixed-line, ISP and TV services in Israel. We have also developed and are continuing to expand a fiber-optic infrastructure network to improve nationwide communications. Through these networks, we offer our customers extensive coverage and consistently high quality services. During the years ended December 31, 2020 and 2021, we made capital expenditures of NIS 251 million and NIS 338 million ($109 million), respectively, in our network infrastructure, including in our fiber-optic infrastructure. See "Item 5B.4 Total net financial debt-Capital expenditures”.

Our network is a converged fixed and mobile telecommunications network. For mobile services we built a multi generation (2G, 3G, 4G, and 5G) wireless network, which offers full interactive multimedia capabilities. This technology brings wire-free networks significantly closer to the capabilities of fixed-line networks. Improvements in coding and data compression technology provide better voice quality and more reliable data transmission. 5G is the most advanced mobile network technology which is currently available in more than 400 of the macro base stations as well as our LTE network, which has nationwide coverage based on the existing spectrum of 1800 MHz band. For our fixed-line services we have built a geographical redundant network in case of a network malfunction.

Cellular Network Sharing Agreement. In 2013, we entered into a 15-year Network Sharing Agreement with HOT Mobile that was approved by the Antitrust Authority Commissioner in 2014 and by the Ministry of Communications in 2015 (there is a termination provision beginning April 20, 2023 with a prior 2 year termination notice). Pursuant to the agreement, the parties created a 50-50 limited partnership in the form of a limited partnership under the name P.H.I. Networks (2015) Limited Partnership ("PHI"), the purpose of which is to operate and develop the radio access network that is shared by both parties based on both parties’ radio access network infrastructures to create a single shared pooled radio access network (“Shared Network”). The parties have also established a 50-50 company limited by shares under the name Net 4 P.H.I Ltd. that is the general partner of the limited partnership. In 2015, we were allocated a frequency bandwidth of 5MHz in the 1800MHz spectrum as a result of the 4G frequencies tender conducted by the Ministry of Communications in 2015. PHI started to operate in 2015, at which time each of Partner and HOT Mobile transferred to PHI certain employees who were previously engaged in their respective radio operations. Both companies continue to compete and differentiate their services and be responsible for providing cellular telecommunication services to its own customers, including the provision of customer service, value-added services, marketing and sales. Each company continues to retain and operate its own core network. In August 2020, we acquired through a MoC tender 2x5 MHz in 700 band, 2x10 MHz in 2600 band and 50 MHz in 3500 band (as the 5G frequency). HOT Mobile acquired the same bandwidths.

According to the Network Sharing Agreement, HOT Mobile paid Partner a onetime amount of NIS 250 million (“Lump Sum”), and since April 1, 2016, (i) each party bears half of the expenditures relating to the Shared Network, and (ii) responsibility for the operating costs of the Shared Network is apportioned according to a pre-determined mechanism, according to which one half of the operating costs is shared equally by the parties, and one half is divided according to the relative volume of traffic of each party in the Shared Network (“Capex-Opex Mechanism”). See “Item 5A.1c Network Sharing Agreement with HOT Mobile" and notes 9 and 26(d) to the consolidated financial statements with respect to balances and transaction with PHI.

In 2014, the Antitrust Commissioner approved the Network Sharing Agreement, subject to conditions, the most important of which are set forth below:

•	Prohibition on exchange of information that is not required for the activities of PHI under the Restrictive Trade Practices Law, 1988 ("Restrictive Trade Practices Law"). See 4B.12e - xii Anti-Trust Regulation";

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Limitations with respect to serving as an officer or employee in either Partner or HOT Mobile concurrent with serving as an officer or employee of PHI and certain cooling off periods were set in case of transition of officers and employees from PHI to the companies. However, this should not prevent PHI from employing employees or officers, who are currently serving as employees or officers in the companies and does not prevent an office holder in Partner or HOT Mobile from serving as a director in PHI's general partner's board of directors;

•	Rules regarding the administration and documentation of the meetings of PHI management bodies were set;

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Either of the companies shall be allowed, at any time and at its sole discretion, to engage in an agreement with a third party for the provision of cellular telecommunications services that involves use of the core network of that company. All of the rights and obligations deriving from such service agreement shall apply solely to that company and PHI shall not be a party to such service agreement and will not be entitled to payments payable pursuant to it;

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After a period of seven years from the date of the Commissioner’s approval or after a period of six years from the issue date of all the approvals of the Ministry of Communications, whichever is earlier, the Commissioner shall be allowed to notify the companies of the cancellation of his resolution, if he has concluded that the establishment of PHI, its existence or operations are liable to be substantively detrimental to the competition (“Cancellation Notice”). If a Cancellation Notice is issued, a graduated layout of dismantling PHI activity was set in the Commissioner resolution, as follows:

at the end of two years after the issuance of the Cancellation Notice, PHI shall cease all activity apart from the management, maintenance and operation of the passive elements of the network.

at the end of five years after the issuance of the Cancellation Notice, the companies shall dismantle PHI and shall separate their assets fully and entirely.

In April 2015, the Ministry of Communications also approved the Network Sharing Agreement.

4B.8b Infrastructure

As of December 31, 2021, our Shared Network consisted of the following main elements:

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Our radio access network domain consists of 2,054 macro GSM base transceiver stations, 19 micro GSM base transceiver stations and 104 indoor GSM transceiver stations, all linked to 7 base station controllers (HDBSC);

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2,324 macro UMTS base transceiver base stations (eNodesBs), 572 indoor UMTS transceiver stations all linked to 14 radio network controllers;

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2,290 macro LTE base transceiver base stations (eNodesBs) and 345 indoor LTE transceiver stations;

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469 Macro 5G NSA base transceiver base stations (gNodeBs).

Our core network domain consists of 2 DRP switching centers nationwide, in which the cellular, fixed-line, ISP, TV and the fiber networks reside.

Ericsson was initially our sole radio and core network equipment supplier; however, in January 2019, we entered into an agreement with Mavenir Systems Limited for the replacement and modernization of our packet core network (EPC- Evolved Package Core) and the IMS (IP Multimedia Sub System) supporting VOLTE and WiFi calling technologies into a virtualized solution provided by Mavenir. As part of the transition to the modernized network, we are continuing to integrate Mavenir's EPC (virtualized EPV) and Vims (virtualized IMS) equipment with the Ericsson equipment. See “Item 4B.8g Suppliers”.