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
As filed with the Securities and Exchange Commission on March 30, 2017
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
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to ______
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ______
Commission file number 1-14968
PARTNER COMMUNICATIONS COMPANY LTD. (Exact Name of Registrant as Specified in its Charter)
ISRAEL (Jurisdiction of Incorporation or Organization)
8 AMAL STREET AFEQ INDUSTRIAL PARK ROSH-HA'AYIN 48103 ISRAEL (Address of Principal Executive Offices)
Hadar Vismunski-Weinberg [email protected] (Name, Telephone, E-mail and/or facsimile Number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered American Depositary Shares, each representing The NASDAQ Global Select Market one ordinary share, nominal value NIS 0.01 per share 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 156,993,337
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, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ☒ Non-Accelerated Filer ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐
International Financial Reporting Standards as issued by the International Accounting Standards Board x
Other ☐
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant 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 ☒
2 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 30 ITEM 4A. UNRESOLVED STAFF COMMENTS 74 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 74 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 106 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 130 ITEM 8. FINANCIAL INFORMATION 134 ITEM 9. THE OFFER AND LISTING 140 ITEM 10. ADDITIONAL INFORMATION 141 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 153 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 156 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 156 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 156 ITEM 15. CONTROLS AND PROCEDURES 156 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 158 ITEM 16B. CODE OF ETHICS 158 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 158 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 159 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 159 ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACOUNTANT 159 ITEM 16G. CORPORATE GOVERNANCE 159 ITEM 17. FINANCIAL STATEMENTS 159 ITEM 18. FINANCIAL STATEMENTS 159 ITEM 19. EXHIBITS 159
3 INTRODUCTION
As used herein, references to "we," "our," "us," the "Group," "Partner" or the "Company" are references to Partner Communications Company Ltd. and its wholly-owned subsidiaries, Partner Future Communications 2000 Ltd., Partner Land-Line Communications Solutions LP, Partner Business Communications Solutions LP, Partner Communication Products 2016 LP, 012 Smile Telecom Ltd. ("012 Smile") and 012 Smile's wholly-owned subsidiary, 012 Telecom Ltd., 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 November 2013, the parties created a 50-50 limited partnership, P.H.I. Networks (2015) Limited Partnership ("PHI"). See "Item 4B.9 OUR NETWORK ".
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"), which include: (a) Internet services ("ISP") that provide access to the internet as well as home Wi-Fi networks, including Value Added Services ("VAS") such as anti-virus and anti-spam filtering; and fixed-line voice communication services provided through Voice Over Broadband ("VOB"), SIP voice trunks and 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; (b) Transmission services and Primary Rate Interface ("PRI"); (c) International Long Distance services ("ILD"): outgoing and incoming international telephony, hubbing, roaming and signaling and calling card services. The cellular segment and the fixed-line segment also include sales and leasing of telecommunications, audio visual and related devices: mainly handsets, phones, tablets, laptops, modems, data cards, domestic routers, servers, audio-visual devices and related peripherals and equipment. 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, 2016, of NIS 3.845 = US$1.00 as published by the Bank of Israel, unless otherwise specified. See "Item 3A. Key Information – Selected Financial Data – Exchange Rate Data".
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.
4 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
3A. Selected Financial Data
Our consolidated financial statements for the years ended December 31, 2012, 2013, 2014, 2015 and 2016, 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, 2012, 2013, 2014, 2015 and 2016, set forth selected consolidated financial data under IFRS. The selected financial information is derived from our consolidated financial statements, which have been audited by Kesselman & Kesselman, our independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited. The audited consolidated financial statements at December 31, 2015 and 2016 and for the years ended December 31, 2014, 2015 and 2016, appear at the end of this report.
Year ended December 31, 2012 2013 2014 2015 2016 2016 New Israeli Shekels in millions US$ in (except per share data) millions(1)
Consolidated Statement of Income Data
Revenues, net 5,572 4,519 4,400 4,111 3,544 922
Cost of revenues 4,031 3,510 3,419 3,472 2,924 760
Gross profit 1,541 1,009 981 639 620 162
Selling and marketing expenses 551 462 438 417 426 111
General and administrative expenses 236 217 193 223 263 68
Income with respect to Settlement agreement with Orange - - - 61 217 56
Other income, net 111 79 50 47 45 12
Operating profit 865 409 400 107 193 51
Finance income 21 29 3 13 13 3
Finance expenses 255 240 162 156 118 31
Finance costs, net 234 211 159 143 105 28
Profit (loss) before income tax 631 198 241 (36) 88 23
Income tax expenses 153 63 79 4 36 9
Profit (loss) for the year 478 135 162 (40) 52 14
Earnings (loss) per ordinary share and per ADS
Basic: 3.07 0.87 1.04 (0.26) 0.33 0.09
Diluted 3.07 0.86 1.04 (0.26) 0.33 0.09
Weighted average number of shares outstanding (in thousands)
Basic: 155,646 155,687 155,802 156,081 156,268 156,268
Diluted (for calculation above): 155,773 156,199 156,400 156,081 158,096 158,096
5 Year ended December 31, 2012 2013 2014 2015 2016 2016 New Israeli Shekels in millions US$ in (except per share data) millions (1)
Other Financial Data
Capital expenditures (2) 558 413 434 271 202 53
Adjusted EBITDA (3) 1,602 1,114 1,096 876 834 217
Dividend per share (4) 1.03 — — — — —
Statement of Cash Flow Data
Net cash provided by operating activities 1,705 1,539 951 922 945 245
Net cash used in investing activities (471) (498) (431) (356) (639) (166)
Net cash used in financing activities (1,218) (1,108) (338) (303) (516) (134)
Balance Sheet Data (at year end)
Current assets 2,120 1,703 1,817 2,185 2,339 608
Non current assets 4,297 3,784 3,679 3,341 2,858 744
Property and equipment 1,990 1,791 1,661 1,414 1,207 314
License and other intangible assets 1,217 1,167 1,079 956 793 206
Goodwill 407 407 407 407 407 106
Deferred income tax asset 36 12 14 49 41 10
Total assets 6,417 5,487 5,496 5,526 5,197 1,352
Current liabilities (5) 1,525 1,374 1,385 1,765 1,607 418
Long-term liabilities (5) 4,151 3,239 3,072 2,741 2,479 645
Total liabilities 5,676 4,613 4,457 4,506 4,086 1,063
Shareholders' equity 741 874 1,039 1,020 1,111 289
Total liabilities and shareholders' equity 6,417 5,487 5,496 5,526 5,197 1,352
(1) The NIS figures at December 31, 2016, and for the period then ended have been translated throughout this annual report into dollars using the representative exchange rate of the dollar at December 31, 2016 (USD 1 = NIS 3.845). 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. See also "Item 3A. Key Information – Selected Financial Data – Exchange Rate Data".
6 (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 as reviewed by the CODM 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; it is fully comparable to EBITDA information which has been previously provided for prior periods.
(4) The dividend per share was calculated in respect of the period for which it was announced. For the years ended December 31, 2013, 2014, 2015 and 2016, no dividend was declared by the Company. During 2012, the Company declared a dividend in the amount of approximately NIS 160 million, or NIS 1.03 per share.
(5) 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, 2012, 2013, 2014, 2015 and 2016, set forth a reconciliation between Profit (Loss) and Adjusted EBITDA.
Year ended December 31, 2012 2013 2014 2015 2016 2016 US$ in New Israeli Shekels in millions millions (1)
Reconciliation Between Profit (Loss) and Adjusted EBITDA
Profit (Loss) 478 135 162 (40) 52 14 Depreciation and amortization expenses 726 700 689 753 595 154 Finance costs, net 234 211 159 143 105 28 Income tax expenses 153 63 79 4 36 9 Other (*) 11 5 7 16 46 12
Adjusted EBITDA (2) 1,602 1,114 1,096 876 834 217
(1) The translations of NIS amounts into US dollars appearing throughout this annual report have been made at the exchange rate on December 31, 2016, of NIS 3.845 = US$1.00 as published by the Bank of Israel, unless otherwise specified. See "Item 3A. Key Information – Selected Financial Data – Exchange Rate Data".
(2) Adjusted EBITDA as reviewed by the CODM 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; it is fully comparable to EBITDA information which has been previously provided for prior periods.
(*) Mainly amortization of employee share based compensation.
7 At December 31, 2014 2015 2016
Cellular Industry Data
Estimated population of Israel (in millions) (1) 8.3 8.5 8.6 Estimated Israeli cellular telephone subscribers (in millions) (2) 10.3 10.5 10.3
Estimated Israeli cellular telephone penetration (3) 124% 124% 120%
Year ended December 31, 2012 2013 2014 2015 2016
Partner Data Cellular subscribers (000's) (at period end) (4) 2,976 2,956 2,837 2,718 2,686 Pre-paid cellular subscribers (000's) (at period end) (4) 874 823 705 562 445
Post-paid cellular subscribers (000's) (at period end) (4) 2,102 2,133 2,132 2,156 2,241
Share of total Israeli cellular subscribers (at period end) (5) 29% 29% 28% 27% 26% Average monthly usage per cellular subscriber ("MOU") (mins.) (6) 450 522 Average monthly revenue per cellular subscriber including roaming ("ARPU") (NIS) (7) 97 83 75 69 65
Churn rate for cellular subscribers (8) 38% 39% 47% 46% 40% Number of fixed-lines (000's) (9,10) (at period end) 288 299 ISP subscribers (000's)(10) (at period end) 587 583
Estimated cellular coverage of Israeli population (at period end) (11) 99% 99% 99% 99% 99%
Number of employees (full time equivalent) (at period end) (12) 5,396 4,045 3,575 2,882 2,686
(1) The population estimates are as published by the Central Bureau of Statistics in Israel as of December 31, 2016.
(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.
8 (4) In accordance with general practice in the cellular telephone industry, we use the term "subscriber", unless the context otherwise requires, to indicate a telephone or a data or video device, rather than either a bill-paying network customer, who may have a number of telephones connected to the network, or a cellular telephone user who may share a single telephone with a number of other users. "Subscriber" includes our pre-paid customers. 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).
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 usage per cellular subscriber by (i) dividing, for each month in such period, the total number of minutes of usage, excluding in roaming usage, during such month by the average of the number of our subscribers, and (ii) dividing the sum of such results by the number of months in the relevant period. MOU data includes total incoming minutes to subscribers of those MVNO operators which Partner hosts on its network. Since 2014, in view of the continued increase in the proportion of cellular subscribers with bundled packages that include large or unlimited quantities of minutes (with fair use limits), the Company determined that reporting MOU was no longer beneficial to understanding the results of operation, and therefore the Company ceased reporting MOU figures.
(7) 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.
(8) We define the "churn rate" as the total number of cellular subscribers who disconnect from our network, either involuntarily or voluntarily, in a given period expressed as a percentage of the average of the number of our subscribers at the beginning and end of such period. Our churn rate includes subscribers who have not generated revenue for us for a period of the last six consecutive months ending at a reporting date. This includes 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.
(9) Fixed-lines include Primary Rate Interface ("PRI") lines, whereby each PRI is considered to include 30 lines according to the number of channels, Session Initiation Protocol ("SIP") trunks and Voice over Broadband ("VoB") lines.
(10) As of the end of 2013, due to market developments, and in particular the increasing prevalence of bundled offerings in the market, the Company determined that the numbers of fixed-line and ISP subscribers no longer provided meaningful insight in the results of operation, and therefore ceased reporting these subscriber figures.
(11) 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.
(12) A full-time employee is contracted to work a standard 186 hours per month. Part-time employees are converted to full-time equivalents by dividing their contracted hours per month by the full-time standard. The result is added to the number of full-time employees to determine the number of employees on a full-time equivalent basis.
9 Exchange Rate Data
The following table sets forth, for the years indicated, exchange rates between the shekel and the US dollar, expressed as shekels per US dollar and based upon the daily representative rate of exchange on the last day of each year as published by the Bank of Israel.
Year ended December 31, 2012 2013 2014 2015 2016
Average (1) 3.858 3.609 3.577 3.884 3.841
High 4.084 3.791 3.994 4.053 3.983
Low 3.700 3.471 3.402 3.761 3.746
End of period 3.733 3.471 3.889 3.902 3.845
(1) Calculated based on the average of the daily exchange rates during the relevant period.
March 2017 September October November December January February (through 2016 2016 2016 2016 2017 2017 March 23)
High 3.786 3.856 3.876 3.867 3.860 3.768 3.693
Low 3.746 3.778 3.799 3.787 3.769 3.659 3.614
On December 31, 2016, the exchange rate was NIS 3.845 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.
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.
10 3D.1a If the Ministry of Communications continues to fail to enforce its fixed-line wholesale market reforms on Bezeq and HOT Telecom, this may negatively affect our business and results of operations.
The Ministry of Communications (the "MoC") has failed to enforce its fixed-line wholesale market reforms ("Wholesale Market Reform") on Bezeq-The Israel Telecommunication Corp., Ltd.("Bezeq") and HOT Telecom LP ("HOT Telecom"), the two largest wireline infrastructure operators in Israel. See "Item 3D.2f Competition resulting from the full service offers by telecommunications groups and additional entrants into the mobile 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 tariffs, an increase in subscriber acquisition and retention costs, and may continue to reduce our subscriber base and increase our churn rate, each of which could adversely affect our business and results of operations. and "Item 4B.13e - vii The Ministry of Communications policy regarding the fixed-line telecommunications sector".
MoC policy and decisions regarding the Wholesale Market Reform (Bit Stream Access (BSA), fixed-line telephony and passive infrastructures, see "Item 4B.13e - vii The Ministry of Communications policy regarding the fixed-line telecommunications sector") have not been effectively enforced by the MoC since May 2015. If the MoC continues to fail in enforcing the most important components of its wholesale market reform, or if it rolls back (partially or in-whole), or fails to set competition-inducing tariffs for HOT Telecom's network, or adopts other regulation unfavorable to companies, such as Partner, which must rely on the two wholesale suppliers, such actions may negatively affect our business and results of operations.
For further information regarding this risk, see "Item "4B.13e - vii The Ministry of Communications policy regarding the fixed-line telecommunications sector".
3D.1b If the structural separation provisions (which apply to Bezeq and HOT) are not enforced or are removed before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations.
The current structural separation limitations require Bezeq to equally market all ISPs (internet service providers) when selling service bundles which include its infrastructure services and ISP services. Since the launch of the Wholesale Market Reform, Bezeq has launched a bundle which includes its services and the services of certain ISPs and does not market all ISPs equally. If the MoC continues to fail to effectively enforce this requirement, it may continue to erode our market share in the internet segment.
The MoC has also announced that it intends to cancel the regulations requiring Bezeq to maintain a "structural separation" between its fixed-line telephony, ILD, mobile telecommunications, internet infrastructure and services and TV operations. The MoC has published official announcements which indicate its satisfaction with the implementation of the Wholesale Market Reform. The MOC has also recently provided Bezeq with a letter in which it announced it is promoting the removal of corporate separation provisions which currently apply to the Bezeq group. We have strongly opposed the factual descriptions and the conclusions in these announcements. If the MoC removes the structural separation provisions based on its above- mentioned announcements 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 and HOT 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.
For further information regarding this risk, see "Item "4B.13e - vii The Ministry of Communications policy regarding the fixed-line telecommunications sector".
11 3D.1c If the Ministry of Communications continues to fail to enforce Golan Telecom's license, excuses breaches by Golan Telecom, or if their cellular network sharing agreement includes more favorable terms than those of our network sharing agreement with HOT Mobile, this may place us at a competitive disadvantage and adversely affect our business and results of operations.
The MoC has, so far, failed to enforce the obligation of Golan Telecom Ltd. ("Golan Telecom") to build out an independent network. Partner has petitioned the Supreme Court for such enforcement, and although the MoC finally decided to liquidate NIS 30 Million of Golan Telecom's guarantees for this breach of its license, it has not actually executed this decision. See "Item 3D.2f Competition resulting from the full service offers by telecommunications groups and additional entrants into the mobile 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 tariffs, an increase in subscriber acquisition and retention costs, and may continue to reduce our subscriber base and increase our churn rate, each of which could adversely affect our business and results of operations."
If the MoC continues to fail in enforcing Golan Telecom's build-out requirement, if it excuses such breach, or their cellular network sharing agreement includes better terms than those of our network sharing agreement with HOT Mobile (See "Item 3D.1d Network sharing and similar agreements entered into by our competitors"), this may place us at a competitive disadvantage, and adversely affect our business and results of operations.
3D.1d 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, and 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. Network sharing and similar agreements entered into by our competitors may place us at a competitive disadvantage.
In November 2013, we entered into a 15-year 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 May 2014, the Anti-Trust Commissioner resolved to approve the Network Sharing Agreement, subject to a number of conditions ("Anti-Trust Commissioner Approval") and in April 2015, the Ministry of Communications resolved to approve the Network Sharing Agreement, subject to a number of conditions as well ("MoU Approval"). The said 15-year period began in April 2015.
However, the Network Sharing Agreement may terminate or expire prior to the lapse of the said 15-year period due to regulatory intervention in one of the following circumstances:
1) Pursuant to the Anti-Trust Commissioner Approval - as of April 22, 2021, the Anti-Trust Commissioner will be entitled to notify Partner and Hot Mobile that the network sharing is terminated, if at that time the Anti-Trust 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 Anti-Trust Commissioner's notice to that effect;
2) In the event we are found to be in breach of any of the conditions set out in the Anti-Trust Commissioner Approval or in the MoU's Approval, the Anti-Trust Commissioner Approval or the MoU Approval might be terminated, which could create significant uncertainty as to the management of the shared radio access network;
3) 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.
12 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.2e If the network sharing agreement entered into with HOT Mobile is unilaterally terminated by HOT Mobile earlier than we expected, 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, may be substantial and could also materially harm our business and the results of operations at such time." and "Item 4B.9a Overview - Cellular Network Sharing Agreement".
Network sharing and similar agreements entered into by our competitors
In January 2017, Cellcom Israel Ltd. ("Cellcom") announced that it had reached an agreement with Electra Consumer Products Ltd. ("Electra") for 3G and 4G network sharing and 2G hosting services. According to Cellcom's report, Electra simultaneously entered into an agreement with Golan Telecom and its shareholders to purchase Golan Telecom's share capital. These agreements were approved by the Israeli Anti-Trust Commissioner, subject to certain conditions, among others, the requirement from Golan Telecom to offer to the public in each of the next 3 quarters, at least 1 promotion for no less than a 3 week period, in which cellular packages will be offered at a price that is lower than NIS 30 per subscriber for a period of 24 months and with conditions that are not inferior to the NIS 25 packages currently offered by Golan Telecom. On March 17, 2017, Cellcom reported that the agreements were approved by the Ministry of Communications. Our knowledge of the content of these agreements is based on partial publications including reports filed by Cellcom, Electra and the IDB Development Company Ltd. However, if these agreements or any future network sharing agreement receive regulatory approval under conditions that are more lenient than those imposed on us, this would place us at a competitive disadvantage compared to our competitors. As a result, our business and results of operations may be negatively impacted.
3D.1e 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, coverage term 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.13e Regulatory Developments".
3D.1f 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 (through the MoC and/or the Council for Cable and Satellite Broadcasting) may impose regulations on nascent TV content services which are provided over the Internet ("OTT") and which are currently unregulated. If such regulations are set (including a requirement to invest in original productions), this will increase our costs, raise the cost of entry into 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.
13 3D.1g 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 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.1h Potential future regulation of roaming services may decrease our roaming revenues and negatively affect our income.
In August 2014, the Ministry of Communications published a hearing aimed at increasing competition in roaming services abroad and which suggested adopting various measures intended to improve transparency and limit subscriber payments for roaming services. Adoption of such measures might decrease our roaming revenues and negatively affect our income. See "Item 14B.13e - vi Hearings and Examinations."
3D.1i Potential future regulation of the ILD market may decrease our revenues from international calls and adversely affect our income.
In October 2013, the Ministry of Communications published a hearing regarding proposed new regulations for the ILD market which would allow all general licensees to provide international call services (under certain conditions). The MoC also proposed that general licensees (such as cellular operators) would no longer be allowed to charge interconnect fees for outgoing international calls and that some international calls would be preceded with a voice message stating the tariff of such call and allowing the subscriber to disconnect without being charged. Such regulation, if adopted, may decrease our revenues from international calls and adversely affect our income. See Item ITEM 14B.13e - vi Hearings and Examinations.
3D.1j The Ministry of Communications has indicated its intent to reduce mobile interconnection charges, which would negatively affect our income.
A MoC economic opinion published in February 2013 included a recommendation for a further reduction of cellular call and SMS interconnect tariffs towards the end of 2016. Such a reduction may negatively affect our business and results of operations. In February 2017 the MoC notified the cellular companies that due to other priorities, it does not intend to pursue this task at this time.
3D.1k We have had difficulties obtaining some of the building and environmental permits required for the erection and operation of our network sites, and some building 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.
Our ability to maintain and improve the extent, quality and capacity of our network coverage depends in part on our ability to obtain appropriate sites and approvals to install our network infrastructure, including network sites. The erection and operation of most of these network sites require building permits from local or regional planning and building authorities, as well as a number of additional permits from other governmental and regulatory authorities. In addition, as part of our network build-out and expansion, we are erecting additional network sites and making modifications to our existing network sites for which we may be required to obtain new consents and approvals.
14 For the reasons described in further detail below, we have had difficulties obtaining some of the building permits required for the erection and operation of our network sites. As of December 31, 2016, 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 deviates 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 products and services effectively. In addition, as we seek to improve the range and quality of our services, we need to further expand our network, and difficulties in obtaining required permits may delay, increase the costs or prevent us from achieving these goals in full. Our inability to resolve these issues could prevent us from maintaining the quality requirements contained in our license.
Uncertainties under National Building Plan 36. Since June 2002, following the approval of the National Building Plan 36 (the "Plan"), which regulates network site construction and operation, building permits for our network sites (where required) have been issued in reliance on the Plan. Several local planning and building authorities have questioned the ability of Israeli cellular operators to receive building permits, in reliance on the Plan, for network sites operating in frequencies not specifically detailed in the frequency charts attached to the Plan. In a number of cases, these authorities have refused to grant building permits for network sites, claiming that frequencies are not included in the Plan. There has been no judicial ruling at this stage. If a future court ruling determines that building permits cannot be issued for network sites operating in frequencies not specifically detailed in the frequency charts attached to the Plan, this could have a material adverse effect both on our ability to erect new sites as well as on our existing sites.
The Plan is in the process of being changed. See "Item 4B.13h Network Site Permits".
Uncertainties regarding the validity of exemptions for wireless access devices. We have set up several hundred small communications devices, called wireless access devices, pursuant to a provision in the Telecommunications Law which exempts such devices from the need to obtain a building permit. A claim was raised that the exemption does not apply to cellular communications devices and the matter reached first instance courts a number of times, resulting in conflicting decisions. This claim is included in an application to certify a class action filed against the three principal Israeli cellular operators. In May 2008, a district court ruling adopted the position that the exemption does not apply to wireless access devices. We, as well as our competitors, filed a request to appeal this ruling to the Supreme Court. In May 2008, the Attorney General filed an opinion regarding this matter stating that the exemption does apply to wireless radio access devices under certain conditions. Two petitions were filed with the High Court of Justice in opposition to the Attorney General's opinion. The matter is still pending before the Supreme Court and the High Court of Justice. See "Item 4B.13h Network Site Permits". Recently, the Minister of Finance signed new draft regulations that are intended to regulate both existing as well as new wireless access devices. The regulations have been passed to various regulators for deliberation. At this stage we cannot anticipate the final version of the regulations that will be enacted. If the regulations will impose limitations on changes to our existing network it may adversely affect our existing network.
If a definitive court judgment holds that the exemption does not apply to cellular devices at all, we may be required to remove the existing devices. As a result, our network capacity and coverage would be negatively impacted, which could have an adverse effect on our revenue and results of operations.
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.
15 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.1l In connection with some building permits, we may also be required to indemnify planning committees in respect of claims against them relating to the depreciation of property values that result from the granting of permits for network sites.
Under the Planning and Building Law, local planning committees may be held liable for the depreciation of the value of nearby properties as a result of approving a building plan. Under the Non-Ionizing Radiation Law, 2006 ("the Non-Ionizing Radiation Law") the National Council for Planning and Building requires indemnification undertakings from cellular companies as a precondition for obtaining a building permit for new or existing network sites. The National Council has decided that until the Plan is amended to reflect a different indemnification amount, cellular companies will be required to undertake to indemnify the committees in full against all losses resulting from claims against a committee for reductions in property values as a result of granting a permit to the network site. On June 1, 2010, the National Council for Planning and Building approved the National Building Plan No. 36/A/1 version that incorporates all of the amendments to the Plan (the "Amended Plan"). The Amended Plan sets forth the indemnification amounts as a percentage of the value of the depreciated property claims in accordance with the manner in which the licenses were granted. See "Item 4B.13h Network Site Permits". The Amended Plan is subject to governmental approval, in accordance with the Planning and Building Law. It is unknown when the government intends to approve the Amended Plan.
As of December 31, 2016, we have provided local authorities with 511 indemnification undertakings. These indemnifications expose us to risks which are difficult to quantify or mitigate and which may have a material adverse effect on our financial conditions and results of operations, if we are required to make substantial payments in connection therewith. In addition, the requirement to provide indemnification in connection with new building permits may impede our ability to obtain building permits for existing network sites or to expand our network with the erection of new network sites. The indemnification requirement may also cause us to change the location of our network sites to less suitable locations or to dismantle existing network sites, which may have an adverse effect on the quality and capacity of our network coverage.
In 2007, the Israeli Ministry of Interior Affairs extended the limitation period within which depreciation claims may be brought under the Planning and Building Law from three years from approval of the building plan to the later of one year from receiving a building permit for a network site under the Plan and six months from the construction of a network site. The Ministry retains the general authority to extend such period further. This extension of the limitation period increased our potential exposure to depreciation claims.
16 3D.1m 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 or fail to respond to our demands for the allocation of additional spectrum. 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). Such actions may interfere with our ability to effectively manage our licensed spectrum, reduce our ability to adequately provide services to our subscribers and place us at a competitive disadvantage. These possible eventualities may adversely affect our business and results of operations.
3D.1n 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. 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.13f Our Mobile Telephone License ".
3D.1o Our mobile telephone license imposes certain obligations on our shareholders and restrictions on who can own our shares. Ensuring compliance with these obligations and restrictions may be outside our control, and may limit our ability to raise new equity capital. If the obligations or restrictions are not respected by our shareholders, we could lose our license.
As with other companies engaged in the telecommunications business in Israel, our license requires that a minimum economic and voting interest in, and other defined means of control of our company be held by Israeli citizens and residents or entities under their control. If this requirement is not complied with, we could be found to be in breach of our license, even though ensuring compliance with this restriction may be beyond our control. See "Item 4B.13f 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, including 5% which must be held by Israeli founding shareholders (Israeli citizens and residents), who were approved as such by the Minister of Communications. If the Company decides to raise capital, it may face significant difficulty to do so since the current holdings of Israeli entities (as defined in the license) holdings are approximately 5% and any equity offering to the public or to the Company's employees and office holders will require an equivalent equity offering of shares to Israeli entities, in a manner in which the total Israeli entities founding shareholders' holdings will not be less than 5% of the total issued share capital. Since the transfer of these Israeli entity shares requires pre-approval of the MoC to determine that the receiving shareholder is eligible to be an Israeli entity, they are limited in their capability of transfer to another shareholder. The Company may need to grant a significant discount in an equity offering of these Israeli entity shares. If the Company were required to raise capital and this issue prevented it from doing so, our business could be adversely impacted (e.g., reduction in sales with long term credit arrangements and/or reduction in capital investments). The license also requires that these Israeli founding shareholders appoint at least 10% of our Board of Directors. In 2006, our Israeli founding shareholders sold substantially all of their shares in the Company to Israeli institutional investors, who were approved as substitutes. Since then, there were additional share sales to Israeli institutional investors that were approved as substitutes by the Minister of Communications.
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, approval of, or notice to, the Minister of Communications may be required for holding of 5% or more of Partner's means of control. 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. In addition, under certain licenses of the Company's subsidiaries, approval of, or notice to, the Minister of Communications may be required for holding of less than 5% of means of control. Because of this lack of consistency, Partner may be in breach of its licenses in this regard.
17 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 results and profitability have decreased significantly in the past five years, with a loss for 2015. We managed to earn a profit of NIS 52 million (US$ 14 million) for 2016, but our operating results may again decline in 2017 and beyond, which may adversely affect our financial condition.
Our revenues in 2016 were NIS 3,544 million (US$ 922 million), a decrease of 14% from NIS 4,111 million in 2015 and a decrease of 19% from NIS 4,400 million in 2014. The Company recorded a profit in 2016 of NIS 52 million (US$ 14 million), compared with a loss in 2015 of NIS 40 million, and a profit of NIS 162 million in 2014.The principal factor leading to this continued decline in operating results over the past few years has been the intense competition resulting largely from regulatory developments intended to enhance competition in the Israeli telecommunications market. These developments have caused (i) significant price erosion in cellular services due to heightened competition from new entrants (since 2012) in the Israeli cellular market, (ii) a decrease in our cellular subscriber base and market share, and (iii) in 2016 a significant decrease in gross profits from equipment sales. The decrease in service revenues due to the continued price erosion and the decrease in gross profits from equipment sales may both continue in 2017.
Because the regulatory environment continues to evolve 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 2017 and beyond, which may adversely affect our financial condition by, among other things, increasing the risk of a substantial further impairment in the value of our telecommunications assets. See also "Item 5D.2 Outlook".
3D.2b 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, 2016, total borrowings and notes payables amounted to NIS 2,694 million (US$ 701 million), compared to NIS 3,101 million as of December 31, 2015. See also "Item 5B.3 TOTAL NET FINANCIAL DEBT". The terms of the Company's borrowings require the Company to comply with financial covenants 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. Although the Company has entered into agreements for deferred borrowings in a total amount of NIS 200 million, these agreements allow the lenders to not provide the borrowings should any of the events of default defined for our existing borrowings occur prior to the date for providing the deferred borrowings. Such events include a material adverse change in the Company's business. 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 drivers of total Company profits may be limited. (See also "ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS" and specifically "Item 5D.2 Outlook");
Our substantial indebtedness could also adversely affect our financial condition and profitability by, among other things:
• 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;
18 • increasing our vulnerability to adverse economic, industry or business conditions or increases in the consumer price index ("CPI"), particularly because a portion of our borrowings is linked to the CPI; • limiting our flexibility in planning for, or reacting to, changes in our industry and business as well as in the economy generally; • increasing the likelihood of a downgrade in the rating of our Notes by the rating company; • increasing the risk of a substantial impairment in the value of our telecommunications assets; and • 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.2c Entry into the television services market entails costs, without expectations of profitability in the short term.
Our entry into the television services market necessarily entails costs, including capital expenditures related to the establishment of the infrastructure of our technological content management system, which supports our TV service, and costs of TV technicians, the content management team, service and sales, distribution rights and the purchase of other equipment (e.g. Set top boxes).
As is typical when entering a new market, we do not expect to achieve profitability in the short term.
In addition, our entry into a market which is controlled by two dominant competitors, as well as the competition we may face from additional existing and potential competitors, may cause us unexpected increased costs in content, sales and marketing, as part of our goal to penetrate the TV market.
Such an increase in our costs would have a further negative impact on our EBITDA and results of operations.
3D.2d Our revenues from the pre-paid subscriber base have decreased over the last few years and may continue to decrease as a result of the increased competition in the market.
Over the last few years, our revenues from cellular pre-paid subscriber base have decreased. The principal factors leading to this continued decline over the past few years have been the decline in pricing of unlimited post-paid plans and therefore the relative attractiveness of those plans compared to the pre-paid plans as well as increased competition due to the entrance of new operators into the pre-paid market. If this trend continues, revenues from pre-paid subscribers will continue to decline.
3D.2e If the network sharing agreement entered into with HOT Mobile is unilaterally terminated by HOT Mobile earlier than we expected, 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, may 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 (see "Item 3D.1d 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, and 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. Network sharing and similar agreements entered into by our competitors may place us at a competitive disadvantage.") as of April 2023, either party is entitled to terminate the Network Sharing Agreement for convenience by notifying the other party to that effect two years in advance.
19 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.
3D.2f Competition resulting from the full service offers by telecommunications groups and additional entrants into the mobile 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 tariffs, an increase in subscriber acquisition and retention costs, and may continue to reduce our subscriber base and increase our churn rate, each of which could adversely affect our business and results of operations.
Competition by Golan Telecom and HOT Mobile. HOT Mobile and Golan Telecom, which entered the market in May 2012, were awarded various benefits and leniencies, such as low minimum license fees and a reduction mechanism of the license fee (to the minimum fee set) offered to the winner based on the market share gained in the private sector over five years after being awarded the license. In addition, the MoC has, so far, failed to enforce Golan Telecom's license obligation regarding deployment of its infrastructure.
The acquisition of Golan Telecom by Electra, which was approved by the Anti-Trust Commissioner under certain conditions (see "Item 3D.1d- Network sharing and similar agreements entered into by our competitors) and by the MoC, might increase competition in the cellular market. Electra's retail business allows it access to a wide customer base and distribution network and may enable it to offer attractive package prices to their customers. Furthermore, the terms under which the acquisition of Golan by Electra may be approved by the relevant regulators, may also affect our ability to compete. See "Item 3D.1d- Network sharing and similar agreements entered into by our competitors.
Entrance of the sixth facility-based operator. Following the 4G tender results, Xphone 018 Ltd. ("Xphone") gained one band of 5 MHz in the 1800 range, allowing it to share its frequencies with other operators and share their network (as part of a network sharing agreement). Cellcom, Golan and Xphone have reached a network sharing agreement which has been approved by the Anti-Trust Commissioner and the Ministry of Communications. This agreement will enable Xphone to enter the market. If Xphone enters the market (as the sixth facility based operator), this may further increase competition levels in the cellular market and negatively affect our results of operation.
Additional leniencies by the MoC as part of the 4G tender. The Ministry of Communications has granted various leniencies as part of the 4G tender to HOT Mobile, Golan Telecom and Xphone (which has participated in the 4G tender as a new operator). These leniencies include:
• a discount at a rate of up to 50% of the amount that they will have to pay for the frequencies (each addition of 1% market share will grant a discount at a rate of 10%, up to a maximum discount at a rate of 50%, during a period of 5 years);
• the frequencies would be granted to them for longer license terms than those of the other cellular licensees-each operator received the right to use the frequencies for the period equal to the initial term of their license and a new operator such as Xphone, for a period of 20 years from the time of the grant of such license; and
• a waiver of HOT Mobile and Golan Telecom's obligation to build an independent network subject to their commitment to invest in a shared network with another operator the same amount that they have committed to invest in their UMTS network.
These leniencies place us at a substantial competitive disadvantage, which may negatively affect our results of operations.
Network sharing and national roaming agreements entered into by our competitors. If the MoC and the Israeli antitrust authority approve any future network sharing agreements or national roaming agreements under conditions that are more lenient than those imposed on our network sharing and national roaming deal with HOT Mobile, this would place us at a disadvantage compared to our competitors. As a result, our business and results of operations may be negatively impacted. See "Item 3D.1d 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, and 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. Network sharing and similar agreements entered into by our competitors may place us at a competitive disadvantage."
20 Entrance of additional MVNOs. The entrance of additional Mobile Virtual Network Operators ("MVNOs") has further increased competition in the market, since some MVNOs are retailers with a wide customer base and distribution network that allows them to offer attractive package prices to their customers. See "Item 4B.10a Competitors in the Cellular Services market".
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.1b "If the structural separation provisions (which apply to Bezeq and HOT) are not enforced or are removed before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations."
Bezeq Group – Bezeq, Israel's largest telecommunications provider and the primary fixed-line operator, provides fixed-line telephony services, cellular telecommunications services, primary rate interface ("PRI"), broadband internet access infrastructure services, ISP services, transmission and data communications services, ILD services and multi-channel television services.
HOT Group – The HOT Group provides cellular telecommunications services, multi-channel television services, fixed-line telephony services, PRI, broadband internet access, infrastructure services, transmission and data communications services, ISP services and ILD services.
Because the Bezeq Group and the HOT Group operate their own 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 an independent broadband internet access infrastructure are unable to provide some of these services, substantially limiting their ability to compete.
Entry into the TV services market. We have announced that we plan to enter the TV services market during the first half of 2017. Offering TV services may improve our ability to compete with bundled offerings by our competitors. However, entering into the TV services market will entail costs and require access to premium content. If we fail to gain access to premium content or if we fail to secure the required resources for successful entry, this may negatively affect our results of operations.
Furthermore, entry into new markets (e.g. television services, fiber optic infrastructure) may further intensify price competition in the cellular market that may have an adverse effect on our results of operations.
Israel Broadband Company (IBC). In August 2013, the Minister of Communications granted Israel Broadband Company (2013) Ltd. ("IBC"), a general license for the provision of fixed- line telecom services (infrastructure) and for the establishment of a nationwide optic fiber network using the Israeli Electric Company's infrastructure. IBC has launched a web portal in which it offers ISP services to end-users (through agreements with selected ISPs). The variety of suppliers, immediate choice, and ability to quickly switch suppliers may commoditize the ISP segment and negatively impact our revenues and profits. IBC was also granted a special license for the provision of domestic fixed-line data communication. According to local media reports, IBC is permitted under its special license to provide its services to large business customers. Entry of IBC into the large business segment of the ISP market may increase competition in this segment and erode our market share and may affect our results of operation. IBC has recently retained Rothschild Bank in its attempt to find a strategic investor. Partner is examining the feasibility of such investment, as are other entities.
Sale of handsets and other equipment. Competition in the market for handsets and other equipment including tablets, laptops, audio-visual devices and other related equipment sold by the Company is high and may increase, which may affect our results of operation.
Competition in Roaming Services. Some of our competitors may be able to obtain lower roaming rates than us either since they have larger call volumes or through their affiliations with other international cellular operators. Some competing service providers use alternative technologies for roaming that bypass the existing method of providing roaming services. Further competition in roaming services (both inbound and outbound) has arisen and may arise in the future from other telecommunication operators and new technologies that allow subscribers to use global SIM cards and pure internet-based services such as Skype, Viber and WhatsApp, as well as other operator products which use VoIP applications. In addition, some cellular operators began marketing plans that, in addition to calls, SMS and internet, include roaming services to set lists of countries.
21 Reliance on other service providers for roaming. We rely on agreements to provide roaming capability to our subscribers in many areas outside Israel. However, we cannot control the quality of the service that other 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 subscribers also may not be able to use some of the advanced features that they enjoy when making calls on our network. As a result, we may lose some of our customers' roaming traffic to other roaming solutions, which would negatively impact our results of operations from this important source of earnings.
3D.2g Significant expansion in the capacity for international connectivity between Israel and Western Europe and increased competition in the ISP market resulted in sharp price decreases in these markets in 2011 and, as a result, caused us, and may in the future cause us, to recognize substantial impairment in the value of our fixed-line telecommunications assets.
Beginning in December 2011, total capacity available in international connectivity between Israel and Western Europe increased significantly as a result of the entry into operation of new underwater cables, and international connectivity services experienced a sharp decline in prices. In addition, we face increased competition in the retail ISP market, mainly since the launch of HOT-NET in the beginning of 2012. We therefore performed, with the assistance of an independent appraisal an impairment test on assets that belong to the VOB/ISP Cash Generating Unit ("CGU") of our fixed-line segment. As a result of the testing, impairment charges in a total amount of NIS 235 million were recognized for the fixed-line business at December 31, 2011. In addition, the Company's management performed, as required, its annual impairment review of goodwill, which resulted in an impairment charge to goodwill in 2011 in an amount of NIS 87 million with respect to the VOB/ISP and ILD group of CGUs of the fixed line segment.
At December 31, 2015, we recorded further asset impairment of NIS 98 million for the fixed-line business in the ISP/VOB CGU. See "Item 5A.1f Acquisition of 012 Smile".
Continued increases in the level of competition for international connectivity and ISP services may bring further downward pressure on prices, and as a result, we may be required to perform further impairment tests of our fixed-line telecommunications assets in the future. Such impairment tests may lead to recording additional significant impairment charges, which could have a material negative impact on our operating and net profit.
In addition, continued increases in the level of competition for cellular, fixed-line and data transmission 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 and net profit.
3D.2h The unionization of our employees has negatively affected and may continue to negatively affect our financial results.
In September 2014, we recognized the Histadrut, currently the largest Israeli labor union, as the union representing the Company's employees. We signed a collective employment agreement with the employees' representatives and the Histadrut on March 13, 2016. The agreement includes an organizational chapter that is valid for a period of three years (2016-2018) and an economic chapter that was valid until December 30, 2016, and on December 12, 2016, we signed a new economic chapter that is valid for the years 2017 and 2018. The organizational chapter includes, among others, provisions regarding manning and changing of positions, termination of employment and tenure. The new economic chapter includes, among others, provisions regarding terms of employment, benefits and welfare. See "Item 6D Employees".
22 As a result, management attention that would otherwise be available for our ongoing business must be directed towards the implementation of the collective employment agreement and other matters involving the unionization. The unionization of our employees 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. It has resulted in increased costs and negatively affected our financial results, and may continue to do so in the future.
3D.2i 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.
Following the expiration of our previous agreement in 2016 and pursuant to a non-exclusive agreement we entered into in June 2016 with Apple Distribution International for the purchase and resale of iPhone handsets in Israel, we agreed to purchase 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.2j We depend on a limited number of suppliers. Our results of operations could be adversely affected if our suppliers fail to provide us with adequate supplies of network equipment and handsets and other devices or maintenance support on a timely basis.
Network suppliers. We purchased our network equipment, such as switching equipment, base station controllers and base transceiver stations and network software, from Ericsson. In October 2010, we entered into an agreement with Ericsson for the upgrade and modernization of our networks and the deployment of our fourth generation network in Israel. The initial term of the agreement ended on December 31, 2014. Following the expiration of the initial term, we extended the initial period for the provision of support and maintenance service for additional periods until December 31, 2016. Recently we have ordered maintenance services for the years 2017 and 2018. See "Item 4B.9f Suppliers". We are therefore, as a practical matter, materially dependent on Ericsson as our sole vendor for our UMTS and LTE networks.
Handset and other equipment suppliers. We purchase the majority of our handsets and other equipment from a limited number of suppliers.
We cannot be certain that we will be able to obtain 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 equipment or handsets, or that the equipment provided by such alternative supplier or suppliers will be compatible with our existing equipment. Our handset 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 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 this product, and our unserved customers may purchase the equipment independently 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 Unanticipated growth in subscriber demand for cellular data may require us to make additional investments and to modify certain products or services.
As part of our strategy of evolving into a diversified multi-service communications and media service provider, we have developed services and successfully encouraged subscriber demand for internet access and content and data consumption using cellular phones, smartphones, tablets, data cards and ISP Services. However, in the event subscriber demand for data increases more rapidly than expected, we may need to develop strategies to avoid data traffic overloading the capacity of the network. Such strategies may include modifying certain products or services or undertaking significant additional investments. In addition, regulatory developments seeking to ensure "fair usage" of the internet for all persons may impose changes on the terms and conditions of certain of our current or future services. In the event of substantial, rapid growth in data consumption by our subscribers and the public generally, we may be obliged to undertake significant investments and to adjust our product offerings or, both of which could have a material adverse effect on our financial condition or results of operations.
23 3D.2l We could be subject to legal claims due to the inability of our information systems to fully support our tariff plans.
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.2m 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 July 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 May 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 June 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.
24 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.13g Other Licenses". Furthermore, our network sites comply with the International Council on Non-Ionizing Radiation Protection standard, a part of the World Health Organization, 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 February 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.2n Equipment failures, system failures, natural disasters and hostile events such as acts of war, terror or cyber-attacks 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 failures, computer and IT system failures, transmission outages, spectral interferences, third-party systems and networks, 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.") cyber-attacks 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.
25 Like many other telecommunication companies, we have experienced an increase in cyber incidents over the past few years, some of which penetrated our cyber defenses, although no significant damage resulted and there has been no loss of or access to customer data. We have integrated protective systems and prepared Disaster Recovery Plans ("DRP") to mitigate such risks; 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.
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 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 customer data 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. Such eventualities may negatively affect our business, and our short- and long- term results of operations may be materially adversely affected.
3D.2o 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 new and evolving 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, internet-based services that provide user experience largely equivalent to our offerings, such as Voice over IP ("VoIP"), messaging services (WhatsApp , Skype, Viber), and video services (YouTube, video portals) are already available. In addition, the rapid development in recent years 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 be sufficient for the provision of most cellular voice, data and messaging services.
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.
26 3D.2p We are exposed to, and currently engaged in, a variety of legal proceedings, including requests to approve lawsuits as class actions related primarily to our network infrastructure and consumer claims.
In addition to a number of legal and administrative proceedings arising in the ordinary course of our business, we have been named as defendants in a number of civil and criminal proceedings related to our network infrastructure, which may result in civil liabilities or criminal penalties against us or our officers and directors, and consumer claims, including class action suits, regarding, for example, our tariff plans and billing methods or alleging, for example, unlawful charges, which are costly to defend and may result in significant monetary damages and civil penalties. The number of class actions that have been filed against us has increased over the past few years and this trend may continue in light of various amendments to the Consumer Protection Law and stricter regulatory policies that have been adopted. In class actions that require interpretation of our license provisions, the courts have in some instances requested the position of the Ministry of Communications or the Attorney General. In cases where the interpretation contradicts our interpretation and the court adopts the interpretation of the State, it may enforce the implementation of such provisions retroactively 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. These claims may require us to initiate or defend protracted and costly litigation, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages or may be required to obtain licenses for the infringing 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 products and services.
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 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 ISP services and VoB fixed telephony services to the residential market. See "Item 3D.1a If the Ministry of Communications continues to fail to enforce its fixed-line wholesale market reforms on Bezeq and HOT Telecom, this may negatively affect our business and results of operations." and "Item 3D.1b If the structural separation provisions (which apply to Bezeq and HOT) are not enforced or are removed 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 Med Nautilus, which provides mutual international transmission based on fiber optics between Israel and other countries. See "10C Material Contracts". 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.
27 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 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 and more recently in July 2014. 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 on civilian areas, which could cause substantial damage to our infrastructure network, reducing our ability to continue serving our customers as well as our overall network capacity. 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.
28 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 entirely 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, between one fifth and 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 related principally to the acquisition of equipment and devices, where the price paid by us is based mainly on US dollars. In addition, a substantial amount of our capital expenditures 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 a further 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.
Since May 2013, we have not entered into any derivative transactions to hedge underlying exposure to foreign currencies. As a matter of policy, we do not enter into transactions of a speculative or trading nature.
Our financial institutions borrowings and repayments of principal and interest on our Series C Notes due 2018, Series D Notes due 2021 and Series E Notes due 2017 are currently in shekels, of which Series C and borrowings, at a total principal of NIS 621 million as of December 31, 2016 (including current maturities, less offering expenses) are linked to CPI. We may not be able to raise our tariffs in a manner that would fully compensate for any increase in the CPI. Therefore, an increase in the rate of inflation may also have a material adverse impact upon us by increasing our financial expenses without an offsetting increase in revenue. 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, 2016, 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.
29 3D.2v Based on a decision of the Board of Directors in 2012, dividend distributions are assessed from time to time on the basis of various factors. There can be no assurance that dividends will be declared or, if they are, at what level. No dividends have been distributed since 2013.
In September 2012, the Board of Directors resolved to cancel the then existing dividend policy, which targeted a minimum payout ratio of 80% of annual net income, and to assess dividend distributions (and their scope) from time to time, by reference to, among other things, the Company's cash flow, profitability, debt level, debt coverage ratios and the business environment in general. The level of any distribution of dividends may also be affected by the Company's stated intention to use its cash flow and take other measures to reduce its financial debt, as well as by the need to comply with existing financial covenants and to fund any necessary capital expenditures.
Under Israeli law, the payment of dividends is generally made from accumulated retained earnings or retained earnings accrued over a period of the last two years (after deducting prior dividends to the extent not already deducted from retained earnings), and in either case, provided there is no reasonable concern that the dividend will prevent the company from satisfying current or foreseeable obligations as they come due. A dividend distribution that does not meet the above mentioned conditions would be allowed only after receiving court approval and after providing debtors with the opportunity to present to the court any opposition to the dividend distribution.
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. 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.3 RISKS RELATED TO OUR PRINCIPAL SHAREHOLDER
3D.3a 30.18% of our issued and outstanding shares and voting rights were held by S.B. Israel Telecom Ltd., our largest shareholder, as of March 1, 2017.
As of March 1, 2017, our largest shareholder, S.B. Israel Telecom Ltd. ("S.B. Israel Telecom"), held approximately 30.18% of our issued and outstanding shares.
As our largest shareholder, S.B. Israel Telecom has the ability to significantly influence our business through its ability to appoint directors serving on our Board of Directors and thereby substantially control all actions that require approval of our Board of Directors. S.B. Israel Telecom is not 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 S.B. Israel Telecom 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, S.B. Israel Telecom is 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.10 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. In addition, since 2011, we have used the "012 Smile" brand for certain products and services. 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 and www.012mobile.co.il. 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, 111 Eighth Avenue, New York, New York 10011.
30 Since our incorporation, we have achieved a number of important milestones:
· In April 1998, we received our license to establish and operate a cellular telephone network in Israel.
· In January 1999, we launched full commercial operations with approximately 88% population coverage and established a nationwide distribution.
· 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.)
· 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.
· In July 2001, we registered our ordinary shares for trading on the Tel Aviv Stock Exchange.
· In December 2001, the Ministry of Communications awarded us two bands of spectrum: one band of GSM 1800 spectrum and one band of 2100 UMTS third generation spectrum.
· In June 2002, our license was extended until February 2022.
· In December 2004, we commercially launched our 3G network.
· In March 2005, we completed a debt offering, raising NIS 2.0 billion in a public offering in Israel of notes due 2012.
· In April 2005, we repurchased approximately 33.3 million shares from our Israeli founding shareholders, representing approximately 18.1% of our outstanding shares immediately before the repurchase.
· In 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.
· In March 2006, we launched services based on the High Speed Downlink Packet Access ("HSDPA") technology. HSDPA is a technological enhancement to our 3G services that offers subscribers the ability to access our 3G services at higher speeds. The HSDPA technology has been deployed to support up to 21 Mbps on the downlink and 5.76 Mbps on the uplink.
· 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.
· 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.
· 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).
· In October 2009, Scailex became our principal shareholder through acquiring the entire interest in the Company of our previous controlling shareholder.
31 · 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.
· 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.
· In January 2013, 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 Corporation Ltd.
· 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. See "Item 4B.9 Our Network".
· In July 2014, we commercially launched limited 4G services in Israel over a frequency band of only 5 MHz in the 1800 spectrum.
· 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).
· In April 2015, following approval by the Minister of Communications, the Network Sharing Agreement with HOT Mobile entered into effect.
· In February 2016, we rebranded our products and services that were previously under the "Orange" brand to be under the new "Partner" brand. See "Item 5A.1c Settlement Agreement with Orange Brand Services Ltd."
For information on our capital expenditures for the last three financial years, and for the principal capital expenditures currently in progress, see "Item 4B.9 Our Network" and "Item 5B.3 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 telecommunication services, including infrastructure, ILD and ISP services. We offer our subscribers a full range of products and services to address a broad range of communications needs based on advanced technologies currently available as well as a variety of competitive tariff plans.
As part of our strategy to be a diversified multi-service 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, 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 also "Item 4B.6a Cellular Services and Products".
32 At December 31, 2016, we had approximately 2,686 thousand cellular subscribers, representing an estimated 26% of total Israeli cellular telephone subscribers at that date. As of that date, approximately 83% of our subscriber base (approximately 2,241 thousand subscribers) was represented by subscribers who subscribe to post-paid tariff plans and 17% (approximately 445 thousand subscribers) by subscribers who subscribe to pre-paid tariff plans. (For a definition of "subscriber", see "Item 3A Selected Financial Data").
In 2016, we marketed our cellular services mainly under the Partner brand (after rebranding our products and services that were previously under the "Orange" brand to be under the new "Partner" brand in February 2016), 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 (1) ISP services that provides access to the internet (both infrastructure and ISP services), cloud services and data protection products solutions based on products and services offered by us and by third party vendors. We also provide Wi-Fi networks, including certain value added services; and fixed-line voice communication services provided through VOB and SIP voice trunks and 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. Since February 2015, we also provide a full internet service including infrastructure, according to the wholesale market reform; (2) transmission services and primary rate interface ("PRI"); and (3) ILD services, outgoing and incoming international telephony, hubbing, roaming and signaling and calling card services. In addition, this segment includes sales and leasing of related equipment. See "Item 4B.6b Fixed-line Services and Products". As from 2017, our results of our anticipated TV business will also be recorded in the fixed-line segment. In 2016, our fixed-line services were marketed under the Partner brand and under the 012 Smile brand.
In July 2016, we assigned and transferred the business activities of two of our subsidiaries, 012 Smile Telecom Ltd. and 012 Telecom Ltd. with respect to their customers and creditors, to Partner Land-Line Communications Solutions LP.
Our GSM/UMTS network covered 99% of the Israeli population at year-end 2016. Our LTE network currently covers 87% 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 and the LTE network in the 1800 MHz band. Our services provided on our network include standard and enhanced services, as well as value-added services and products. See "Item 4B.6 SERVICES AND PRODUCTS".
In 2016, Partner was named by Marketest, a multi-discipline research and consulting firm, as the leading company among the large cellular companies in Israel in their "market-test rating for customer experience" for the eleventh consecutive year and was named the "best workplace" award in the telecommunications industry for the twelfth consecutive year according to a survey by Business Data Information and The Marker magazine.
In 2016, we were named by the Maala organization in their highest platinum plus category for corporate social responsibility for the ninth consecutive year.
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.
33 • 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.
• Cellular Telephone Market Saturation. Since 1994, the market has sustained a rapid annual rate of growth from a 2.6% penetration rate at year-end 1994 to an estimated penetration rate in Israel at December 31, 2016, of 120%, representing approximately 10.3 million subscribers out of an estimated population of approximately 8.6 million. The total number of estimated cellular telephone subscribers includes dormant subscribers and subscribers to multiple networks as well as other subscribers who are not included in the Israeli population figures, such as Palestinians, visitors, and foreign workers.
• 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.
• 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.
• High Penetration of Smartphones. Published market data shows that the relatively young Israeli population has a propensity to accept and use high technology products. The level of penetration of smartphones in the Israeli market is also estimated to be one of the highest in the world.
4B.2 SPECIAL CHARACTERISTICS OF THE FIXED-LINE TELECOMMUNICATIONS INDUSTRY IN ISRAEL
Bezeq and the HOT Telecom are the only telecommunications services providers with their own nationwide fixed-line infrastructure. IBC, which has a license to provide fixed-line services nationwide, has started a limited deployment of its fiber-based fixed-line services. Partner and Cellcom have fiber optic lines in certain areas nationwide.
Fixed-line telephony Services
Bezeq is the incumbent provider of fixed-line telephony services in Israel and holds more than 60% of the market. The remaining portion of the market is divided between HOT Telecom as the next largest provider and Cellcom and Partner.
Broadband and Internet services
The fixed internet access market used to be divided into two tiers of services: infrastructure services and ISP service. Since February 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.
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 mobile telecommunications operations. The MoC has also declared its intention to promote the removal of corporate separation in the Bezeq group and to publish a hearing in 2017 suggesting removal of the structural separation in the Bezeq group. See "Item 3D.1b If the structural separation provisions (which apply to Bezeq and HOT) are not enforced or are removed before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations."
34 In August 2013, the Israel Broadband Company (IBC), was granted licenses after winning the tender published by the State of Israel for the election of a minority shareholder in the Israel Electric Corporation telecommunication project. IBC introduced a new business model which enables it to reach the retail market through the services of ISPs. IBC has launched a web portal in which it offers ISP services to end users. ISPs which reach agreements with IBC are listed on the web portal. Currently only niche ISPs have reached agreements with IBC.
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).
Until 2011, the Israeli ISPs were connected to the World Wide Web through an underwater communications cable owned and operated by Med Nautilus, a subsidiary of Telecom Italia SpA. Since January 2012, Bezeq International has its own underwater communications cable, and in February 2012, the Tamares Group's underwater communications cable commenced operations. These additional underwater cables have increased the effective bandwidth of international data connectivity and reduce costs for ISPs.
International long distance services
ILD services in Israel have been open for competition since December 1996. There are currently eight players in this market. The three major players are: Partner, through 012 Smile, Bezeq International and Cellcom through Netvision, who are estimated to hold together approximately 80% of the market. 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. Proposed regulations intend, among others, to allow all general telecommunications licensees (including MVNOs) to provide international call services to international destinations included in their subscribers' tariff plans and only calls to destinations not included in the subscriber's plans would be routed through ILD providers. See "Item 4B.13e - vi Hearings and Examinations". Such regulations may alter the ILD market structure in Israel and decrease the volume of international calls routed through ILD providers.
4B.3 OUR STRATEGY
Partner's goal is to be a comprehensive telecommunications company that offers an entire range of telecommunication solutions to a variety of customers. The principle elements of our business strategy are as follows:
· Offer our customers a variety of cellular and fixed-line services as a diversified multi-service communications group. We offer our customers a variety of services that include a wide integrated and customized range of cellular and fixed-line services, as well as infrastructure, ILD services and ISP services. As part of our overall strategy to become a comprehensive telecommunications group, we have begun to deploy an independent fixed-line fiber optic based infrastructure which will allow us to offer our customers faster internet services in Israel, as well as the transmission of advanced and high quality television services. We intend to provide our customers with cyber solutions and IOT (Internet of Things) services.
· Launch a television service in the first half of 2017. As part of our strategy to connect our customers "Any place, Any time, Any device" (AAA), we have chosen the Android TV operating system solution for our quality and advanced TV services that we intend to offer to our customers.
35 · Customer satisfaction is a key factor to increase customer loyalty and decrease churn. In order to increase customer satisfaction, we constantly strive to provide advanced services at a high level of technology and simplify processes and information by providing our customers with a high level of accessible customer service at our service centers, call centers and digital channels.
· We strive to remain a central player in the retail sale of handsets and accessories. We continuously adapt ourselves to the changing needs of our customers, while following new and innovative equipment and accessory developments and changes in the telecommunications market.
· Technical leadership and innovation in our cellular network in order to remain at the technological edge. We have the widest 4G coverage compared to other cellular operators as a result of having the largest deployment of 4G cell sites, see Item 4B.9 OUR NETWORK. As part of our strategy to remain the leading telecommunications operator in the cellular market, we intend to continue investing in 2017 in both the shared network with HOT Mobile as well as in our core cellular network, such as by deployment of more advanced technologies, for instance LTE Advanced, all in order to maintain our technological advantage in the market and enable us to offer more advanced services.
4B.4 COMPETITIVE STRENGTHS
We believe that the following competitive strengths will assist us in achieving our mission and implementing our strategies:
· High Quality Network. We believe that as a result of our investments in upgrading our network, we have the most advanced cellular telecommunications network in Israel through the limited partnership created under the Network Sharing Agreement with HOT Mobile. This limited partnership has enabled us to combine our respective base cellular stations and thus enabled the network to gain denser site grids offering improved coverage and capacity, and thus better quality of service in terms of accessibility, retainability and quality of sound. At the same time, the limited partnership created under the Network Sharing Agreement with HOT Mobile has and is expected to continue to increase network efficiency by reducing the total number of network sites, while improving network coverage and capacity and introducing new technology.
· Customer Centric Approach. Since we believe that customer satisfaction is a key concern, we provide a quality customer experience through quick, simple and reliable handling of customer needs and interactions, which we have achieved through investments in technology, offering tailored packages to the various sectors, offering a variety of portfolios of smartphones and tablets, and new communications products as well as training of customer service skills. We offer our customers a variety of self -service options and are planning, as a comprehensive telecommunications company that offers an entire range of telecommunication solutions, to continue expanding our self-service options and other tools as part of our digital transformation.
· Variety of Communication Products. We believe that our cellular and fixed-line services, as well as our infrastructure, ISP services, transmission services and ILD services, strengthen our position in the communications market. Offering a variety of combined mobile and fixed-line products and services will enable us to better compete with the bundled services of other players, increase customer loyalty, and serve as an additional source of revenue.
· Strong and Motivated Management Team. We have been able to attract a number of Israeli senior managers from the telecommunications, high-tech and consumer products industries. Our management team is experienced and highly respected and, we believe, well-positioned to manage and lead the Company.
36 4B.5 MARKETING AND BRAND
We continuously pursue an advertising presence in the media in order to maintain exposure for our brands and advanced technologies and promote our services to various segments of the Israeli population. We advertise our network capabilities, services and equipment in several languages. In addition to traditional media, we also promote our brands on digital and social platforms.
In February 2016, we launched a new brand named "Partner", which replaced the "Orange" brand we have used since our inception. See "Item 5A.1c Settlement Agreement with Orange Brand Services Ltd." We believe that "Partner" is a highly attractive brand name for a communications group. The change of the brand name, which was carried out successfully, offered an excellent opportunity to reinvigorate our market presence with a new brand name which is simple and innovative. The rebranding also supports our business strategy of providing our customers with comprehensive telecommunication solutions, any time, any place, on any device and has provided us with the means to better position the Company in the Israeli telecommunications market.
Our marketing strategy emphasizes value for money, network quality, quality of customer service and innovation.
We market some of our services under the 012 Smile and 012 Mobile brands. However we have decided to cease use of the 012 Smile brand in 2017.
4B.6 SERVICES AND PRODUCTS
Our principal business, which provided approximately 80% of our revenues in 2016 (excluding inter-segment revenues) was derived from our cellular segment. Approximately 20% of our revenues (excluding inter-segment revenues) were generated from our fixed-line segment.
Our goal is to provide quality mobile broadband and fixed-line network and to offer a wide range of products, services and content to the cellular and fixed-line customers.
4B.6a Cellular Services and Products
Basic Cellular Services
Our main business is cellular telephony – provided mostly on our 3G and 4G networks. Our basic offer includes cellular voice services in Israel and abroad, text messaging services and mobile broadband at speeds of up to 150 Mbps1 and a mobile application for information and purchasing. Our services are provided over our cellular network including wholesale services to other operators as well as equipment and device sales.
Value- Added Services
In addition to standard mobile value-added services, we offer a variety of value-added services including among others, various content services, 4G TV video content, a variety of television and music applications, backup and synchronizing services, defense and security services and a variety of services for small and medium-sized businesses in all segments. We also provide our customers with M2M (machine to machine) connectivity solutions based on cellular communications in the finance, security and fleet management markets. These services and others are important to our business as they create differentiating factors and increase customer usage, satisfaction and retention. We continuously track all major market developments regarding value- added network services, and we intend to implement and offer those services that are likely to be popular with customers and which would add value to our business.
1 The cellular data transmission speed is not constant and is dependent on various factors including coverage, network availability, the chosen connectivity technology, the handset, and cellular, internet and other telecommunication networks.
37 International Roaming
We offer our customers roaming services abroad, which allow a mobile phone subscriber to place and to receive calls while in the coverage area of foreign networks owned by operators with whom we have commercial roaming agreement. Our roaming packages allow our customers to benefit from attractive rates in over 108 destinations. We offer data-only packages as well as packages that combine calls, data and SMS. The Ministry of Communications may introduce new regulations that would limit our revenues from roaming services. See "Item 4B.13e - vi Hearings and Examinations".
At December 31, 2016, we had commercial roaming relationships with 475 operators in 188 countries or jurisdictions, 315 3G roaming agreements in 144 countries and 80 4G roaming agreements in 58 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) and LTE (4G) are standardized, the frequency allocation per 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 and LTE on 1800 MHz bands. All 4G handsets which we sell, support all the above listed technologies and bands while 3G handsets support the above listed bands for GSM and UMTS. 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 in specific countries.
Cellular Equipment and Devices
Equipment and device sales in the cellular segment, include sales and leases of cellular handsets, cellular modems, tablets, laptops (including both WI-FI-only devices and devices with 3G-HSPA or 4G LTE embedded data cards) and related accessories, as well as handset maintenance and spare parts through the Company's repair services and labs. We also sell a variety of digital audio visual equipment including televisions, digital cameras, game consoles, media streamers, earphones, digital watches, 3D glasses, smart TVs and other related equipment. As from 2017, in view of updates to our sales strategy and the anticipated launch of television services, sales of WI-FI-only devices and other devices not directly related to cellular services, including televisions, will no longer be recorded under the cellular segment.
4B.6b Fixed-line Services and Products
Basic Fixed-Line Services
We offer fixed-line services that include ISP services as well as home and business Wi-Fi networks, ILD services, transmission services and VoB telephony services (including SIP services).
· 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, and since 2016, we also offer access services over our own optic fiber fixed-line infrastructure in certain parts of the country, with speeds up to 1 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.
38 · 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 anywhere in 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.
· 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.
· 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.
· Television services. In September 2016, we announced that we intend to launch our television services in the first half of 2017 and would provide our customers with an enhanced user interface experience of television services based on an open platform -the Android TV.
Value-Added Services
In addition to standard fixed-line value-added services, we offer a variety of value-added services that include 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. In 2015, we launched a new and 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 devices sales in the fixed-line segment include sales and leases of landline phones, modems, domestic routers, servers, smartboxes and related equipment, media streamers, WI-FI-only tablets and other telecommunications and audio-visual devices and accessories to fixed-line segment customers.
In addition, we provide our business customers with office communication Private Branch Exchanges (PBX) on the premises and cloud-based that provides them with all of the telephony services including unified communication features as well as Direct Inward Dialing (DID) that provides a block of telephone numbers for calling into the 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.
39 4B.6c Tariff Plans
As of December 31, 2016, approximately 83% of our cellular subscriber base (approximately 2,241 thousand subscribers) subscribed to post-paid tariff plans, and 17% (approximately 445 thousand subscribers) subscribed to pre-paid tariff plans.
Business cellular tariff plans. Our post-paid cellular business tariff plans offer features attractive to business users such as bundles including unlimited amounts of call minutes and SMS (subject to reasonable use) as well as browsing packages; bundles with fixed amounts of call minutes and SMS and browsing packages; tariff plans with fixed tariffs for airtime usage without adding the interconnect charges imposed by other cellular and fixed-line providers for calls made by our subscribers that terminate on third party networks; and providing discounts for calls to designated numbers within a subscriber's calling circle. Some of these bundles also include a limited amount of international call minutes and other value-added services. Furthermore, some of our contracts with large business customers with over 100 subscribers include commitment terms with exit fees for early termination.
Private customer cellular tariff plans. Most of our post-paid cellular tariff plans for private customers are bundles including unlimited amounts of call minutes and SMS (subject to reasonable use) as well as browsing packages. Some of these bundles also include a limited amount of international call minutes and other value-added services. 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. Since February 2011, our private customer subscriber agreements do not have any commitment periods.
Since 2012, the Company has also marketed cellular tariff plans under an alternative brand, "012 Mobile", based on the 012 Smile brand. 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. These tariff plans were launched in order to compete with offers of new operators launched in 2012.
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 to meet the needs of the various sub-markets-ISP, ILD, transmission, VOB and PRI. We have also launched an unlimited plan for our VoB packages. 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 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.7 SALES AND DISTRIBUTION
4B.7a Customer Care
We apply a multi-channel approach to target various market segments and to coordinate our cellular and fixed-line sales strategy for both our business as well as private customers. Our customer support and service provides several channels for our customers: call centers, walk-in centers and self-service support, which include web-based services, mobile application, Interactive Voice Response ("IVR"), and automated SMS.
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 and data transfer related issues). The call center services are provided in several languages and also provide chat, digital and SMS services through the Company's websites.
Walk-in Centers. We currently operate 27 service and sales centers across Israel. These centers provide a face-to-face, uniformly designed, contact channel and offer all services that we provide to customers: sales, handset upgrade, handset maintenance, tablet sales, fixed-line services (such as VOB and ISP) and other services (such as finance, rate-plan changes and subscription to new services) as well as accessories sales. Lease agreements for our retail stores and service centers are for periods of two to ten years. We have the option to extend the lease agreements for different periods including the initial lease period. See also Note 19 to the consolidated financial statements.
40 Self-Service. We provide our customers with various self-service channels, such as IVR, web-based services, services via SMS, services via mobile and services via smartphone applications. The services provided through these channels include general and specific information, tariff plans, account balance, billing-related information and roaming tariffs. They also provide customers with information regarding trouble shooting and handset operation, and enable customers to activate services and to download content as well as to purchase various services and update tariff plans.
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 9001:2008, which focuses on fulfillment of clients and legal requirements;
• ISO 14001:2004, which coordinates our commitment to habitat and environment; and
• OHSAS 18001:2007, which directs our efforts to provide a safe and healthy work environment at our premises.
4B.7b Sales and Distribution Channels
We distribute our services and products through direct sales channels and indirect sales channels. 4B.7b - 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. We have stands in some of our centers in cooperation with Apple called "CEP" –channel excellence program, in which we demonstrate Apple products to customers. As of December 31, 2016, we are the only cellular operator in Israel that has this type of agreement with Apple.
Direct Sales Force: Our sales force is comprised of sales and service representatives.
• A team of representatives and customer account managers that support small to medium-sized businesses;
• A team of corporate representatives and customer account managers who support large corporate customers;
• A Small Medium Enterprises ("SME") sales-force team located in regional offices focuses on individual and small business customers;
• A telemarketing department conducts direct sales by phone (to private and business customers), initiates contacts with prospective customers and coordinates appointments for the sales representatives.
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, and other value-added services that appeal to corporate customers.
In addition, as of December 31, 2016, we have 20 Partner stands in shopping centers throughout the country, as well as six stores that specialize in sales and handset upgrades.
41 4B.7b - ii Indirect Sales Channels
We have agreements with many traditional dealers that provide over 60 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 and handset sales.
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.7b - 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 that we sell.
4B.8 POST-PAID CUSTOMER CONTRACTS AND CREDIT POLICY
Since 2011, our standard customer agreements with most of our private customers do not include commitment periods. 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 5,000. 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 over 12 to 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 2016, 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 adversely affect the level of sales of equipment with long term financing plans. See also "Item 5A.1b Business Developments in 2016".
42 4B.9 OUR NETWORK
We have built an extensive, resilient and advanced network system in Israel, allowing us to offer our services with extensive coverage and consistent high quality. During the years ended December 31, 2015 and 2016, we made capital expenditures of NIS 137 million and NIS 88 million ($23 million), respectively, in our network infrastructure, including optic fibers. See "Item 5B.3 TOTAL NET FINANCIAL DEBT".
4B.9a Overview
Our network is a converged fixed and mobile telecommunications network. For mobile services we built a multi generation (2G, 3G &4G) 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. UMTS is the global standard adopted for the implementation of third generation wireless telecommunications capable of data rates of up to 42 Mbps in the down-link and is the 3G technology we use. HSPA is a technological enhancement to our 3G services that offers subscribers the ability to access our 3G services at higher speeds for downloading (HSDPA) and uploading (HSUPA) data. LTE is the newly introduced, most advanced mobile network technology which is currently available in more than half of the macro base stations. Currently our LTE network is based on the existing spectrum of 20 MHz and can support up to 150Mbps in the downlink and up to 50Mbps in the uplink.
In 2016, we continued to deploy and introduce 4G services, utilizing part of our existing 1800 MHz spectrum (that was used for the 2G network), while continuing to expand our 3G and HSPA business in Israel. To meet these goals, we are implementing (directly or through our limited partnership, PHI) a strategic network upgrade project, in which our network radio and core elements are being upgraded to our vendors' most advanced products range. We have also expanded our transmission network to support the demand for high data rates, and we concluded the introduction of a third radio carrier for HSPA services, utilizing part of our existing 900 MHz spectrum.
Cellular Network Sharing Agreement. In November 2013, we entered into a 15-year Network Sharing Agreement with HOT Mobile that was approved by the Antitrust Authority Commissioner in May 2014 and by the Ministry of Communications in April 2015. 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 a radio access network to be shared by both parties starting with a pooling of 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., to be the general partner of the limited partnership. In August 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 January 2015. PHI started to operate in August 2015, at which time each of Partner and Hot Mobile transferred to PHI certain employees who were previously engaged in their respective radio operations.
One of the main purposes of the limited partnership is to seek to improve network efficiency by reducing the number of network sites, while improving network coverage and capacity and introducing new technology. The expected results from PHI's operations are that the Shared Network will optimize operating costs, including required maintenance and reduce environmental impact.
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.
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 are shared equally by the parties, and one half are divided according to the relative volume of traffic of each party in the Shared Network ("Capex-Opex Mechanism"). See "Item 5A.1d Network Sharing Agreement with HOT Mobile" and note 26(d) and note 9 to the consolidated financial statements with respect to balances and transaction with PHI.
43 In May 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.13e - viii Anti-Trust Regulation."; • 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 organs were set; • 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; • 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: a. 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. b. 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 resolved to approve the Network Sharing Agreement.
4B.9b Infrastructure
As of December 31, 2016, our network consists of the following main elements:
• Our radio access network domain consist of 2,005 macro GSM base transceiver stations, 56 micro GSM base transceiver stations and 279 indoor GSM transceiver stations, all linked to 7 base station controllers (HDBSC);
• 2,126 macro UMTS base transceiver base stations (eNodesBs), 49 micro UMTS base transceiver stations and 737 indoor UMTS transceiver stations, all linked to 21 radio network controllers;
• 1,676 macro LTE base transceiver base stations (eNodesBs), 10 micro LTE base transceiver stations and 149 indoor LTE transceiver stations.
Our core network domain consisted of 3 mobile switching centers, 3 media gateways, 2 service GPRS support node/mobility management entity and 2 gateway GPRS support node/evolved packet gateway.
The base transceiver stations, the mobile switching centers and the radio network controllers are interconnected by 6,000 transmission links for voice services, and a dedicated IP radio access network and a mobile packet backbone network (IP-RAN, MPBN) for voice and data traffic for the 3G and 4G network.
Ericsson is our sole radio and core network equipment supplier. See "Item 4B.9f Suppliers".
Our fixed-line network domain consists of circuit-switched and Voice over Internet Protocol (VoIP) platforms. Ericsson, Dialogic Networks, Sonus, Broadsoft and ACME Packet supplies our VoIP solution, whereas the circuits-switched services utilize the mobile switching center platforms alongside Sonus's switches. The International Long Distance network domain consists of Dialogic ILD Switch, together with NSN's Signaling Transit Point.
44 In addition, our network is interconnected with two public switched telephone companies, Bezeq and HOT Telecom, in several locations across Israel. Our network is also connected to all of the cellular networks, all the Israeli international operators, the fixed-line telephone network of the Palestine Telecommunication Co. Ltd. ("Paltel"), and the cellular network of Wataniya Palestine Mobile Telecommunication Company ("Wataniya"), and indirectly to the cellular network of Palestine Cellular Communications Ltd. ("Jawwal"). Our transmission network is made up mainly by our own microwave links and fiber optic infrastructure, while for sites that are unreachable with our own transmission, we lease lines from Bezeq and other operators. Currently approximately 15% of our transmission network consists of leased lines. Our fiber-optic and microwave transmission network enables us to reduce our transmission costs as well as to provide our business customers with bundled services of data and voice transmission and fixed-line services. Currently, our transmission network has more than 16 hundred kilometers of fiber optics and more than 13 hundred microwave links.
Our radio networks covered 99% of the Israeli population at year-end 2016. We are continuing to expand and improve the coverage, capacity and quality of our LTE network.
4B.9c Network Design
Our primary cellular network design objective is to further expand and improve our network to provide high voice, video and packet quality, service reliability, high capacity and high coverage quality. In formulating our network design objectives, we have been guided by our business strategy to continue to broaden the highest quality network. The quality parameters that we seek to satisfy are those that we believe are important to cellular users: voice quality, high data rate packet sessions, low "blocked call" rate, low "dropped call" rate and deep indoor penetration, especially in densely populated areas or areas of special commercial interest. The two main examined parameters used to measure network performance are the setup call success rate and the dropped calls rate.
With these quality parameters in mind, we rolled out our UMTS/HSPA network starting in 2004, which shares locations with the GSM sites. In December 2007, we signed an agreement with LM Ericsson Israel Ltd. (Ericsson") for the replacement of third party 3G radio equipment existing in our network, and in October 2010, we signed an agreement with Ericsson for the upgrade of our existing fixed-mobile network and the deployment of our fourth generation network.
We use monitoring probes and counters to ensure network quality.
Our transmission network design confers the following benefits: (i) necessary bandwidth for GSM and UMTS/HSPA and LTE services; (ii) resilience; (iii) use of high transmission rate back-bone routes based on Synchronous Digital Hierarchy; and (iv) the ability to utilize a new generation of sophisticated technology to optimize the system and increase capacity where necessary. Our switching architecture is based on two STP switches connected to all of our systems and platforms and three MSCBCs and MGWs.
In our Fixed-Line business we offer telephony lines using VoB technology, SIP voice trunks, PRI, Internet Services, data transmission and ILD services targeting households and business customers in the Israeli market. These services are provided over third parties' existing network infrastructure as well as our own partially country covering infrastructure. In order to provide the Fixed-line Services in the residential market, we developed a home gateway box (smartbox), that provides the customer with a setup of a home network Wi-Fi based on the protocol 802.11n, Voice FXS and DECT supported phones, and built-in firewall. This solution enables us to provide services to our customers such as call "hijack" which allows customers to retrieve incoming mobile line calls on their fixed-line and vice-versa, improved email accounts, anti-virus and site filtering based on the customer's restriction definition.
4B.9d Spectrum Allocation and Capacity
Spectrum availability is limited and is allocated by the Ministry of Communications through a licensing process. Pursuant to the terms of our license and subsequent allocations, we were allocated 2x10.4 MHz in the 900 MHz frequency band, of which 2 x 2.4 MHz are shared with Jawwal which operates in the West Bank and the Gaza Strip and an additional 2 x 2.4 MHz of Jawwal's spectrum is partially available to us.
45 We were also allocated two additional bands of spectrum: 2 x 10 MHz of UMTS/HSDPA third generation in the 2100 MHz frequency band. We operate GSM 900 MHz band base transceiver stations that enhance the capacity of our network's quality. In May 2012, we shifted 5MHz of our 900MHz spectrum from the 2G GSM network to the 3G HSPA+ network. In July 2014, we shifted 10MHz of our 1800MHz spectrum from the 2G GSM network to the 4G LTE network. In March 2015, the Minister of Communications approved the results of the tender bid process in which we won an additional 5 MHz in the 1800 spectrum. Hot Mobile was also awarded two bandwidths of 5 MHz of frequencies in the 1800 band, both of which are expected to be used for the limited partnership created by the companies. Now that we have been allocated these frequencies, and have successfully refarmed our existing frequency bands and successful implemented the Network Sharing Agreement with HOT Mobile, our total spectrum available for 4G is 20 MHz, which allows us to offer full 4G services. See "Item 4B.9a Overview – Cellular Network Sharing Agreement". We have amended the technical annex to our license in order to allow us to refarm some of our existing spectrum (in the 2100 MHz band) for the implementation of LTE Advanced and carrier aggregation technologies. In February 2017, the MoC approved the refarming (the conversion of existing frequencies to a different technology) of these frequencies.
For a discussion of the risks associated with regulatory developments in spectrum allocation, see "Item 3D.1m 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 or fail to respond to our demands for the allocation of additional spectrum. Such eventualities may adversely affect our business and results of operations."
4B.9e Site Procurement
Once a new coverage area has been identified, professional staff determines the optimal base station location and the required coverage characteristics. The area is then surveyed to identify network sites. In urban areas, typical sites are building rooftops. In rural areas, masts are usually constructed. Professional staffs also identify the best means of connecting the base station to the network, for example, via leased or owned and operated microwave or fiber links or wired links leased from Bezeq. Once a preferred site has been identified and the exact equipment configuration for that site decided, the process of obtaining necessary approvals begins.
The erection of most of these network sites requires building permits from local or regional authorities, as well as a number of additional permits from governmental and regulatory authorities, such as:
• erection and operating permits from the Ministry of Environmental Protection;
• permits from the Civil Aviation Authority, in certain cases; and
• permits from the Israeli Defense Forces.
See "Item 4B.13h Network Site Permits" for a description of the approvals that are required for the erection and operation of network sites and the requirement to provide indemnification undertakings to local committees.
4B.9f Suppliers
Suppliers for our cellular network. For a number of years, we purchased our network equipment, such as switching equipment, base station controllers and base transceiver stations and network software, from Ericsson and Nokia. Starting in January 2008, we purchase all our UMTS network equipment from Ericsson, and in 2010 we entered into an agreement with Ericsson, for the upgrade of our existing cellular networks and the deployment of our fourth generation network. The initial term of the inclusive agreement with Ericsson ended on December 31, 2014. Following the expiration of the initial term, we extended the initial period for the provision of support and maintenance services, first by an additional period of one year (that ended on December 31, 2015) then, by an additional period of one year ending on December 31, 2016 and recently we have ordered maintenance services for the years 2017 and 2018. Ericsson has gradually become our sole supplier of cellular core equipment and systems. See "Item 10C Material Contracts". See also "Item 3D.2j We depend on a limited number of suppliers. Our results of operations could be adversely affected if our suppliers fail to provide us with adequate supplies of network equipment and handsets and other devices or maintenance support on a timely basis."
46 We continue to purchase certain network components, for our cellular, fixed and ISP services, from various other key suppliers. For example, Alcatel-Lucent provides the Company with a pre-paid system that allows subscribers to pay set amounts in advance and thereby allows subscribers to manage their expenses for services. Alcatel-Lucent also provides an Intelligent-Network system, which implements Value Added voice Services such as VPN and Funtone (Music Ring-back Tone).
Handset and other equipment suppliers. Following the expiration of our previous agreement in 2016, in June 2016 we entered into a non-exclusive agreement with Apple for the purchase and resale of iPhone handsets in Israel for a three-year period. See "Item 10C Material Contracts". During 2016, Apple was a major supplier of the Company's iPhone handsets. We also purchase handsets and other equipment, including tablets and laptops, from Samsung, LG and other vendors.
Suppliers for our fixed-line network. Only the Bezeq and HOT Groups own fixed-line telecommunications infrastructures in Israel. As a result, we rely on interconnection with the Bezeq and HOT Groups' infrastructure. Bezeq supplies the Company with fixed-line transmission services for connecting traffic between approximately 30% of the Company's sites. The HOT Group supplies the Company with interconnect lines between the broadband backbone and the ISP backbone. See "Item 3D.1b If the structural separation provisions (which apply to Bezeq and HOT) are not enforced or are removed before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations." In addition, for hard- line connection to all major Western European countries and the United States, Med Nautilus supplies the Company with transmission services through its submarine infrastructure. See "Item 10C Material Contracts".
Sonus Networks Inc. and Broadsoft Inc. supply us with switches for the fixed-line telephony services based on Internet Protocol ("VoIP"). As part of the mentioned above with Ericsson, these services will gradually shift to equipment supplied by Ericsson.
4B.9g Interconnection
All telecommunications providers with general licenses in Israel have provisions in their licenses requiring them to connect their networks with all other telecommunications networks in Israel. Currently, our network is connected directly with all other telecommunications networks operating in Israel.
We are currently operating without any formal interconnect agreements with Bezeq. Day-to-day arrangements with Bezeq substantially conform to a draft interconnect agreement negotiated with Bezeq. Bezeq is required by law not to discriminate against any licensed telecommunications operator in Israel with respect to the provision of interconnect services. We currently pay Bezeq an interconnection fee based on a tariff structure set forth in the Interconnection Regulations (Telecommunications and Broadcasts) (Fees for Interconnection) (2000) ("Interconnection Regulations").
We have formal interconnect agreements with all Israeli cellular and with the other fixed-line and voice over cellular companies. The interconnect tariffs are set forth in the Interconnection Regulations that impose a uniform call interconnect tariff for all cellular operators.
Our network is connected directly to Paltel, the Palestinian fixed-line operator, Wataniya, a Palestinian cellular operator, and indirectly to Jawwal, the cellular operator of Paltel. The interconnect tariffs are set out in commercial agreements.
Two of our subsidiaries have a domestic fixed-line license. One of our subsidiaries- Partner Land-Line Communications Solutions LP is connected directly with other telecommunication networks operating in Israel and the other is indirectly connected to other telecommunication networks, through said entity. The interconnection fees are set by the Interconnection Regulations.
4B.10 COMPETITION
An overview of our principal competitors and of some aspects of the competitive environment for telecommunications services is set forth below. For further information regarding the impact of regulation and regulatory changes on competition, including measures to enable new service providers to enter the market, and the competitive pressures arising from the development of full- service telecommunications providers and new technologies, see "Item 3D.1 Risks Relating To The Regulation Of Our Industry." and "Item 3D.2a As a result of substantial and continuing changes in our regulatory and business environment, our operating results and profitability have decreased significantly in the past five years, with a loss for 2015. We managed to earn a profit of NIS 52 million (US$ 14 million) for 2016, but our operating results may again decline in 2017 and beyond, which may adversely affect our financial condition."
47 Within the Israeli telecommunications market there are 4 major communication groups: Bezeq, HOT, Cellcom and Partner, as well as a number of smaller operators. See Item "3D.2f Competition resulting from the full service offers by telecommunications groups and additional entrants into the mobile 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 tariffs, an increase in subscriber acquisition and retention costs, and may continue to reduce our subscriber base and increase our churn rate, each of which could adversely affect our business and results of operations."
4B.10a Competitors in the Cellular Services market
There are currently five cellular telephone network operators in Israel: Partner, Cellcom, Pelephone, HOT Mobile, and Golan Telecom. Except for Golan Telecom, these cellular operators are part of the four main telecommunications groups. In addition, there are four active MVNO operators – Hashikma Communications Marketing Ltd., ("Rami Levy"), Home Cellular Ltd. ("Home Cellular"), Telzar 019 International Telecommunications Services Ltd. ("Telzar") and Cellact Communications Ltd. ("Cellact").
We compete principally on the basis of telecommunications service quality, brand identity, variety of handsets and other equipment, tariffs, value-added services and the quality of customer services.
The table below sets forth an estimate of each operator's share of total subscribers in the Israeli cellular market at year-end for the years 2012 to 2016.
Estimated Market Shares* 2012 2013 2014 2015 2016
Partner 29% 29% 28% 27% 26%
Cellcom 32% 31% 29% 28% 28%
Pelephone 28% 26% 25% 26% 23%
HOT Mobile 8% 8% 10% 11 % 14%
Golan Telecom and others 3% 6% 8% 8% 9%
* Based on Partner subscriber data, as well as information contained in published reports, and public statements issued by other operators.
Cellcom. Cellcom is an Israeli corporation founded in 1994 that is traded both on the Tel Aviv stock exchange as well as NYSE. Cellcom's major beneficial shareholder is Discount Investment Corporation Ltd., a majority-owned subsidiary of IDB Development Corporation Ltd. ("IDBD") which is controlled by Mr. Eduardo Elzstain. In August 2011, Cellcom acquired Netvision, an Israeli fixed-line operator. Cellcom operates nationwide cellular telephone networks as well as fixed-line telephony, transmission and data services and has partially deployed LTE. In 2014, Cellcom launched OTT television services. In January 2017, Cellcom announced that it had entered into a mediation agreement with Golan Telecom and a 3G and 4G networking sharing and 2G hosting services agreement with Electra, which simultaneously entered into an agreement with Golan Telecom and Golan Telecom's shareholders to purchase Golan Telecom's share capital. See "Item 3D.1d 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, and 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. Network sharing and similar agreements entered into by our competitors may place us at a competitive disadvantage."
48 Pelephone. Pelephone is an Israeli corporation that is a wholly-owned subsidiary of Bezeq, Israel's largest telecommunications provider and the primary fixed-line operator that is controlled by B Communications Ltd. B Communications Ltd. is indirectly controlled by Shaul Elovitz, the controlling shareholder of Eurocom Communications Ltd. Bezeq and its subsidiaries offer fixed-line telephony services, cellular telephony services, PRI, internet broadband access, ISP services, transmission and data communications services, ILD services and multi- channel television services. In July 2015, Pelephone entered into an agreement to acquire the business operations of Alon Cellular Ltd., an MVNO that entered the cellular market in 2012.
Bezeq – Yes merger. In March 2014, the Antitrust Commissioner approved a merger between Bezeq and its subsidiary, DBS Satellite Services (1998) Ltd. ("Yes"), a multi-channel pay television provider, subject to certain conditions, including, among other things, the following: (1) Bezeq shall not impose any limitations on subscriber internet infrastructure consumption, deriving from subscriber aggregated internet capacity; (2) Bezeq shall deduct sums for providing multi-channel television servicing from payments made to ISPs for connecting it to its network, in accordance with a formula that was set in the decision; (3) Bezeq and Yes shall cancel all exclusivity arrangements in regards to productions they are a party to, and shall not be a party to other exclusivity arrangements for other productions; and (4) for a period of two years from the merger approval, Bezeq shall not prevent any person, excluding a holder of a broadcast license at the time of the decision, from obtaining rights in original productions, not including new productions. The Commissioner's decision allows the same entity to control both Bezeq and Yes. In July 2015, the Ministry of Communications approved the merger. In December 2016, the MoC provided Bezeq with a letter in which it announced it would promote the removal of corporate separation provisions which currently apply to the Bezeq group.
Other Operators
Hot Mobile. HOT mobile is held indirectly by the Altice Group, a French media group, controlled by Mr. Patrick Drahi, who also holds control of HOT Telecommunications Systems Ltd. ("HOT Telecommunications"), a multi-channel television operator in Israel, which was delisted from the Tel-Aviv Stock Exchange in December 2012. The HOT Group's main areas of activity are multi-channel television services, fixed-line telephony services, PRI, internet broadband access, transmission and data communications services as well as ISP services through its subsidiary HOT-NET. HOT Mobile's cellular license was amended to include UMTS frequencies allocated subsequent to winning a Ministry of Communications' tender offer for frequencies in the 2100 MHz spectrum.
Partner and HOT Mobile entered into a Right of Use agreement, which took effect in November 2013, and was valid until April 1, 2016. Under the Right of Use agreement, Partner provided services to HOT Mobile in the form of a right of use of Partner's radio cellular network in order to supplement HOT Mobile's current network coverage. According to the Right of Use agreement, HOT Mobile paid Partner fixed base payments with additional variable payments, based, among other things, on traffic volume exceeding a defined threshold. See "Item 4B.9 Our Network- Cellular Network Sharing Agreement".
Golan Telecom. Golan Telecom, is a privately owned company, currently owned by Michael Golan, Xavier Niel and the Parienti family. Golan Telecom began operations in early 2012 after winning a Ministry of Communications' tender offer for frequencies in the 2100 MHz spectrum. Golan Telecom signed a national roaming agreement with Cellcom. According to media reports, the MoC imposed a fine of NIS 31 million on Golan Telecom for breaching its obligation to establish its network. Recently, it was published that Electra entered into an agreement with Golan Telecom and Golan Telecom's shareholders to purchase Golan Telecom's share capital and that Golan Telecom and Cellcom signed a network sharing agreement.
Hot Mobile and Golan Telecom license terms. Under the terms of HOT Mobile and Golan Telecom's licenses, the companies which won the UMTS frequency tender offer were required to pay a minimal fee as well as a guarantee for the balance to the Ministry of Communications before starting operations and to pay the balance of the fee to ensure compliance with the terms of the license after 5 years. However, as an incentive for these companies to rapidly build and expand their customer base, the final total amount of their fees and guarantees is calculated according to the level of the coverage of their services and will be reduced as the level of coverage increases. This incentive has been a significant factor in the aggressive marketing strategies and pricing of the additional entrants in order to gain market share, which, in light of the current saturation of the Israeli cellular market, has resulted in loss of market share by existing companies, including Partner, and substantial downward pressure on tariffs. In November 2013, the Ministry of Communications reduced HOT Mobile's license guarantee since it achieved the market share goal of 7%. In March 2014, the Ministry of Communications reduced Golan Telecom's license guarantee since it achieved the market share goal of 7%.
49 HOT Mobile and Golan Telecom received additional leniencies as part of the 4G tender. See "Item 3D.2f Competition resulting from the full service offers by telecommunications groups and additional entrants into the mobile 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 tariffs, an increase in subscriber acquisition and retention costs, and may continue to reduce our subscriber base and increase our churn rate, each of which could adversely affect our business and results of operations."
Xphone. Xphone is a privately owned company that currently operates as an ISP and ILD operator. However it was awarded a 5MHz frequency band in the 1800 spectrum following which it may become the sixth facility-based cellular operator if it is granted a license.
MVNOs. The Ministry of Communications has granted MVNO licenses to eleven companies, some of which have entered into hosting agreements with cellular operators. The major MVNOs are Rami Levy, which is a subsidiary of a major Israeli discount supermarket chain; Home Cellular which is a subsidiary of a leading group that owns, among others, hardware and home furnishing stores, which was acquired by Cellcom in July 2015, subject to regulatory approval, Telzar, an ILD operator and Cellact which is owned by Cellact Ltd., a communications group active also in the content field.
In May 2013, we signed a hosting agreement with Telzar with respect to their use of Partner's network as an MVNO.
Following a hearing published by the Ministry of Communications, in November 2014, the Ministry published an administrative decision, regarding the pricing of MVNO hosting by cellular operators. The MoC has decided that the reference point for whether a hosting price is considered reasonable will be the most favorable business proposals each cellular operator has offered to its commercial subscribers. An MVNO that claims that the hosting conditions prevent it from competing and does not reach an agreement with a cellular operator to change them, particularly as regards the price, may request the Minister of Communications to evaluate whether they are reasonable. As a result, the pricing we charge to host MVNOs on our network may be affected causing an adverse impact on our revenues.
In addition, Paltel operates a GSM mobile telephone network under the name "Jawwal" in the Palestinian Administered Areas. Paltel also operates a fixed-line network. Paltel's GSM network competes with our network in some border coverage overlap areas. A second Palestinian operator, Wataniya launched its GSM network during 2009.
Several service providers offer competitive roaming solutions. The service is offered, among others, by the International Long Distance vendors as well as by specialized enterprises. See also "Item 3D.1h Potential future regulation of roaming services may decrease our roaming revenues and negatively affect our income."
Market Saturation. Because the Israeli cellular market has reached a level of full saturation, except for natural market growth through the growth of population, any acquisition of new subscribers by any service provider results in a loss of market share for its competitors.
4B.10b Competitors in Fixed-line Services
In the fixed-line market, our main competitors are Bezeq, Israel's largest telecommunications provider and the primary fixed-line operator, HOT Telecom, and other telecommunication services providers, including Cellcom who operate in the fixed-line market. The Bezeq Group, the HOT Group and Cellcom provide cellular telephony services, ILD services, PRI, internet broadband access, ISP services, transmission and data communications services and multi-channel television services.
The Bezeq Group. The Bezeq Group is under structural separation rules which apply to management, employees, assets, marketing and finance and data systems. Starting in 2010, the Ministry of Communications has allowed the Bezeq Group to market bundled telecommunications services to the private sector, subject to certain conditions and limitations, including provisions which prevent Bezeq from discounting the price of bundled services from their unbundled prices and from including its fixed-line telephony service within bundles. See "Item 4B.2 Broadband and Internet services." Following implementation of the broadband wholesale market, the requirement for structural separation may be removed, which would allow Bezeq to take advantage of its nationwide presence and cross-subsidization to market and sell more competitive and attractive offers than we will be able to offer, including cellular services. Bundled offerings have become more frequent in Israel and have caused price erosion in the services included. See "Item 3D.1b If the structural separation provisions (which apply to Bezeq and HOT) are not enforced or are removed before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations."
50 The HOT Group. The HOT Group may offer a bundle of services only including fixed-line telephony, broadband infrastructure and multi-channel television ("Triple"). The bundle of services currently offered by the HOT Group does not include cellular services (other than a bundle of cellular services with ISP services offered by its subsidiaries HOT Mobile and Hot-Net Internet Services Ltd. ("HOT-NET")).
The Ministry of Communications allowed HOT Telecom LLP, HOT Telecommunication and HOT Mobile to sell and market each other's services and exchange information regarding such marketing activities.
Once an effective wholesale fixed-line market is operating, the Ministry of Communications may cancel the structural separation imposed on the Bezeq and HOT Groups. This will allow the groups to offer attractive bundles that include all of the above services that may result in a loss of market share by Partner in all relevant telecom markets. See "Item 3D.1b If the structural separation provisions (which apply to Bezeq and HOT) are not enforced or are removed before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations."
The Cellcom Group. Cellcom provides landline telephony, transmission, PRI, ISP and data services through inland fiber optic transmission and complementary microwave links to business customers and private sectors. Since February 2015, Cellcom began marketing an ADSL infrastructure product (wholesale Bit Stream Access service provided over Bezeq's network). During 2015, Cellcom entered the television market using hybrid OTT-DTT television services which may be bundled with additional IP TV or over the top (OTT) offerings.
In the ILD services market, we compete with Netvision from the Cellcom Group, Bezeq International, Xphone, Hashikma Communications Marketing Ltd., Telzar 019 International Telecommunication Service Ltd, Golan Telecom International Ltd. and HOT Mobile International Telecommunications Ltd.
See also "Item 4B.2 Special characteristics of the Fixed-Line Telecommunications Industry in Israel".
Israel Broadband Company (IBC). IBC received a general license for the provision of fixed-line telecom services (infrastructure) and for the establishment of a nationwide optic fiber network using the Israeli Electric Company's infrastructure in August 2013. IBC is owned by Israel Electric Corporation (40%) and a consortium of companies elected as the winning bidder in the election process, which is comprised of the following companies: ViaEuropa Israel Ltd., RAPAC Communication & Infrastructure Ltd., BATM advanced Communication Ltd., Tamares Holdings Sweden AB and Zisapel Properties (1992) Ltd. and Cisco Systems Finance International (60%). Although IBC is in principle permitted to provide its services only to other telecommunications licensees on a wholesale basis, IBC has introduced a new business model which enables it to reach the retail market through the services of ISPs who sign agreements with them. Currently, IBC has agreements with the relatively small ISPs while the three major ISPs in Israel (Bezeq International, Netvision and Partner) have no distribution agreements with IBC. IBC has recently retained Rothschild Bank in its attempt to find a strategic investor. Partner is examining the feasibility of such investment, as are other entities.
4B.11 INFORMATION TECHNOLOGY
We depend upon a wide range of information technology systems to support network management, subscriber registration and billing, customer service, marketing and management functions. These systems execute critical tasks for our business, from rating and billing of calls, to monitoring our points of sale and network sites, to managing highly segmented marketing campaigns. We have devoted resources to expanding and enhancing our information technology systems, including Customer Relations Management ("CRM") systems, which have contributed to our customers' satisfaction with our service, as well as updating our financial management and accounting system. We believe these systems are an important factor in our business success.
51 While many of our systems have been developed by third-party vendors, all of them have been modified and refined to suit our particular needs. In certain instances, we have developed critical information technology capabilities internally to meet our specific requirements. In connection with our transformation into a diversified multi-service communications provider, we have completed significant milestones in our CRM upgrade project. In addition, the Company invested resources to improve the quality of the IT processes and billing accuracy.
4B.12 INTELLECTUAL PROPERTY
We are the registered owners of the trademark "Partner" in Israel with respect to telecommunications-related devices and services, as well as additional trademarks. We have also registered several internet Web domain names, including, among others: www.partner.co.il. 012 Smile is the registered owner of several trademarks in Israel with respect to telecommunications- related services that include the numbers "012". In addition, 012 Smile has registered several internet Web domain names, including, among others, www.012.net and www.012.net.il. Partner is the assignee in a patent application filed in March 2012 that claims a method for delivering short messages originated by roaming prepaid subscribers. A Notice of Allowance was issued for the application in September 2013 and a patent was issued on January 14, 2014.
In addition, we are a full member of the GSMA Association. In conjunction with the promotion and operation of our GSM network, we have the right to use their relevant intellectual property, such as the GSM trademark and logo, security algorithms, roaming agreement templates, and billing transfer information file formats. We are eligible to remain a member of the GSMA Association for as long as we are licensed to provide GSM service.
4B.13 REGULATION
4B.13a Overview
We operate within Israel primarily under the Telecommunications Law, the Wireless Telegraphy Ordinance (New Version), 1972 (the "Wireless Telegraphy Ordinance"), the regulations promulgated by the Ministry of Communications and our license. The Ministry of Communications issues the licenses which grant the right to establish and operate mobile telephone and other telecommunication services in Israel, and sets the terms by which such services are provided. The regulatory framework under which we operate consists also of the Planning and Building Law, the Consumer Protection Law, 1981, and the Non-Ionizing Radiation Law. Additional areas of Israeli law may be relevant to our operations, including antitrust law, specifically the Restrictive Trade Practices Law, the Class Actions Law, 2006, the Centralization Law, 2013 and administrative law.
4B.13b Telecommunications Law
The principal law governing telecommunications in Israel is the Telecommunications Law and related regulations. The Telecommunications Law prohibits any person, other than the State of Israel, from providing public telecommunications services without a license issued by the Ministry of Communications.
General licenses, which relate to telecommunications activities over a public network or for the granting of nationwide services or international telecommunications services, have been awarded to the Bezeq Group, to the HOT Group, to four other cellular operators besides Partner and to the international operators. In addition, the Ministry of Communications has granted MVNO licenses to a number of companies. During 2015 and 2016, the Ministry of Communications substituted almost of the MVNO licenses and all general licenses for ILD services and unique- general licenses for fixed line services, with a single type of general unified license which governs all the services regulated under all of such licenses.
52 The Ministry of Communications has the authority to amend the terms of any license. The grounds to be considered in connection with such an amendment are government telecommunications policy, public interest, the suitability of the licensee to perform the relevant services, the promotion of competition in the telecommunications market, the level of service and changes in technology. The Ministry of Communications may also make the award of certain benefits, such as new spectrum, conditional upon the licensee's consent to a license amendment. The Ministry of Communications also has the authority to revoke, limit or suspend a license at the request of the licensee or when the licensee is in breach of a fundamental condition of the license, when the licensee is not granting services under the license or is not granting services at the appropriate grade of service or when the licensee has been declared bankrupt or an order of liquidation has been issued with respect to the licensee. Public interest may also be grounds for the rescission or suspension of a license.
The Ministry of Communications, with the consent of the Ministry of Finance, may also promulgate regulations to determine interconnect tariffs, or formulae for calculating such tariffs. Moreover, the Ministry of Communications may, if interconnecting parties fail to agree on tariffs, or if regulations have not been promulgated, set the interconnect tariff based on cost plus a reasonable profit, or based on each of the interconnecting networks bearing its own costs.
The Telecommunications Law also includes certain provisions which may be applied by the Ministry of Communications to general licensees, including rights of way which may be accorded to general licensees to facilitate the building of telecommunications networks or systems and a partial immunity against civil liability which may be granted to a general licensee, exempting the licensee, among others, from tort liability with the exception of direct damage caused by the suspension of a telecommunications service and damage stemming from intentional or grossly negligent acts or omissions of the licensee. The Ministry of Communications has applied the partial immunity provisions to us, including immunity in the event that we cause a mistake or change in a telecommunication message, unless resulting from our intentional act or gross negligence. The Ministry of Communications initiated a review to re-evaluate the scope of the immunity provisions.
The Ministry of Communications is authorized to impose significant monetary sanctions on a license holder that breaches a provision of the Telecommunications Law or of its license.
Frequency Fees. Under the Telegraph Regulations, the Company is committed to pay an annual fixed fee for each frequency used. For the years 2014, 2015 and 2016, the Company paid a total amount of approximately NIS 60 million, NIS 65 million and NIS 64 respectively. See also Note 17(1) to the consolidated financial statements. Under the above Regulations should the Company choose to return a frequency, such payment is no longer due. Commencing August 2016, the total amount of frequency fees of both the Company and Hot Mobile under the regulations is split between the Company and Hot Mobile, through PHI ,according to the OPEX-CAPEX mechanism (see also note 9 to the consolidated financial statements).
Royalties. Pursuant to the Communications Regulations (Telecommunications and Broadcasting) (Royalties), 2001, we pay royalties to the State of Israel every quarter based on our chargeable revenues, as defined in the regulation, from mobile telephone services, fixed-line services and ILD services, on a cumulative basis, excluding value-added tax. Revenues for purposes of royalty calculation also exclude different payments as in the regulations for each of the above services. The rate of these royalties has decreased in recent years. The royalty rate for 2012 was set at 1.3% and since 2013 the rate has been set at 0%.
4B.13c Fair Competition and Antitrust Law
Provisions prohibiting Partner from engaging in anti-competitive practices can be found in our license and in the licenses of the other telecommunications operators, in the various telecommunications regulations and in the Restrictive Trade Practices Law. Our license emphasizes the principle of granting users equal access to the systems of each of the operators upon equitable terms. The Telecommunications Law also provides certain protection against disruption of telecommunications services.
The Restrictive Trade Practices Law is the principal statute concerning restrictive practices, mergers and monopolies. This law prohibits a monopoly from abusing its market position in a manner that might reduce competition in the market or negatively affect the public. The law empowers the Commissioner of Restrictive Trade Practices to instruct a monopoly abusing its market power to perform certain acts or to refrain from certain acts in order to prevent the abuse. Bezeq has been declared a monopoly in certain markets, a ruling it failed to challenge successfully.
53 4B.13d Securities Administrative Enforcement and Antitrust Enforcement
An amendment to the Israeli Securities laws, which came into force in January 2011, established administrative enforcement measures for handling certain violations of certain securities and securities-related laws supervised by the Israeli Securities Authority, or ISA. This amendment allows the ISA to impose various civil enforcement measures, including financial sanctions, payment to the harmed party, prohibition of the violator from serving as an executive officer for a certain period of time, annulment or suspension of licenses, approvals and permits granted under such laws and an agreed settlement mechanism as an alternative for a criminal or administrative proceeding. In case of a violation by a corporation, the amendment provides for additional responsibility of the Chief Executive Officer in some cases, unless certain conditions have been met, including the existence of procedures for the prevention of the violation, as part of an internal enforcement plan. The Company is prohibited from insuring, paying or indemnifying directors or senior officers for financial sanctions imposed on them in accordance with this amendment subject to certain exemptions set forth in the law. The Company has implemented an internal enforcement plan in accordance with this amendment and has implemented an internal antitrust enforcement plan intended to ensure that all relevant parties in the Company comply with antitrust laws and regulations. The Company provides ongoing guidance and training to the Company's directors, office holders and relevant employees.
4B.13e Regulatory Developments
See also "Item 3D.1RISKS RELATING TO THE REGULATION OF OUR INDUSTRY" for a discussion of how recent regulatory developments create risks for our financial condition, business and results of operations.
4B.13e - i Consumer Protection License Amendments
The Ministry of Communications has conducted a number of hearings to address various alleged consumer issues. In January 2017, the MoC published its decision with respect to these hearings, in which it decided to carry out, among others, amendments regarding the following issues: addition of details on the main page of the terms sent to subscribers; provision of alerts to subscribers regarding the volume of services consumed; limitation on the provision of internet services to subscribers; limitations on certain tariffs charged from subscribers; provision of alerts to subscribers regarding an upcoming change in tariffs; imposing increased obligations for the documentation and safekeeping of information and recording of telephone calls; provisions regarding temporary suspension of services; provisions regarding the format of the invoice sent to subscribers; provisions regarding engagement in a "remote sales" transaction; regulation regarding credit of overcharges; and determination of provisions regarding international roaming services. The amendments in the hearings may have an adverse effect on the Company's results of operations.
4B.13e - ii The Economics Program Law (Legislative Amendments for the Implementation of the Economic Policy for the Budget Years 2017 and 2018), 2016 ("The Economic Program Law")
The Economic Program Law was enacted in December 2016, and set out three major reforms:
· Use of Passive infrastructures – domestic operators (including Bezeq and HOT) are required to allow all other domestic operators (such as Partner) use of their passive infrastructure;
· Exemption from building permits – domestic operators are now allowed to deploy fixed-line infrastructure without requiring building permits (under certain conditions);
54 · Multi- Channel Broadcast Distribution through Idan plus System – this reform aims to transform the Digital Terrestrial Television distribution system ("Idan plus") into a multi-channel TV subscription platform, in order to introduce additional competition into the TV market. In this context, it was determined, among others, that the operation of the system in terms of logistics and content, will be conducted by a private operator chosen by a tender. Such an operator may have competitive advantages over OTT TV services, such as those Partner plans to launch.
4B.13e - iii Cellular Network Coverage Amendments
Following a hearing published in July 2014, the Ministry of Communications published in February 2017, its decision regarding MRT licensees' network coverage. The Ministry's decision states the standards set in its decision reflect the current deployment and service levels of the 3G MRT networks in order to ensure that such levels are preserved.
Although the initial hearing was aimed at setting service and coverage standards for both 2G and 3G networks, the Ministry's decision set requirements for 3G in population coverage terms only and, at this stage, no parameters have been determined for 3G roads and railroad track coverage (as was originally contemplated).
4B.13e - iv Committee for the Regulation of the Broadcasting Market
In October 2015, the Minister of Communications appointed a committee, headed by the Director General of the Ministry of Communications, (the "Broadcasting Market Committee") to advise on the future regulation of the broadcasting and content market. According to the letter of appointment, the Committee has been requested to formulate recommendations and to suggest that a bill should be introduced for its implementation regarding the following issues: encouragement for new entry into the broadcast market and encouragement of market competition (including by new entrant protections); application of regulation on new content bodies in the market; encouraging Israeli original productions; the implications of the increase in content services provided over broadband and the supervisory and enforcement arrangements, if required.
In June 2016, the Committee published its report which included, among others, the following recommendations:
1. It was proposed to differentiate between the regulatory rules that will apply to audio visual content suppliers whose broadcasts are intended mainly for the Israeli public, based on their market share (in terms of income). For example, "narrower regulation" will be imposed upon a "smaller supplier" whose market share exceeds 10%, based on a license that will be granted to it, that will include, among others, classification and marking requirements, accessibility for disabled persons, protection of children and limitations on cross-ownership. "Wide regulation" shall be imposed on a "small and stable" provider that will acquire a market share of 10% for 3 consecutive years and on a material supplier, whose market share exceeds 20%, that will include, among others, investment and broadcast of original production obligations;
2. It was proposed to enforce a "must sell" obligation of sports channels and sports content, in accordance with payment arrangements that will be determined by the regulator. It was proposed to regulate the ownership division and other rights applicable to original productions, including "must sell" arrangements/regulations of these contents.
3. It was proposed to terminate the base package that HOT and Yes must provide and replace it with a core package that will include a wider range of content, including original productions through VOD services; and
4. It was proposed to determine arrangements regarding marketing content and to reduce the investment obligation in original productions that apply to HOT, Yes and commercial broadcasting licensees.
55 With respect to the recommendations set forth in sections 2 and 3 above, the Ministry of Communications held another hearing. See "Item 4B.13e - vi Hearings and Examinations- Regulation in the broadcasting area". Also see "Item3D.1f The State may impose regulations on TV content services provided over the Internet, which may negatively affect our business and results of operation."
On March 6, 2017, the Acting Minister of Communications decided to partially adopt the Committee's recommendations. However, the major issues that are relevant for us (for example, point 2 above) are still pending an additional hearing before a professional designated team that will submit their recommendations regarding implementation of the "must sell" obligation to the Minister.
4B.13e - v LTE Spectrum Allocation
The Israeli Ministry of Communications published a 4G frequencies tender in July 2014. In connection with the tender, the Company provided the government with a bank guarantee in the amount of NIS 10 million. Operators who were allocated with frequencies as part of the tender will be allowed to provide 4G services in the 1800 MHz spectrum.
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). Golan Telecom, Hot Mobile and Xphone were also each awarded a bandwidth of 2x5 MHz of frequencies in the 1800 band, Cellcom was awarded a bandwidth of 2x3 MHz of frequencies in the 1800 band and Pelephone was awarded three bandwidths of 2x5 MHz each of frequencies in the 1800 band. In August 2015, the Ministry of Communications allocated the frequency bandwidth of 5MHz in the 1800MHz spectrum to the Company, which the Company was awarded, as part of the 4G frequencies tender.
This frequency allocation, in addition to the 10 MHz which are in the Company's use, together with the 5 MHz band allocated to Hot Mobile which is a party to the limited partnership, has allowed the Company to realize a 20 MHz band for its 4G services and offer its customers a significantly improved data experience through a national deployment of its 1,850 4G sites that are already active. See "4B.9a Overview".
Hot Mobile, Golan Telecom, and Xphone, will be entitled to a discount at a rate of up to 50% of the amount that they will have to pay for the 4G frequencies (each addition of 1% market share will grant a discount at a rate of 10%, up to a maximum discount at a rate of 50%, during a period of 5 years).
See also "Item 3D.1m 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 or fail to respond to our demands for the allocation of additional spectrum. Such eventualities may adversely affect our business and results of operations.
4B.13e - vi Hearings and Examinations
The Ministry of Communications and other regulators have also conducted hearings and examinations on various matters related to our business, such as:
· Roaming fees. The Ministry of Communications is evaluating the cost of roaming and may introduce new regulations that would limit fees charged by Israeli cellular companies for calls made by the customers of foreign network operators while they are in Israel and using our network, as well as for calls made by our own customers using their handsets abroad. The Ministry of Communications has requested additional and more specific international roaming data from the cellular companies. Because we consider roaming charges to be a significant source of revenue, such regulatory limits could adversely affect our revenues.
· Roaming services. In August 2014, the Ministry of Communications published a hearing aimed at increasing competition in roaming services abroad currently provided by cellular licensees. As part of the hearing, the Ministry proposed to enable every cellular subscriber to receive roaming services abroad from operators which are not his cellular provider (on top of his cellular operator) while keeping his cellular number. These alternative roaming providers include other cellular licensees, MVNOs, ISPs, ILD licensees and fixed telephony licensees. The Ministry of Communications also suggested determining various measures intended to improve transparency and to limit subscriber payments only to the exact volume of services consumed. Such measures include: all roaming calls abroad (incoming and outgoing) would be billed using time units of 1 second; all roaming data sessions would be billed using volume units of 1KB; the billable duration of all voice calls would be from the second in which the call was connected and until it ended (explicitly excluding any wait period from pushing the "call" button until the call is connected). Because we consider roaming charges to be a significant source of revenue, such regulatory limits could adversely affect our revenues.
56 · Frequency fees. The Ministry of Communications is conducting a re-assessment of the frequency fees set forth in the law, which includes the assessment as to its economic value, in order to support effective allocation and the utmost utilization of the frequencies.
· Roaming services during emergencies. In September 2012, the Ministry of Communications published a hearing with respect to roaming during a state of emergency or during a significant continuous malfunction in which the Ministry of Communications considers determining that under certain conditions, upon the Minister of Communications' instruction, cellular operators that have their own network infrastructure, will be required to provide roaming services to the subscribers of other cellular operators that have network infrastructure, whose network has been rendered non-functioning for a significant amount of time following an event resulting from a state of emergency, a telecommunications crisis or during a significant continuous malfunction. The Company submitted its response to the hearing in October 2012. The revenues of the Company would be adversely affected if these proposed new regulations are adopted.
· Intervention in international call market. In October 2013, the Ministry of Communications published a hearing regarding new regulation of the international call market. In the hearing, it was proposed by the Ministry to allow all general licensees (including MVNOs) to provide international call services to their subscribers, with respect to the international destinations which are included in their subscribers' tariff plans and to international destinations for which the tariff is lower or equal to the tariff of a call on the licensee's network ("Included Destinations"). The Ministry of Communications also proposed in the hearing that the general licensees (such as cellular operators) would not be allowed to collect an interconnect fee for outgoing international calls. The Company submitted its response to the hearing in January 2014. In October 2014, the Ministry published a secondary hearing on this matter, in which it proposed that all outgoing international calls which are not to Included Destinations, shall be preceded with a voice message stating the tariff of such call and allowing the subscriber to disconnect without being charged. The Company submitted its response to this secondary hearing in October 2014. The revenues of the Company may be adversely affected if the changes proposed in these hearings are adopted.
· Filtering of offensive websites and content. In August 2014, the Ministry of Communications published a hearing regarding proposed amendments to telecommunications licenses granted to various operators, including the Company and its subsidiaries. According to the Telecommunications Law, ISP and cellular licensees, are required to provide a service for filtering of offensive websites and content at no additional cost to the subscriber. The Law also includes provisions which oblige said licensees to inform their subscribers of the dangers of internet use (including offensive websites and content).As part of the hearing, it is proposed to amend the ISP and cellular licenses to include additional requirements to the existing requirements described above. The proposed amendments include, among others, the following matters: (1) detailed specifications of the filtering service; (2) requirements regarding the informational leaflet to be provided to the subscriber; and (3) an obligation to offer filtering software to be installed on any type of terminal equipment. In October 2014, the Company filed its written position seeking to limit the impact of the proposed amendments. In November 2016, the Ministry of Communications sent the operators a request for information regarding the execution of the filtering obligation of offensive websites and content, in light of the complaints received with respect to the implementation of the existing provisions regarding this matter. In this context, the Ministry sought to receive information with respect to, among others, the tools used by the Company to implement the license provisions and the rules and laws by which the filtering is executed. In addition, recently, a number of draft bills have been submitted to the Knesset suggesting broadening the existing requirements regarding content and site filtering.
57 · Consumer protection-call centers. In August 2014, the Ministry of Communications published a hearing regarding proposed amendments to telecommunications licenses granted to various operators, including the Company and its subsidiaries. As part of the hearing, it is proposed to amend the licenses with respect to the quality of service of the licensees' call centers. The amendments include, among others, the following matters: the maximum response times for each call and the average daily response times; recording requirement regarding a billing inquiry, termination of all services or termination of a single service calls; and requirement to issue and to publish on the licensees' websites detailed weekly reports that will include complete data in relation to their conduct regarding response times. The Company submitted its response to the hearing in October 2014. In parallel to the hearing, the Ministry of Communications published a draft memorandum with respect to the Telecommunications Law, according to which a subscriber will be able to sue for a fixed amount of compensation in case a licensee fails to meet the proposed response times and for compensation in case of an over charge in the monthly bill, both without proving damages. The Company submitted its response to the draft memorandum in October 2014. These amendments may have an adverse effect on the Company's results of operations.
· Transmission line connections between ISP providers' facilities and fixed-line infrastructure. In April 2015, the Ministry of Communications published a hearing, stating that Bezeq and Hot Telecom (the "infrastructure owners") would not be allowed to oblige ISP providers to purchase "Gigabit Ethernet" services (transmission services which connect ISP's facilities to Bezeq and Hot Telecom's infrastructures) from the infrastructure owners and the ISP providers would be allowed to purchase "Gigabit Ethernet" services from other licensees or perform such connections themselves. As part of the hearing, the Ministry stated that such a practice of the infrastructure owners does not presumably comply with the Telecommunications Law, which states that a licensee will be forbidden to condition the supply of a certain telecommunications service upon the supply of another telecommunications service. The Company submitted its response to this hearing. If the final decision in this hearing process will be as suggested in the hearing, the Company may be positively affected by the results of the hearing.
· Change of "Subscriber" definition in numbering plan regarding number portability. In May 2015, the Ministry of Communications published a hearing aimed at amending the definition of a "Subscriber" in the numbering plan regarding number portability ("Number Portability Plan"). According to the hearing, the suggested amendment is meant to increase competition in the cellular market by allowing a subscriber who received his phone number from his employer, to keep the phone number when migrating to another cellular operator. In addition, the Ministry suggests, as part of the hearing, to set certain changes in the Number Portability Plan, with respect to the identification of an applicant to keep his phone number in the event of a change of a cellular operator. The Company submitted its response to this hearing in June 2015. These amendments may have an adverse effect on the Company's results of operations. Despite the fact that a decision has not yet been rendered regarding this hearing, in September 2016, the Ministry published a press report stating that there is no place for the practice where cellular operators allow large businesses to block their employees from porting out their phone numbers. In this report, it was noted that the Ministry is considering forbidding this practice and that it intends to allow business entities that have adopted this practice a period of six months to prepare and settle the issue in employment agreements or otherwise.
· Communication facilities in residential buildings. In May 2015, the Ministry of Communications published a hearing with respect to the installation of telecom cables in residential buildings. According to the hearing, the Ministry received several complaints from the IBC - Israel Broadband Company, which indicates that in many residential buildings, all telecom cabinets and ducts are fully occupied by infrastructure deployed by Bezeq and Hot, in a manner that prevents deployment of other infrastructure, including telecom cables, by another company. Accordingly, the Ministry proposed that several orders should apply to HOT and Bezeq in order to remove the barriers for the deployment of telecommunications infrastructure by other telecom providers. The Company submitted its response to this hearing. The Company may be positively affected by the results of the hearing.
58 · Licensing of commerce and import of terminal equipment. In February 2016, the Ministry of Communications published a hearing in which it was proposed to amend regulations that apply to the import of terminal equipment that uses the cellular method, for example, Handsets, tablets, routers etc. As part of the hearing, the Ministry proposes, among others, to expand the technologies to which the exemption from receiving a type approval and commerce license applies, to expand the scope of the exemption also to equipment that is not new and to determine a full exemption from licensing for dealers and store owners in Israel that are not importers. At the same time, it is proposed in the hearing to determine a reporting obligation for cellular equipment importers, to condition the granting of the exemption on the existence of Cell Broadcast technology used for disseminating messages and to confer various authorities to the Ministry of Communications with respect to importers and dealers of cellular equipment, for example the authority to request information, delivery of equipment and temporary suspension of commerce. These amendments may have an adverse effect on the Company's results of operations.
· Monitoring and reporting. In April 2016, the Ministry of Communications published two hearings regarding the supervisory powers held by the Ministry and the reporting duties applicable to licensees. In this context, the Ministry plans to terminate the current regulations, which govern the Ministry's supervisory activity given that such powers are now prescribed in the Telecommunications Law. The Ministry plans to draft new regulations which will outline the Ministry's authority to require various reports from licensees. The Company submitted its response to the hearing in May 2016. These amendments may intensify the regulatory burden applicable to the Company and may have an adverse effect on its results of operations.
· Timing of the establishment of a phone call. In May 2016, the Ministry of Communications published a hearing in which it was proposed to determine that for any service based on a telephone call, the timing for establishment of the call, for the purpose of charging a subscriber, shall be from the moment of creation of a bi-directional connection between the terminal equipment of the calling subscriber and the terminal equipment of the subscriber receiving the call and until the termination of this two-way connection. In accordance with the hearing, any situation in which this directional connection has not yet been established shall not be considered as billable call time, unless specifically excluded as part of the licenses. The Company submitted its response to the hearing in June 2016. These amendments may have an adverse effect on the Company's results of operations.
· Interest for late payment and collection charges. In July 2016, the Ministry of Communications published a hearing aimed at regulating and limiting the manner in which licensees may charge interest for late payments and collection charges from debtors. The hearing proposed, among others, to determine that the telecommunications operator may charge interest for late payment up to a rate set forth in section 1 of the Adjudication of Interest and Linkage Law, also in a case in which legal action was taken against the debtor. In addition, it was proposed to limit the maximum amount that can be collected from subscribers for collection charges. The Company submitted its response to the hearing in September 2016.
· Prohibition of discrimination between subscribers. In August 2016, the Ministry sent a request for information to telecommunication operators, regarding the conditions of the existing licenses that require the provision of services on equal terms and prohibit discrimination between subscribers. In accordance with the request, these provisions should be considered, among others, in light of the reforms that have been executed in the broadcasting market, reduction of transition barriers between operators and transferring to "all inclusive" packages. In this context, the Ministry requested responses to a number of matters including whether it is required to approve deals for new subscribers, whether it is necessary to determine provisions regarding the transparency of deals, whether it is required to confirm the grant of leniencies to new entrants and should the option to collect "transition fees" between plans be terminated. The Company submitted its response to the hearing in September 2016. Some of the suggested changes in this request for information, such as leniencies to new entrants and the ban on transition fees may have an adverse effect on the Company's results of operations.
59 · Regulation in the broadcasting area. In June 2016, a recommendations report of the advisory committee regarding the regulation of the broadcasting sector ("Broadcasting Market Committee") was published. See "Item 4B.13e - iv Committee for the Regulation of the Broadcasting Market ". With respect to some of the recommendations in the report, it was decided in September 2016 on the formation of an inter-office team, that would submit to the Minister of Communications specific recommendations for implementation, after holding a hearing that would allow relevant entities that are interested, in submitting their position. This pertains to two main issues: (1) the "must sell" obligation for the sale of sports channels and content to content providers that operate under a license and the sale of rights to broadcast original productions and (2) an arrangement to terminate the base packages that Yes and HOT are currently obligated to and to expand the base package that they market to a core package. The core package will include, besides the channels that licensees are legally obligated to provide to their subscribers, two additional channels produced in Israel-a sports channel and a kids channel and will also include access to original productions through Video on Demand (VOD) of significant providers.
· Functional Continuity During Emergencies. In November 2016, the Ministry of Communications published a hearing regarding the preparation of licensees for emergencies and ensuring continuity of the service during a state of emergency. In this context, the Ministry proposed to add to the telecommunication licenses various provisions regarding planning supportive infrastructures at core sites of the companies, for example, power systems, air conditioning, fire detection and extinguishing, emergency lighting and cameras. The Company submitted its response to the hearing in November 2016. These amendments may have an adverse effect on the Company's results of operations.
4B.13e - vii The Ministry of Communications policy regarding the fixed-line telecommunications sector
In May 2012, the Ministry of Communications published the final policy document with respect to increasing competition in the fixed-line telecommunications market. The document adopted the main recommendations of the Hayek Committee, a committee formed by the MoC to study and make recommendations regarding the Israeli telecommunications market. The main points were as follows:
A. Sale of wholesale services:
i. The two wireline infrastructure operators that provide retail telecommunication services will be required to offer wholesale services to the other telecommunication providers, that will offer services on the owners' infrastructure (the wholesale market), based on non-discriminatory conditions.
ii. The wholesale services tariffs and the terms of agreement shall be determined through negotiations between the two wireline infrastructure operators and the service providers. An infrastructure owner that reaches an agreement with such other provider shall be required to offer the same terms, without discrimination, to all other providers. Affiliates of the infrastructure owner shall also be allowed to purchase wholesale services as long as these will be provided without discrimination to all other providers.
iii. The Ministry of Communications shall intervene and set the wholesale tariffs and said terms of agreement, in case an agreement has not been reached between the parties within 6 months from the date of the publication of the policy document or if the agreement between the parties includes tariffs or terms that are unreasonable, may harm the competition, may harm the public welfare or may harm the interest of the service provider.
B. Structural Separation
i. Within 9 months of a signed agreement between said parties, the structural separation between the fixed-line infrastructure owner and its international call provider and internet service provider (ISP) affiliates shall be abolished and replaced by an accounting separation.
60 ii. The Minister of Communications shall consider providing leniencies or abolishing the structural separation (and replacing it with an accounting separation) between the fixed-line infrastructure owner and its affiliated cellular operator, in accordance with the development of the wholesale market and the pace of development of competition based on packaged services that combine fixed-line services and cellular services in the private sector.
iii. In case a proper and appropriate wholesale market does not develop within 24 months from the date of the publication of the policy document, the Minister of Communications shall act to impose a structural separation in the fixed-line infrastructure owners, between the infrastructure and the services provided through this infrastructure to the end-customers.
C. Supervision over Bezeq Tariffs
Within 6 months from the date such an agreement is signed between the said parties, the Ministry of Communications shall act to change the manner of supervision over Bezeq tariffs so that the supervision shall be done by setting a maximum tariff.
D. Television Broadcasts
i. The Ministry of Communications shall examine imposing a requirement to offer unbundled television services that are included in services packages that include telecommunication services (fixed-line and mobile) or broadband access services, which means a requirement to provide them at the same tariff as part of a service package or separately.
ii. The abolishing of the structural separation with respect to multi-channel television shall be done if there is a reasonable possibility to provide a basic package of television services through the internet by service providers that do not own fixed-line infrastructure.
In June 2013, since no agreement had been achieved according to clause a(iii) above, the Ministry of Communications published a hearing regarding a basic offering of wholesale services and their prices, that an infrastructure owner shall be required to offer on the same terms, without discrimination, to all providers. After a long process involving several hearings (regarding the texts of the relevant service portfolios and the prices of said wholesale services), in November 2014, the Ministry of Communications published the decision of the Minister of Communications regarding regulation of the wholesale market for broadband fixed-line telecommunications services - defining a format for the supply of wholesale services and setting a tariff for the supply of these services.
Within this framework, the Minister of Communications decided to amend the licenses of the infrastructure owners - Bezeq and HOT - and to prescribe the service portfolio - managed broadband access and wholesale telephony service. The regulations attached to the Minister of Communications' decision prescribe the obligation to supply the wholesale services, including ancillary services, as well as maximum tariffs (requiring the approval of the Minister of Finance) for the said wholesale services. The tariffs set at this stage, relate solely to services to be provided by Bezeq. The Ministry of Communications initiated a separate regulation process addressing the tariffs for the wholesale services to be provided by HOT, a cable infrastructure owner, as described hereinafter.
In December 2014, Bezeq submitted a petition to the High Court of Justice against the MoC and the Minister regarding said decision. In the petition Bezeq claims, among others, that the hearing procedure conducted by the MoC did not comply with the administrative law requirements and that both the wholesale telephony service and the tariffs that were set for the wholesale market services deviate from the Minister's authority under the Law. The Company was nominated as a respondent to the petition. If changes are made to the Minister's decision that cause an increase in the wholesale tariffs or a worsening of the technical and operational standards set by the MoC, this could negatively affect our results of operations. In October 2015, the Court published a decision, in which the Court rejected Bezeq claims with respect to the feasibility of implementation of a telephony wholesale market. The MoC has since published a consultation with respect to the resale of Bezeq's telephony services during an interim period of approximately one year.
Margin Squeeze - In November 17, 2014, the Ministry of Communications published a hearing to examine the format for preventing a "margin squeeze" by the fixed-line infrastructure owners - Bezeq and HOT - which occurs when an infrastructure owner lowers its retail prices and narrows the margin between its retail prices and the wholesale price of those infrastructure inputs being purchased by service-providers to a level that erodes the service-providers' margin to the point of eradicating the economic feasibility of continuing their operations, the objective being to push service-providers out of the market. The Company submitted its response to the hearing in December 2014. Should the Ministry of Communications' decision with regard to the margin squeeze mechanism not prove effective in ensuring the effectiveness of the wholesale market, our profitability and results of operations could be materially adversely affected.
61 In December 2015, the MoC issued an administrative instruction regarding the use of terminal equipment, as part of the wholesale market services, in order to ensure continuity of the service for the end users. As part of its decision, the MoC established the following arrangements:
o A service provider which loaned or rented terminal equipment to its subscriber, that later becomes a subscriber of another service provider in the wholesale market, will not be able to prevent or limit the continuity of the subscriber's ordinary use of the terminal equipment, for a period of 21 days;
o The payment to the service provider for the terminal equipment during such interim period will be performed by the subscriber, in a similar manner to its arrangement with its previous service provider (and the subscriber would not pay any payment for such equipment to the new service provider).
In July 2015, one day before the date of entry into force of the wholesale service of access to passive infrastructure of infrastructure owners, the Ministry of Communications published new instructions regarding the compliance with security requirements in relation to the use of HOT and Bezeq's passive infrastructure, valid until November 1, 2015. According to the instructions, during such period, the performance of the work required for the grant of access to HOT and Bezeq's infrastructure will be made only by the infrastructures owners (Bezeq or HOT) and not by the service providers. In addition, the instructions set restrictions regarding the access to the infrastructure owner's information, concerning the deployment of infrastructure. Although the abovementioned interim period has since passed, the MoC failed to effectively enforce its abovementioned decision on Bezeq.
As part of the Economic Program Law for the years 2017-2018, that was published at the end of December 2016 it was determined, among others, that Bezeq and HOT Telecom will be required to allow other domestic operators including Partner, access to passive infrastructures. Following the enactment of this legislation, Bezeq has begun to observe its duty to provide access to its passive infrastructures.
In December 2015, the Ministry of Communications published a hearing with respect to the resale of Bezeq's telephony services in the wholesale market. In the hearing, the Ministry proposed to allow Bezeq to offer telephony services in a resale format, instead of the wholesale telephony service, for a period of 12 months; this, by amendment of Bezeq's general license and adding the said services to the list of services that Bezeq may provide. Respectively, the Ministry is considering amending Bezeq's license so that during this interim period, Bezeq will not be obliged to offer wholesale telephony services. According to the hearing, the payment offered by Bezeq for the resale of services will be derived from the retail prices of Bezeq's attractive minute bundles which are reduced at a rate of 40%, and said reduction should be derived from the average rates for the first and second year tariffs of these bundles. The Company submitted its response to this hearing in the beginning of 2016 in which it argued against the interim arrangement and the MoC authority to set wholesale prices in a license (such regulation requires the setting of regulations to be co-signed by the Minister of Finance). Alternatively, the Company argued that the suggested price for the resale telephony service is too high and does not leave any margin for competition and market entry.
In order to provide an incentive for Bezeq to implement the wholesale market, the MoC has announced that it intends to cancel the regulations requiring Bezeq to maintain a "structural separation" between its fixed-line and mobile telecommunications operations, and to change the current retail fixed-price tariff control mechanism to a "maximum tariff" one. In 2016, the MoC has published official announcements which indicate its satisfaction with the implementation of the wholesale market reform. We have strongly opposed the factual descriptions and the conclusions in the announcement. Furthermore, in December 2016, the MoC also declared its intention to promote the cancelation of "corporate separation" in the Bezeq Group, subject to a hearing, and to publish a hearing in 2017 suggesting canceling the "structural separation" in the Bezeq Group. The Ministry of Finance, the Anti-Trust Commissioner and the State Comptroller have stated their objection to the implementation of the MoC's intent at this stage. If the MoC removes the structural separation provisions based on its above-mentioned announcements before we have firmly established ourselves in the fixed-line telecommunications services market (in both fixed-line telephony and broadband), Bezeq may be able to propose bundled services more effectively than us, and thereby gain a competitive advantage which would negatively affect our results of operations. Also see "Item 3D.1b If the structural separation provisions (which apply to Bezeq and HOT) are not enforced or are removed before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations."
62 In January 2016, The MoC published a consultation regarding the maximum prices HOT may charge for its wholesale BSA product. The Company submitted its response to the hearing in April 2016. During February 2017, HOT filed an administrative appeal against the MoC stating, among other claims, that the Ministry is obliged to carry out a secondary consultation regarding the prices it plans to set.
Service Level in the Wholesale Market. In May 2016, the Ministry of Communications published a hearing in which it was proposed to amend the service file of Bezeq and HOT Telecom for the provision of wholesale market services (BSA and Telephony), regarding the service levels (SLA) for the provision of the services. In this context, it was proposed to determine, among others, that the service level that will apply to the services will be identical to the service level that applies to the retail services, in order to create a match between the wholesale and retail markets. In addition, it was proposed to determine that insofar as there will be a deterioration in the level of the service actually provided by the Bezeq company, the deterioration will be examined against the relative increase in the scope of the subscribers that are using the company's infrastructure. It was also proposed in the hearing to impose an obligation on the infrastructure owners to publish on their websites information regarding the installations, equipment shifting, repairs and response times of the infrastructure owners. The Company submitted its response to the hearing in June 2016. The suggested changes to the service file may have an adverse effect on the Company's results of operations.
Use of Terminal Equipment on the HOT Telecom Network. In December 2016, the Ministry of Communications published a hearing regarding the use of terminal equipment on the HOT Mobile network as part of the wholesale market services. As part of the hearing, the Ministry proposed to establish a director's instruction according to which a service provider in the wholesale market will be required to allow a subscriber to make use of its terminal equipment for 21 days, after the transfer date of the subscriber to another provider. In addition, the Ministry proposed in the hearing to determine provisions regarding the obligation to inform a subscriber transferring to another provider of his obligation to return the terminal equipment after the end of said period and of the obligation to give to the transferring subscriber a confirmation regarding the return of the equipment to the provider that the subscriber is leaving. The Company submitted its response to the hearing in December 2016. The proposed amendments may have an adverse effect on the Company's results of operations.
Payment to Bezeq for Technician Visits. In January 2017, the MoC published a hearing in which the Ministry expressed its opinion that service providers should be required as of February 2017 to pay Bezeq for the costs of technician visits while installing infrastructure as part of the BSA service at a cost of NIS 158 (not including VAT). The Company submitted its response to the hearing in January 2017. These changes may have an adverse effect on the Company's results of operations. See "Item 3D.1a If the Ministry of Communications continues to fail to enforce its fixed-line wholesale market reforms on Bezeq and HOT Telecom, this may negatively affect our business and results of operations."
4B.13e - viii Anti-Trust Regulation.
Pursuant to the Israeli Restrictive Trade Practices Law, if the Anti-Trust Commissioner decides that the Israeli cellular market is oligopolistic, the Director General will have the authority to give instructions to all or some of the participants in our market, in order to, among other objectives, maintain or increase the competition level among the participants, the Director General's authority would include the ability to issue orders to remove or to ease entry or transfer barriers, to terminate a participant's activity, or otherwise to regulate the activities of the market.
4B.13f Our Mobile Telephone License
On April 7, 1998, the Ministry of Communications granted to us a general license to establish and operate a mobile telephone network in Israel as well as offer roaming services outside the State of Israel.
63 Under the terms of the license, we have provided a $10 million guarantee to the State of Israel to secure the Company's adherence to the terms of the license.
Our license allocates to us specified frequencies and telephone numbers.
Term. Our license was originally valid for a period of ten years (until April 2008), but has been extended until 2022. At the end of this period, the license may be extended for additional six-year periods upon our request to the Ministry of Communications, and a confirmation from the Ministry of Communications that we have met the following performance requirements:
· observing the provisions of the Telecommunications Law, the Wireless Telegraphy Ordinance, the regulations and the provisions of our license;
· acting to continuously improve our mobile telephone services, their scope, availability, quality and technology, and that there has been no act or omission by us harming or limiting competition in the mobile telephone sector;
· having the ability to continue to provide mobile telephone services of a high standard and to implement the required investments in the technological updating of our system in order to improve the scope of such services, as well as their availability and quality; and
· using the spectrum allocated to us efficiently, compared to alternative applications.
We believe that we will be able to receive an extension to the license upon request.
Our license may also be revoked, limited or altered by the Ministry of Communications if we have failed to uphold our obligations under the Telecommunications Law, the Wireless Telegraphy Ordinance or the regulations, or have committed a substantial breach of the license conditions. Examples of the principal undertakings identified in our license in this connection are:
• We have illegally ceased, limited or delayed any one of our services;
• Any means of control in Partner or control of Partner has been transferred in contravention of our license;
• We fail to invest the required amounts in the establishment and operation of the mobile radio telephone system in accordance with our undertakings to the Ministry of Communications;
• We have harmed or limited competition in the area of mobile radio telephone services;
• A receiver or temporary liquidator is appointed for us, an order is issued for our winding up or we have decided to voluntarily wind up; or
• Partner, an Office Holder in Partner or an Interested Party in Partner or an Office Holder in an Interested Party of Partner is an Interested Party in a competing mobile radio telephone operator or is an Office Holder in a competing mobile radio telephone operator or in an interested party in a competing mobile radio telephone operator without first obtaining a permit from the Ministry of Communications to do so or has not fulfilled one of the conditions included in such permit. See "Item 4B.13f Our Mobile Telephone License-Our Permit Regarding Cross Ownership."
Our license authorizes us on a non-exclusive basis to establish and operate a mobile telephone network in Israel. The Ministry of Communications amended our license in August 2015 to include the provision of 4G services in the 1800 MHZ spectrum and to allow us access network sharing with Hot Mobile, another cellular operator at a bandwidth of up to 25 MHZ in the 1880 MHZ spectrum. See "Item 4B.9d Spectrum Allocation and Capacity".
License Conditions. Our license imposes many conditions on our conduct.
· We must at all times be a company registered in Israel.
· Our founding shareholders and their approved substitutes must hold, in the aggregate, at least 26% of each of our means of control. Furthermore, the maintenance of at least 26% of our means of control by our founding shareholders and their approved substitutes allows Partner to be protected from a license breach that would result from a transfer of shares for which the authorization of the Ministry of Communications was required, but not obtained.
64 · Israeli entities from among our founding shareholders and their approved substitutes must hold at least 5% of our issued and outstanding share capital and of each of our means of control. "Israeli entities" are defined as individuals who are citizens and residents of Israel and entities formed in Israel and controlled, directly or indirectly, by individuals who are citizens and residents of Israel, provided that indirect control is only through entities formed in Israel, unless otherwise approved by the Israeli Prime Minister or Minister of Communications.
· At least 10% of our Board of Directors must be appointed by Israeli entities, as defined above, provided that if the Board of Directors is comprised of up to 14 members, only one such director must be so appointed, and if the Board of Directors is comprised of between 15 and 24 members, only two such directors must be so appointed.
· Matters relating to national security shall be dealt with only by a Board of Directors' committee that has been formed for that purpose. The committee includes at least 4 members, of which at least one is an external director. Only directors with the required clearance and those deemed appropriate by Israel's General Security Service may be members of this committee. Resolutions approved by this committee shall be deemed adopted by the Board of Directors.
· The Ministry of Communications shall be entitled to appoint an observer to the Board of Directors and its committees, subject to certain qualifications and confidentiality undertakings.
Contracting with Customers. Pursuant to our license, we have submitted our standard agreement with customers to the Ministry of Communications for their examination. To date, we have not received any comments from the Ministry of Communications regarding this agreement.
Tariffs. Our license requires us to submit to the Ministry of Communications our tariffs (and any changes in our tariffs) before they enter into effect. Our license allows us to set and change our tariffs for outgoing calls and any other service without approval of the Ministry of Communications. However, the Ministry of Communications may intervene in our tariffs if it finds that our tariffs unreasonably harm consumers or competition.
Payments. Our license specifies the payments we may charge our subscribers. These include one-time installation fees, fixed monthly payments, airtime fees, payments for the use of other telecommunication systems, payments for handset maintenance and payments for additional services. In some of our tariff plans we have chosen to charge only for airtime and use of services. See "Item 4B.6c Tariff Plans."
Interconnection. Like the licenses of Pelephone, Cellcom and HOT Mobile, our license requires that we interconnect our mobile telephone network to other telecommunications networks operating in Israel, including that of Bezeq and other domestic fixed-line operators, the other mobile telephone operators and the international operators.
Conversely, we must allow other network operators to interconnect to our network. See "Item 4B.9g Interconnection".
Service Approval. The Ministry of Communications has the authority to require us to submit for approval details of any of our services (including details concerning tariffs). In addition, we are required to inform the Ministry of Communications prior to the activation of any service on a specified list of services.
Access to Infrastructure. The Ministry of Communications has the power to require us, like the other telephone operators in Israel, to offer access to our network infrastructure to other operators. We may also be required to permit other operators to provide value-added services using our network.
65 Universal Service. We are required to provide any service with the same coverage as our existing network. According to our license, we are required to meet certain coverage requirements for our 3G and 4G services. See "Item 4B.13e - iii Cellular Network Coverage Amendments".
Territory of License. In May 2000, we were also granted a license from the Israeli Civil Administration, to provide mobile services to the Israeli populated areas in the West Bank. The license is effective until February 1, 2022. The provisions of the general license described above, including as to its extension, generally apply to this license, subject to certain modifications. We believe that that we will be able to receive an extension to this license upon request.
Transfer of license, assets and means of control. Our license may not be transferred, mortgaged or attached without the prior approval of the Ministry of Communications.
We may not sell, lease or mortgage any of the assets which serve for the implementation of our license without the prior approval of the Ministry of Communications, other than in favor of a banking corporation which is legally active in Israel, and in accordance with the conditions of our license.
Our license provides that no direct or indirect control of Partner may be acquired, at one time or through a series of transactions, and no means of control may be transferred in a manner which results in a transfer of control, without the consent of the Ministry of Communications. Furthermore, no direct or indirect holding of 10% or more of any means of control may be transferred or acquired at one time or through a series of transactions, without the consent of the Ministry of Communications. In addition, no shareholder of Partner may permit a lien to be placed on shares of Partner if the foreclosure on such lien would cause a change in the ownership of 10% or more of any of Partner's means of control unless such foreclosure is made subject to the consent of the Ministry of Communications. For purposes of our license, "means of control" means any of:
• voting rights in Partner;
• the right to appoint a director or managing director of Partner;
• the right to participate in Partner's profits; or
• the right to share in Partner's remaining assets after payment of debts when Partner is wound up.
Each of our ordinary shares and ADSs is considered a means of control in Partner.
In addition, Partner, any entity in which Partner is an Interested Party, as defined below, an Office Holder, as defined below, in Partner or an Interested Party in Partner or an Office Holder in an Interested Party in Partner may not be a party to any agreement, arrangement or understanding which may reduce or harm competition in the area of mobile telephone services or any other telecommunications services.
In connection with our initial public offering, our license was amended to provide that our entering into an underwriting agreement for the offering and sale of shares to the public, listing the shares for trading, and depositing shares with the depositary or custodian will not be considered a transfer of any means of control, as defined below. Pursuant to the amendment, if the ADSs (or other "traded means of control," that is, means of control which have been listed for trade or offered through a prospectus and are held by the public) are transferred or acquired in breach of the restrictions imposed by the license with respect to transfer or acquisition of 10% or more of any means of control, we must notify the Ministry of Communications and request the Ministry's consent within 21 days of learning of the breach. In addition, should a shareholder, other than a founding shareholder, breach these ownership restrictions, or provisions regarding acquisition of control or cross-ownership or cross-control with other mobile telephone operators or shareholdings or agreements which may reduce or harm competition, its shareholdings will be marked as exceptional shares and will be converted into dormant shares, as long as the Ministry's consent is required but not obtained, with no rights other than the right to receive dividends and other distributions to shareholders, and to participate in rights offerings.
The dormant shares must be registered as dormant shares in our share registry. Any shareholder seeking to vote at a general meeting of our shareholders must notify us prior to the vote, or, if the vote is by deed of vote, must so indicate on the deed of vote, whether or not the shareholder's holdings in Partner or the shareholder's vote requires the consent of the Ministry of Communications due to the restrictions on transfer or acquisition of means of control, or provisions regarding cross-ownership or cross-control with other mobile telephone operators or shareholders. If the shareholder does not provide such certification, his instructions shall be invalid and his vote not counted.
66 The existence of shareholdings which breach the restrictions of our license in a manner which could cause them to be converted into dormant shares and may otherwise provide grounds for the revocation of our license will not serve in and of themselves as the basis for the revocation of our license so long as:
• the founding shareholders or their approved substitutes of Partner continue to hold in the aggregate at least 26% of the means of control of Partner;
• our Articles of Association include the provisions described in this paragraph;
• we act in accordance with such provisions;
• our Articles of Association provide that an ordinary majority of the voting power at the general meeting of Partner is entitled to appoint all the directors of Partner other than external directors.
The dormant share mechanism does not apply to our founding shareholders.
The provisions contained in our license are also contained in our Articles of Association. In addition, our Articles of Association contain similar provisions in the event the holdings of shares by a shareholder breaches ownership limits contained in our license.
Revoking, limiting or altering our license. Our license contains several qualifications that we are required to meet. These conditions are designed primarily to ensure that we maintain at least a specified minimum connection to Israel. Other eligibility requirements address potential conflicts of interest and cross-ownership with other Israeli telecommunications operators. The major eligibility requirements are set forth below. A failure to meet these eligibility requirements may lead the Ministry of Communications to revoke, limit or alter our license, after we have been given an opportunity and have failed to remedy it.
• Founding shareholders or their approved substitutes must hold at least 26% of the means of control of Partner.
• Israeli entities from among our founding shareholders and their approved substitutes must hold at least 5% of our issued share capital and of each of our means of control.
• The majority of our directors, and our general manager, must be citizens and residents of Israel.
• Neither the general manager of Partner nor a director of Partner may continue to serve in office if he has been convicted of certain legal offenses.
• No trust fund, insurance company, investment company or pension fund that is an Interested Party in Partner may: (a) hold, either directly or indirectly, more than 5% of any means of control in a competing mobile radio telephone operator without having obtained a permit to do so from the Ministry of Communications, or (b) hold, either directly or indirectly, more than 5% of any means of control in a competing mobile radio telephone operator in accordance with a permit from the MoC, and in addition have a representative or appointee who is an Office Holder in a competing mobile radio telephone operator, unless it has been legally required to do so, or (c) hold, either directly or indirectly, more than 10% of any means of control in a competing mobile radio telephone operator, even if it received a permit to hold up to 10% of such means of control.
• No trust fund, insurance company, investment company or a pension fund that is an Interested Party in a competing mobile radio telephone operator may: (a) hold, either directly or indirectly, more than 5% of any means of control in Partner, without having obtained a permit to do so from the Ministry of Communications; or (b) hold, directly or indirectly, more than 5% of any means of control in Partner in accordance with a permit from the Ministry of Communications, and in addition have a representative or appointee who is an Office Holder in Partner, unless it has been legally required to do so; or (c) hold, either directly or indirectly, more than 10% of any means of control in Partner, even if it received a permit to hold up to 10% of such means of control.
67 • Partner, an Office Holder or Interested Party in Partner, or an Office Holder in an Interested Party in Partner does not control a competing mobile radio telephone operator, is not controlled by a competing mobile radio telephone operator, by an Office Holder or an Interested Party in a competing mobile radio telephone operator, by an Office Holder in an Interested Party in a competing mobile radio telephone operator, or by a person or corporation that controls a competing mobile radio telephone operator.
Change in license conditions. Under our license, the Ministry of Communications may change, add to, or remove conditions of our license if certain conditions exist, including:
• A change has occurred in the suitability of Partner to implement the actions and services that are the subject of our license.
• A change in our license is required in order to ensure effective and fair competition in the telecommunications sector.
• A change in our license is required in order to ensure the standards of availability and grade of service required of Partner.
• A change in telecommunications technology justifies a modification of our license.
• A change in the electromagnetic spectrum needs justifies, in the opinion of the Ministry of Communications, changes in our license.
• Considerations of public interest justify modifying our license.
• A change in government policy in the telecommunications sector justifies a modification of our license.
• A change in our license is required due to its breach by Partner.
During an emergency period, control of Partner's mobile radio telephone system may be assumed by any lawfully authorized person for the security of the State of Israel to ensure the provisions of necessary service to the public, and some of the spectrum granted to us may be withdrawn. In addition, our license requires us to supply certain services to the Israeli defense and security forces. Furthermore, certain of our senior officers are required to obtain security clearance from Israeli authorities.
For the purposes of this discussion, the following definitions apply:
• "Office Holder" means a director, manager, company secretary or any other senior officer that is directly subordinate to the general manager.
• "Control" means the ability to, directly or indirectly, direct the activity of a corporation, either alone or jointly with others, whether derived from the governing documents of the corporation, from an agreement, oral or written, from holding any of the means of control in the corporation or in another corporation, or which derives from any other source, and excluding the ability derived solely from holding the office of director or any other office in the corporation. Any person controlling a subsidiary or a corporation held directly by him will be deemed to control any corporation controlled by such subsidiary or by such controlled corporation. It is presumed that a person or corporation controls a corporation if one of the following conditions exist: (1) such person holds, either directly or indirectly, fifty percent (50%) or more of any means of control in the corporation; (2) such person holds, either directly or indirectly, a percentage of any means of control in the corporation which is the largest part in relation to the holdings of the other Interested Parties in the corporation; or (3) such person has the ability to prevent the taking of business decisions in the corporation, with the exception of decisions in the matter of issuance of means of control in a corporation or decisions in the matters of sale or liquidation of most businesses of the corporation, or fundamental changes of these businesses.
• "Controlling Corporation" means a company that has control, as defined above, of a foreign mobile radio telephone operator.
• "Interested Party" means a person who either directly or indirectly holds 5% or more of any type of means of control, including holding as an agent.
68 Our Permit Regarding Cross Ownership
Our license generally prohibits cross-control or cross-ownership among competing mobile telephone operators without a permit from the Ministry of Communications. In particular, Partner, an Office Holder or an Interested Party in Partner, as well as an Office Holder in an Interested Party in Partner may not control or hold, directly or indirectly, 5% or more of any means of control of a competing mobile radio telephone operator. Our license also prohibits any competing mobile radio telephone operator or an Office Holder or an Interested Party in a competing mobile radio telephone operator, or an Office Holder in an Interested Party in a competing mobile radio telephone operator or a person or corporation that controls a competing mobile radio telephone operator from either controlling, or being an Interested Party in us.
However, our license, also provides that the Ministry of Communications may permit an Interested Party in Partner to hold, either directly or indirectly, 5% or more in any of the means of control of a competing mobile radio telephone operator if the Ministry of Communications is satisfied that competition will not be harmed, and on the condition that the Interested Party is an Interested Party in Partner only by virtue of a special calculation described in the license and relating to attributed holdings of shareholders deemed to be in control of a corporation.
4B.13g Other Licenses
Domestic Fixed-line License. In January, 2007, the Ministry of Communications granted Partner Land-Line Communication Solutions Limited Partnership, which is fully owned by the Company, a license for the provision of domestic fixed-line telecommunications services, including VoB services using the infrastructure of Bezeq and HOT Telecom to access customers. In February 2016, this license was replaced by the MoC with a general-unified license. In June and December 2016, this license was amended by the MoC to allow, in addition to domestic fixed-line telecommunications services, the provision of ILD services, ISP services and end-point services. See Exhibit 4.(a).2.1, which is incorporated herein by reference. The term of the new license is similar to the term of the previous fixed-line license which expires in twenty years from the original grant date in January 2007 but may be extended by the Ministry of Communications for successive periods of ten years provided that the licensee has complied with the terms of the license and has acted consistently for the enhancement of telecom services and their enhancement. The general conditions of the mobile telephone license described above, generally apply to this license, subject to certain modifications.
In March 2009, we were also granted a domestic fixed-line license to provide fixed-line services to the Israeli populated areas in the West Bank. In July 2016, this license was replaced by a general-unified license. The general conditions of the general-unified license granted to Partner Land-Line Communication Solutions Limited Partnership by the MoC, generally apply to this license, subject to certain modifications.
012 Telecom was also granted a similar domestic fixed-line license by the Ministry of Communications in December 2005 for 20 years. In February 2016, this license was replaced by the MoC with a general-unified license. The term of the new license is similar to the term of the previous fixed-line license.
012 Telecom was also granted a license to provide domestic fixed-line services to the Israeli populated areas in the West Bank which was valid until February 2018. This license was replaced in July 2016 with a general-unified license. The general conditions of the general-unified license granted to 012 Telecom by the MoC, generally apply to this license, subject to certain modifications.
ISP License. In March 2001, we received a special license granted by the Ministry of Communications, allowing us through our own facilities to provide internet access to fixed-line network customers. The license is valid until April 2018. We began supplying commercial ISP services beginning in January 2009. We were also granted a special license to provide ISP services to the Israeli populated areas in the West Bank which is valid until April 2018.
012 Smile was also granted a similar ISP license by the Ministry of Communications in December 2009 that is valid until June 2020 and a special license to provide ISP services to the Israeli populated areas in the West Bank which is valid until June 2020.
ILD License. In December 2009, the Ministry of Communications granted 012 Smile, a license for the provision of ILD services. The license expires in twenty years but may be extended by the Ministry of Communications for successive periods of ten years provided that the licensee has complied with the terms of the license and has acted consistently for the enhancement of telecom services and their enhancement. In February 2016, this license was replaced by the MoC with a general-unified license. The term of the new license is similar to the term of the previous ILD License.
69 012 Smile was also granted a license for the provision of International Long Distance services to the Israeli populated areas in the West Bank which is valid until February 2018. This license was replaced in July 2016 with a general-unified license. The general conditions of the general-unified license granted to 012 Smile by the MoC, generally apply to this license, subject to certain modifications.
NTP License. In February 2007 we received a special license granted by the Ministry of Communications allowing us to provide certain telecom services, including providing and installing equipment and cabling, representing the subscriber with local fixed operators, and establishing and operating control facilities within a subscriber's premises. The license was valid until February 2017. We are permitted to provide NTP services under the general-unified license granted to Partner Land-Line Communication Solutions Limited Partnership in February 2016.
012 Smile was also granted a similar NTP license by the Ministry of Communications in December 2009 that is valid until December 2020.
Other Licenses. The Ministry of Communications has granted us a trade license pursuant to the Wireless Telegraphy Ordinance. This license regulates issues of servicing and trading in equipment, infrastructure and auxiliary equipment for our network. We have also been granted a number of encryption licenses that permit us to deal with means of encryption, as provided in the aforementioned licenses, within the framework of providing mobile radio telephone services to the public.
4B.13h Network Site Permits
Permits of the Ministry of Environmental Protection
On January 1, 2006, the Non-Ionizing Radiation Law (5766-2006), which replaced the Pharmacists (Radioactive Elements and Products) Regulations, 1980 regarding matters that pertain to radiation from cellular sites, was enacted. This law defines the various powers of the Ministry of Environmental Protection as they relate, among others, to the grant of permits for network sites and sets standards for permitted levels of non-ionizing radiation emissions and reporting procedures. Pursuant to this law, most of which entered into effect on January 1, 2007, a request for an operating permit from the Ministry of Environmental Protection with respect to either new sites or existing sites would require a building permit for such site(s). The Ministry of Environmental Protection has adopted the International Radiation Protection Agency's standard as a basis for the consents it gives for the erection and operation of our antennas. This standard is an international standard based upon a number of years of scientific study.
If we continue to face difficulties in obtaining building permits from the local planning and building committee, we may fail to obtain also operation permits from the Ministry of Environmental Protection. Operation of a network site without a permit from the Ministry of Environmental Protection may result in criminal and civil liability to us or to our officers and directors.
Local Building Permits
The Planning and Building Law requires that we receive a building permit for the construction of most of our antennas. The local committee or local licensing authority in each local authority is authorized to grant building permits, provided such permits are in accordance with National Building Plan No. 36 which came into effect on June 15, 2002. The local committee is made up of members of the local municipal council. The local committee is authorized to delegate certain of its powers to subcommittees on which senior members of the local authority may sit.
The local committee examines the manner in which an application for a building permit conforms to the plans applying to the parcel of land that is the subject of the application, and the extent to which the applicant meets the requirements set forth in the Planning and Building Law. The local committee is authorized to employ technical, vista, and aesthetic considerations in its decision-making process. The local committee may grant building permits that are conditioned upon the quality of the construction of the structure, the safety of flight over the structure, and the external appearance of the structure. Every structure located on a certain parcel of land must satisfy the requirements and definitions set forth in the building plan applicable to such parcel.
70 On January 3, 2006, the National Council for Planning and Building added a new requirement for obtaining a building permit for network sites: the submission of an undertaking to indemnify the local committee for claims relating to the depreciation of the surrounding property value as a result of the construction or existence of the antenna.
A decision by a local committee not to grant a building permit may be appealed to the District Appeals Committee. A person harmed by the ruling of the District Appeals Committee may have such ruling examined judicially by means of an administrative petition to the District Court sitting as an Administrative Affairs Tribunal.
National Building Plan No. 36
National Building Plan No. 36 which came into effect on June 15, 2002 regulates the growth of telecommunications infrastructure in Israel. Chapter A of National Building Plan No. 36 sets forth the licensing requirements for the construction of mobile radio telephone infrastructure. National Building Plan No. 36 also adopts the radiation emission standards set by the International Radiation Protection Agency which were also previously adopted by the Ministry of Environmental Protection. We believe that we currently comply with these standards regarding our sites. National Building Plan No. 36 is in the process of being changed. On June 1, 2010, the National Council for Planning and Building approved the National Building Plan No. 36/A/1 version that incorporates all of the amendments to National Building Plan No. 36 ("the Amended Plan").
Current proposed changes impose additional restrictions and/or requirements on the construction and operation of network sites and could, if adopted, harm our ability to construct new network sites, make the process of obtaining building permits for the construction and operation of network sites more cumbersome and costly, and may delay the future deployment of our network.
Under the Non-Ionizing Radiation Law, the National Council for Planning and Building was granted the power to determine the level of indemnification for reduction of property value to be undertaken as a precondition for a cellular company to obtain a building permit for a new or existing network site. As a result, the National Council for Planning and Building has decided that until National Building Plan 36 is amended to reflect a different indemnification amount, cellular companies will be required to undertake to indemnify the building and planning committee for 100% of all losses resulting from claims against the committee. Thus, at present, in order to obtain a building permit for a new or existing network site, we must provide full indemnification for the reduction of property value.
The Amended Plan sets forth the indemnification amounts as a percentage of the value of the depreciated property claims in accordance with the manner in which the licenses were granted as follows: If the license was granted in an expedited licensing route, which is intended for installations that are relatively small in accordance with the Amended Plan criteria, then the cellular companies will be required to compensate the local planning committees in an amount of 100% of the value of the depreciated property claim. If the license was granted in a regular licensing route, which is intended for larger installations in accordance with the Amended Plan criteria, then the cellular companies will be required to compensate the local planning committees in an amount of 80% of the value of the depreciated property claim. The Amended Plan is subject to governmental approval, in accordance with the Planning and Building Law. It is unknown when the government intends to approve the Amended Plan.
These recent developments may have a material adverse effect on our financial condition and results of operations, as well as plans to expand and enhance network coverage. For more information, see "Item 3D.1l In connection with some building permits, we may also be required to indemnify planning committees in respect of claims against them relating to the depreciation of property values that result from the granting of permits for network sites."
71 Wireless access devices
We have set up several hundred small communications devices, called wireless access devices, pursuant to a provision in the Telecommunications Law which we and other participants in cellular telecommunications, believe exempts such devices from the need to obtain a building permit. Beginning in 2008, following the filing of a claim that the exemption does not apply to cellular communications devices, the Attorney General filed an opinion regarding this matter stating that the exemption does apply to wireless radio access devices under certain conditions and instructed the Ministry of Interior to prepare regulations setting conditions that would limit the exemption to extraordinary circumstances. Following the instruction of the Attorney General, several inter-ministerial discussions and hearings have taken place without agreement being reached as to the final version of the regulations. The approval of the regulations was brought to the Economic Committee where the regulations were not approved. Following two petitions that were filed with the High Court of Justice opposing the Attorney General's recommendation that the exemption apply under certain conditions, in September 2010, the Supreme Court issued an interim order prohibiting further construction of wireless access devices in cellular networks in reliance on the exemption from the requirement to obtain a building permit. In February 2011, and in July 2012, the Supreme Court narrowed the scope of the interim injunction so that repair or replacement of existing wireless access devices is permitted under certain conditions that will be determined in a judgment. In March 2016, the Supreme Court further narrowed the scope of the interim injunction that allowed us to make modifications to the existing wireless access devices, including a change to their transmission power and allowed us to change the location of 10% of PHI's wireless access devices to alternative locations without the need for a building permit. If a definitive court judgment holds that the exemption does not apply to cellular devices at all or if the regulations finally approved do not apply the exemption to wireless access devices, this could adversely affect the Company's existing network. As a result, we may be required to remove existing devices and would not be able to install new devices on the basis of the exemption. Our network capacity and coverage would then be negatively impacted, which could have an adverse effect on our revenue and results of operations.
Other Approvals
The construction of our antennas may be subject to the approval of the Civil Aviation Administration which is authorized to ensure that the construction of our antennas does not interfere with air traffic, depending on the height and location of such antennas. The approval of the Israeli Defense Forces is required in order to coordinate site frequencies so that our transmissions do not interfere with the communications of the Israel Defense Forces.
We, like other cellular 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 for the repeaters. However, we have received from the Ministry of Communications an approval to connect the repeaters to our communications network. We have also received from the Ministry of Environmental Protection, the permits that are necessary for the 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 if in the future the courts or the relevant regulator determine that building permits are necessary for the installation of these sites, it could have a negative impact on our ability to deploy additional microwave links, and could hinder the coverage, quality and capacity of our transmission network and our ability to continue to market our Fixed-Line Services effectively.
We have received approval from the Ministry of Communications for selling and distributing all of the handsets and other terminal equipment we sell. The Ministry of Environmental Protection also has authority to regulate the sale of handsets in Israel, and under the Non-Ionizing Radiation Law, certain types of devices, which are radiation sources, including cellular handsets, have been exempted from requiring an approval from the Ministry of Environmental Protection so long as the radiation level emitted during the use of such handsets does not exceed the radiation level permitted under the Non-Ionizing Radiation Law. Since June 2002, we have been required to provide information to purchasers of handsets on the Specific Absorption Rate ("SAR") levels of the handsets as well as its compliance with certain standards pursuant to a regulation under the Consumer Protection Law. We attach a brochure to each handset that is sold that includes the SAR level of the specific handset. Such brochures are also available at our service centers and the information is also available on the Company's website. SAR levels are a measurement of non-ionizing radiation that is emitted by a hand-held cellular telephone at its specific rate of absorption by living tissue. While, to the best of our knowledge, the handsets that we market comply with the applicable laws that relate to acceptable SAR levels, we rely on the SAR published by the manufacturer of these handsets and do not perform independent inspections of the SAR levels of these handsets. As the manufacturers' approvals refer to a prototype handset and not for each and every handset, we have no information as to the actual SAR level of each specific handset and throughout its lifecycle, including in the case of equipment repair.
72 Under a December 2005 amendment to this procedure, in the event that the SAR level is not measured after the repair of a handset, the repairing entity is required to notify the customer by means of a label affixed to the handset that the SAR may have been altered following the repair, in accordance with the provisions relating to the form of such label set forth in the procedure. A consultant had been retained by the Ministry of Communications to formulate a recommendation regarding the appropriate manner to implement the procedure for repairing handsets but to date the Ministry of Communications has not yet issued any guidelines and given the continued delay we are informing our customers that there may be changes in the SAR levels.
In November 2005, a new procedure was adopted by the Ministry of Communications with regard to the importation, marketing, and approval for 2G and 2.5G handsets. Prior to the implementation of the new procedure, suppliers of 2G and 2.5G handsets in Israel were required to obtain an interim, non-binding approval of the handset type from the relevant cellular operators before receiving final approval from the Ministry of Communications to supply such handsets in Israel to such operators. Under the new procedure, handsets that have already received the internationally recognized Global Certification Forum approval prior to their importation into Israel are now exempt from the requirement of receiving an interim, non-binding approval from the relevant cellular operators in Israel. This could expose us to the risk that handsets not reviewed and approved by us may interfere with the operation of our network. The new procedures described above do not apply to 3G handsets, which still require cellular operators to grant an interim, non-binding approval to the Ministry of Communications before the MoC grants its final approval in all circumstances.
In addition, this procedure also called for repaired handsets to comply with all applicable standards required for obtaining handset type approval, including standards relating to the safety, electromagnetic levels, and SAR levels.
4C. Organizational Structure
We currently have five wholly-owned subsidiaries, Partner Future Communications 2000 Ltd., an Israeli corporation; Partner Land-Line Communications Solutions LP, an Israeli limited partnership; Partner Business Communications Solutions, LP, an Israeli limited partnership; Partner Communication Products 2016 LP and 012 Smile. 012 Smile has a wholly-owned subsidiary, 012 Telecom Ltd., an Israeli corporation. Partner Future Communications 2000 Ltd. serves as the general partner and the Company serves as the limited partner of each of the limited partnerships.
In November 2013, the Company entered into a 15-year Network Sharing Agreement with HOT Mobile. Pursuant to the Network Sharing Agreement, the parties created a 50-50 limited partnership - P.H.I. Networks (2015) Limited Partnership, which will operate and develop a cellular network to be shared by both parties, starting with a pooling of both parties' radio access network infrastructures to create a single shared radio access network. The parties have also established a 50-50 company limited by shares under the name Net 4 P.H.I Ltd. to be the general partner of the limited partnership. See "Item 4B.9 Our Network".
4D. Property, Plant and Equipment
Headquarters
We lease our headquarter facilities in Rosh Ha-ayin, Israel, with a total of approximately 51,177 gross square meters (including parking lots). In the beginning of 2014, an amendment to the lease agreements for its headquarters facility in Rosh Ha'ayin was signed, according to which the lease term is extended until the end of 2024. The rental payments are linked to the Israeli CPI. We also lease call centers in several cities. The leases for each site have different lengths and specific terms. We believe that our current call center facilities are adequate for the foreseeable future, and that we will be able to extend the leases or obtain alternate or additional facilities, if needed, on acceptable commercial terms.
73 Network
For a description of our telecommunications network, see "Item 4B.9 Our Network" above.
We lease most of the sites where our mobile telecommunications network equipment is installed throughout Israel. At December 31, 2016, we had 2,959 network sites (including micro- sites). The lease agreements relating to our network sites are generally for periods of two to ten years. We have the option to extend the lease periods up to ten years (including the original lease period).
The erection and operation of most of these network sites requires building permits from local or regional zoning authorities, as well as a number of additional permits from governmental and regulatory authorities, and we have had difficulties in obtaining some of these permits.
Difficulties obtaining required permits could continue and therefore affect our ability to maintain cell network sites. In addition, as we grow our subscriber base and seek to improve the range and quality of our services, we need to further expand our network, and difficulties in obtaining required permits may delay, increase the costs or prevent us from achieving these goals in full. See "Item 3D.1k We have had difficulties obtaining some of the building and environmental permits required for the erection and operation of our network sites, and some building 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." and "Item 4B.13 Regulation".
In November 2013, the Company entered into a 15-year Network Sharing Agreement with HOT Mobile. Pursuant to the Network Sharing Agreement, the parties created a 50-50 limited partnership, which is intended to operate and develop a cellular network to be shared by both companies, starting with a pooling of both companies' radio access network infrastructures to create a single shared pooled radio access network. See "Item 4B.9 Our Network".
Service Centers and Points of Sale
Lease agreements for our retail stores and service centers are for periods of two to ten years. We have the option to extend the lease agreements for different periods of up to ten additional years (including the original lease period). The average size of our retail stores and service center is approximately 250 square meters. See also Note 19 to the consolidated financial statements.
4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following operating and financial review and prospects are based upon and should be read in conjunction with our financial statements and selected financial data, which appear elsewhere in this report. You should also read the risk factors appearing in Item 3D of this annual report for a discussion of a number of factors that affect and could affect our financial condition and results of operations.
74 5A. Operating Results
5A.1 OVERVIEW
5A.1a Key Financial and Operating Data
The table below sets forth a summary of selected financial and operating data for the years ended December 31, 2014, 2015 and 2016.
Year ended December 31, 2014 2015 2016
Revenues (NIS million) 4,440 4,111 3,544
Operating profit (NIS million) 400 107 193
Income (loss) before taxes (NIS million) 241 (36) 88
Profit (loss) for the Year (NIS million) 162 (40) 52
Capital expenditures (NIS million) 434 271 202 Cash flows from operating activities (NIS million) 951 922 945 Cash flows from investing activities (NIS million) (431) (356) (639)
Cellular Subscribers (end of period, thousands) 2,837 2,718 2,686
Annual cellular churn rate (%) 47% 46% 40% Average monthly revenue per cellular subscriber (ARPU) (NIS) 75 69 65
NON-GAAP MEASURES
The following non-GAAP measures are used in this report. These measures are not financial measures under IFRS and may not be comparable to other similarly titled measures for other companies. Further, the measures may not be indicative of the Company's historic operating results nor are meant to be predictive of potential future results.
Non-GAAP Measure Calculation Most Comparable IFRS Financial Measure Adjusted EBITDA Adjusted EBITDA: Profit (Loss) Profit (Loss) add Income tax expenses, Finance costs, net, Depreciation and amortization expenses (including amortization of intangible assets, deferred expenses-right of use and impairment charges), Other expenses (mainly amortization of share based compensation).
Adjusted EBITDA margin (%) Adjusted EBITDA margin (%): Adjusted EBITDA divided by Total revenues Adjusted Free Cash Flow* Adjusted Free Cash Flow: Cash flows from operating activities Cash flows from operating activities deduct deduct Cash flows from investing activities Cash flows from investing activities add Short-term investment in deposits
75 Total Operating Expenses (OPEX) Total Operating Expenses: Sum of: Cost of service revenues Cost of service revenues, add Selling and marketing expenses, Selling and marketing expenses General and administrative expenses add General and administrative expenses deduct Depreciation and amortization expenses, Other expenses (mainly amortization of employee share based compensation) Net Debt Net Debt: Sum of: Current maturities of notes payable and borrowings Current maturities of notes payable and add borrowings, Notes payable Notes payable, add Borrowings from banks and others Borrowings from banks and others deduct Cash and cash equivalents deduct Short-term deposits
* Adjusted Free Cash Flow measure is fully equivalent to Free Cash Flow measure which was provided in reports for prior periods.
5A.1b Business Developments in 2016
In 2016, competition in the Israeli telecommunications market remained intense, although cellular price erosion and churn rates were lower than in the previous two years. As a result, the continued substantial price erosion in the market had a further significant negative impact on the Company's business results, with operating profit for 2016 decreasing by 6% compared with operating profit for 2015 (excluding the impact of the impairment charges recorded for 2015).
As an illustration of the level of competition in the cellular market, approximately 2.3 million cellular subscribers are estimated to have switched operators within the Israeli market (with number porting) in 2016 compared with 2.5 million subscribers that switched in 2014 and 2015. Significant price erosion continued to be caused by the amount of cellular subscribers who moved between different rateplans or airtime packages (generally with a lower monthly fee) within the Company.
At the end of December 2016, the Company's active cellular subscriber base (including cellular data and 012 Mobile subscribers) was approximately 2.69 million, including approximately 2.2 million post-paid subscribers or 83% of the base, and approximately 445,000 pre-paid subscribers, or 17% of the subscriber base. Total cellular market share in Israel (based on the number of subscribers) at the end of 2016 was estimated to be approximately 26%, compared with 27% in 2015 and 28% in 2014.
Over 2016, the cellular subscriber base declined by approximately 32,000. The pre-paid subscriber base decreased by approximately 117,000, while the post-paid subscriber base increased by approximately 85,000. The decrease in the pre-paid subscriber base was largely attributed to the pre-paid subscribers moving to post-paid subscriber packages as a result of the significant price erosion (and hence increasing attractiveness) in these products, as well to increased competition for pre-paid subscribers.
76 The annual churn rate for cellular subscribers in 2016 was 40%, compared with 46% in 2015 and 47% in 2014, mainly reflecting the lower, yet continued intense competition in the cellular subscriber market.
The monthly Average Revenue Per User (ARPU) for cellular subscribers for the year 2016 was NIS 65 (US$ 17), a decrease of approximately 6% from NIS 69 in 2015. The decrease mainly reflected the continued price erosion in the key cellular services including airtime, content, data and browsing, due to the persistent fierce competition in the cellular market, as well as a decrease in revenues from wholesale services provided to other operators hosted on the Company's network and in particular as a result of termination of the Right of Use Agreement with HOT Mobile from the second quarter of 2016. See "Item 5A.1e Right of Use Agreement with HOT Mobile". Overall, cellular service revenues decreased by 9% in 2016 compared with 2015 and fixed line segment revenues decreased by 4% over the same period, also as a result of significant competition in a number of fixed line services offered by the Company.
In addition to a decrease in service revenues, revenues and gross profit from equipment sales decreased significantly in 2016, by 29% and 40% respectively. The decrease in revenues from equipment sales largely reflected a decline in sales volume, while the decrease in gross profit from equipment sales also reflected lower profit margins. Both the decrease in the amount of equipment sales and in profit margins were mainly related to the tightening of the Company's customer credit policy, whereby stricter requirements were imposed for customers to be accepted for long-term financing plans. The decrease in profit margins also reflected a change in product mix.
See also "Item 5D.2 Outlook" and "Item 3D.2b 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."
In order to mitigate the impact of the competition on the price erosion and decreases in service revenues and in gross profits from equipment sales, the Company continued to adjust its cost structure and to implement operational efficiency measures through 2016, which was reflected in a decrease in 2016 in total operating expenses of NIS 139 million (including cost of service revenues (NIS 2,276 million in 2016) and selling, marketing and administrative expenses (NIS 689 million in 2016), and excluding depreciation, amortization and impairment expenses and other expenses (mainly amortization of employee share based compensation) (NIS 641 million in 2016); this measure is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies). This decrease followed a decrease in total operating expenses in 2015 of NIS 127 million compared with 2014. The decrease in total operating expenses in 2016, mainly reflected decreases in cellular network and cable maintenance expenses following the implementation of the cost sharing mechanism under the Network Sharing Agreement with HOT Mobile, in expenses related to payments to transmission, communication and content providers, and in other expense items reflecting the impact of various efficiency measures undertaken including a reduction in payroll and related expenses resulting from the reduction in the size of the Company workforce by approximately 14% on an average basis (average of workforce at beginning and end of year). These decreases were partially offset by increases in expenses related to the rebranding of the Company, and an increase in bad debts and allowance for doubtful accounts expenses.
5A.1c Settlement Agreement with Orange Brand Services Ltd.
In June 2015, the Company announced that it had entered into a settlement agreement with Orange Brand Services Ltd ("Orange") which created a new framework for their relationship and provided both Partner and Orange the right to terminate the brand license agreement which had been in force since 1998. In accordance with the terms of the settlement agreement, the Company received advance payments in a total of €90 million during 2015: €40 million of which was received between the signing of the agreement and the completion of a market study to assess the Company's position within the dynamics of the Israeli telecommunications services market; and €50 million of which was received in the fourth quarter of 2015, following the Company's notice to Orange of its decision to terminate the brand license agreement.
As set forth in the settlement agreement, the advance payments are to be recognized and reconciled evenly on a quarterly basis over a period until the second quarter of 2017, against contingent marketing, sales, customer services and other expenses to be incurred over this period. The income is to be recorded in the Company's income statement under "Income with respect to settlement agreement with Orange". For 2015, the Company recognized income with respect to the settlement agreement in an amount of NIS 61 million, and for 2016, the Company recognized income with respect to the settlement agreement in an amount of NIS 217 million (US$ 56 million). Based on a legal opinion obtained by the Company, the advance payments are considered compensation payments and are therefore not subject to VAT charges.
77 5A.1d Network Sharing Agreement with HOT Mobile
In November 2013, the Company entered into a 15-year Network Sharing Agreement with HOT Mobile. Pursuant to the Network Sharing Agreement, the parties created a 50-50 limited partnership - P.H.I. Networks (2015) Limited Partnership, which operates and develops a radio access network shared by both parties, starting with a pooling of both parties' radio access network infrastructures creating a single shared pooled radio access network. See "Item 4B.9 Our Network."
In February 2016, HOT Mobile exercised its option under the Network Sharing Agreement ("NSA") to advance the payment date of a onetime amount of NIS 250 million ("Lump Sum"), which was received in 2016. Therefore according to the NSA from April 2016 onward (i) each party bears half of the expenditures relating to the Shared Network, and (ii) the operating costs of the Shared Network are borne according to a pre-determined apportionment mechanism, according to which one half of the operating costs is shared equally by the parties, and one half is divided between the parties according to the relative volume of their respective traffic consumption in the Shared Network ("Capex-Opex Mechanism").
The Lump Sum is recognized as deferred revenue amortized quarterly in the income statement over a period of eight years, starting with the second quarter of 2016. Eight years has been determined to be the shorter of the expected period of the arrangement or the expected life of the related assets. Accordingly, approximately NIS 23 million (US$ 6 million) was amortized to revenues in the income statement during 2016.
The Network Sharing Agreement provides material financial benefits to Partner in terms of both the Lump Sum payments and savings in operational expenses and capital investments; however, such financial benefits are dependent on factors set forth in the related risk factor. See "Item3D.2e If the network sharing agreement entered into with HOT Mobile is unilaterally terminated by HOT Mobile earlier than we expected, 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, may be substantial and could also materially harm our business and the results of operations at such time."
5A.1e Right of Use Agreement with HOT Mobile
Partner and HOT Mobile entered into a separate Right of Use agreement which took effect in November 2013 and was originally valid until January 4, 2017. Under the Right of Use agreement, Partner provided services to HOT Mobile in the form of a right of use of Partner's cellular network. According to the Right of Use agreement, HOT Mobile paid Partner fixed base payments with additional variable payments, based, among other things, on traffic volume exceeding a defined threshold. Since Hot Mobile exercised the Option referred to in the Network Sharing Agreement, and Hot Mobile paid the relevant portion of the Lump Sum earlier than January 1, 2017, the Capex-Opex Mechanism became effective as of April 2016 and Hot Mobile ceased making payments under the Right of Use agreement at such time.
Cellular segment revenues recorded relating to the Right of Use agreement totaled approximately NIS 120 million and NIS 51 million for the years 2015 and 2016 respectively.
5A.1f Acquisition of 012 Smile
On March 3, 2011, the Company completed the acquisition of all of the issued and outstanding shares of 012 Smile Telecom Ltd. ("012 Smile"), from Merhav-Ampal Energy Ltd. ("Ampal"). 012 Smile is an Israeli private company, which provides international long distance services, internet services and local telecommunication fixed-line services (including telephony services using VoB). 012 Smile had revenues of approximately NIS 1,112 million during the 11 months starting February 1, 2010, the date on which 012 Smile's business activities began to operate under a new company.
The purchase price for the acquisition of 012 Smile was NIS 650 million, which included the acquisition of all of the outstanding shares of 012 Smile and a loan from the previous shareholder to 012 Smile. As part of the acquisition, we also guaranteed the bank loans and other bank guarantees, which were provided to 012 Smile, in a total amount of approximately NIS 800 million. According to the purchase agreement, 012 Smile assigned to Ampal the right to receive payments due from a third party in an amount of approximately NIS 40 million.
78 At the time of the acquisition, the purchase assumed an enterprise value for 012 Smile of approximately NIS 1.45 billion. This included fixed assets, intangible assets of customer relations, brand name, Right of Use ("ROU") of international transmission cables and goodwill. 012 Smile was financed principally through long term bank loans totaling approximately NIS 500 million that have an index (Israeli consumer price index ("CPI")) linked rate of 3.42% with a final maturity at the end 2019.
Impairment of Fixed-Line Assets and Goodwill as of December 31, 2011.
During December 2011, Bezeq International Ltd. completed the installation of an underwater cable between Israel and Italy and began commercial use thereafter. In addition, Tamares Telecom Ltd. was in the final stages of laying another underwater cable which was completed in January 2012, allowing new communication channels between Israel and Western Europe. The additional capacity significantly increased the level of competition in the market for international connectivity services that, until December 2011, had been comprised of a sole monopoly supplier. The increased competition in the market for international connectivity services during the fourth quarter of 2011 that lead to a sharp decline in prices and the Company's expectations for increased competition in the retail ISP market, that would lead to a decrease in prices and market share, indicated the need to perform an impairment test on certain assets of the fixed-line segment. The impairment test as of December 31, 2011, was performed by management with the assistance of an external independent assessor, Giza Singer Even Ltd., with the recoverability of the relevant assets being assessed based on value-in-use calculations. As a result of the testing, impairment charges in a total amount of NIS 235 million were recognized for the fixed-line business in 2011:
a) Trade name by NIS 14 million, recorded in selling and marketing expenses;
b) Customer relationships by NIS 73 million, recorded in selling and marketing expenses; and
c) Right of use of international fiber optic cables by NIS 148 million, recorded in the cost of revenues.
In addition, the Company's management performed, as required, its annual impairment review of goodwill, with the assistance of Giza Singer Even Ltd., again assessing recoverability of fixed-line segment assets based on value-in-use calculations. As a result of the impairment test, the Company recorded an impairment charge to goodwill in respect of the fixed-line business units in the amount of NIS 87 million in 2011.The total impact of the impairment charges on operating profit in 2011 was a reduction of NIS 322 million. The total impact on profit, including the resulting increase in deferred tax assets, net, of NIS 11 million, was a reduction of NIS 311 million.
In addition, the Company recorded an impairment of fixed-line subscriber acquisition costs in the total amount of NIS 27 million in the second half of 2011, following an amendment to the Telecommunications Law which limits subscriber exit fines in the fixed-line market.
Impairment of Fixed-Line Assets as of December 31, 2015.
In 2015, the Group decided to cease using the "012 Smile" trade name in 2017. This change in business induced the Group to determine that an indicator of impairment exists for the fixed- line segment. See also information with respect to change in estimate of useful life of the intangible asset trade name in Note 4(a)(2) and 4(a)(3) to our consolidated financial statements.
For the purpose of the impairment test, the assets were grouped to the lowest level for which there are separately identifiable cash flows (CGU).
79 (i) The Group reviewed the recoverability of the VOB/ISP assets. As a result, an impairment charge in a total amount of NIS 98 million was recognized. The impairment charge was allocated to the assets of the CGU pro rata, on the basis of the carrying amount of each asset, provided that the impairment did not reduce the carrying amount of an asset below the highest of its fair value less costs to sell and its value-in-use, and zero. Accordingly, the following impairment charges were recorded in the assets of the above CGU (see Note 13 to our consolidated financial statements):
(a) Right of use of international fiber optic cables by NIS 76 million, recorded in cost of revenues; (b) Customer relationships by NIS 8 million, recorded in selling and marketing expenses; (c) Computers and information systems by NIS 7 million, recorded in cost of revenues; (d) Communication network by NIS 5 million, recorded in cost of revenues; and (e) Trade name by NIS 2 million, recorded in selling and marketing expenses.
The recoverable amount of the VOB/ISP CGU as of December 31, 2015 was assessed by management with the assistance of an external independent expert ("Giza Singer Even. Ltd") based on value-in-use calculations, which was NIS 250 million. The value in use calculations use pre-tax cash flow projections covering a five-year period and using extrapolation with specific adjustments expected until 2027, which is the economic life of the main asset of the CGU: the deferred expenses – Right of Use, and a pre-tax discount rate of 12.9%. The value-in-use calculations included all factors in real terms.
The impairment test was based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors' behavior in response to the economic environment may affect the estimate of recoverable amounts in future periods. See also Note 2(i) and Note 4(a)(3).
(ii) The Group reviewed the recoverability of the ILD CGU in the fixed line segment and determined that no impairment exists as of December 31, 2015.
Impairment test of Fixed-Line Goodwill as of December 31, 2014, 2015 and 2016.
Goodwill is allocated to a single group of CGUs which constitute all the operations of the fixed-line segment, in an amount of NIS 407 million.
For the purpose of the goodwill impairment tests as of December 31, 2014, 2015 and 2016 the recoverable amount was assessed by management with the assistance of an external independent expert (2014, 2015:"Giza Singer Even. Ltd", 2016: "BDO Ziv Haft Consulting & Management Ltd.") based on value-in-use calculations. The value-in-use calculations use pre-tax cash flow projections covering a five-year period. Cash flows beyond the five-year period to be generated from continuing use are extrapolated using estimated growth rates. The growth rate represents the long-term average growth rate of the fixed-line communications services business. The key assumptions used are as follows:
As of December 31, 2014 2015 2016 Terminal growth rate (negative 0.2%) (negative 0.09%) 0.5% After-tax discount rate 10.5% 10.3% 9.8% Pre-tax discount rate 14.3% 13.4% 11.9%
The impairment tests as of December 31, 2014, 2015 and 2016 were based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors' behavior in response to the economic environment may affect the estimate of recoverable amounts. As a result of the impairment tests, the Group determined that no goodwill impairment existed as of December 31, 2014, 2015 and 2016. See also Note 4(a)(4) and Note 2(h) to our consolidated financial statements.
Sensitivity Analysis:
The headroom of the fixed line segment recoverable amount over the carrying amount as of December 31, 2014, 2015 and 2016 was approximately 15%, 9% and 23% respectively. Sensitivity analysis was performed for the recoverable amount as of December 31, 2016 for a change of the after-tax discount rate within the range of ± 10% multiplied by the variable 9.8% (8.8% to 10.8%), assuming all other variables constant. Sensitivity analysis was also performed for a change of the terminal permanent growth rate within the range of ± 1% of the variable 0.5% (minus 0.5% to 1.5%), assuming all other variables constant. Results showed that no impairment charge is required for both analyses.
80 5A.1g Agreement for the Upgrade of Our Existing Networks and the Deployment of Fourth Generation Network in Israel
On October 25, 2010, the Company signed an agreement with LM Ericsson Israel Ltd. ("Ericsson") for the upgrade of its then existing networks and the deployment of a fourth generation network in Israel (the "Agreement") for approximately US $100 million. The Agreement includes the upgrade, replacement and the expansion of certain parts of the Company's existing cellular and fixed-line networks and the maintenance of its networks, including enhancement of the Company's abilities with respect to the cellular and fixed-line ISP services it provides. The initial term of the all-inclusive agreement with Ericsson ended on December 31, 2014. Towards the end of the initial term, we began an examination process to determine the scope of the deliverables and services which have actually been provided by Ericsson under the agreement. We extended the initial period by an additional period of one year for the provision of support and maintenance services until the end of 2015 and renewed it with certain modifications until the end of 2018.
5A.1h Bezeq Agreement
In April 2012, the Company entered into a five-year agreement with Bezeq, the Israel Telecommunication Corp., Ltd., effective from January 1, 2012 to December 31, 2016, for the supply of transmission services for use in Partner's mobile network. According to the agreement, the minimum annual commitment was NIS 55 million for the year 2012 and gradually increased to NIS 71 million for the year 2016 due to the increase in the scope of the capacity to be purchased in accordance with the layout agreed upon by the parties. Commencing April 2015, Hot Mobile undertakes its share in these expenses through PHI (the limited partnership created with HOT Mobile pursuant to the network sharing agreement) according to the OPEX-CAPEX mechanism; see also Note 9 to the consolidated financial statements.
5A.1i Significant regulatory developments
For information regarding developments which have had and may have a significant impact on our operating results, see "Item 3D.1 RISKS RELATING TO THE REGULATION OF OUR INDUSTRY" and "Item 4B.13 Regulation".
5A.1j Revenues
We derive revenues from both rendering services and selling equipment.
Our principal source of revenues is from the sale of cellular network services to subscribers, primarily network airtime and internet browsing fees, and content and data fees (including SMS) as well as interconnect fees from other operators, fees for roaming, services, fees for extended handset warranty and fees from other operators (virtual and network) for rights to use our network to provide services to their customers.
The fixed-line business segment derives revenues from a variety of services provided over fixed-line networks including transmission services, international long distance services, PRI lines, VoB telephony services, SIP trunks for business sector customers, ISP services (including infrastructure and access services), value-added services and advanced business solutions for business customers.
Equipment revenues are derived from the sale and leasing of a variety of communications and digital audio-visual equipment including cellular handsets, tablets, laptops, datacards and modems, car kits, accessories, spare parts, televisions, digital cameras, game consoles, earphones, landline phones, routers, servers, smartboxes and other fixed-line service equipment. See also "Item 4B.6 SERVICES AND PRODUCTS".
81 We recognize revenues from network and other services at the time we provide the service to the subscriber. We recognize revenues from equipment sales only upon delivery and the transfer of ownership to the subscriber.
5A.1k Cost of Revenues
The principal components of our cost of revenues are:
● Transmission, communication and content providers
● Cost of equipment and accessories
● Depreciation and amortization (including impairment)
● Wages, employee benefits expenses and car maintenance
● Operating lease, rent and overhead expenses
● Network and cable maintenance
● Costs of handling, replacing or repairing equipment
● Internet infrastructure and service providers ("ISPs")
● Car kit installation, IT support, and general operating expenses
● Amortization of rights of use (including impairment)
5A.1l Selling and Marketing Expenses
The principal components of our selling and marketing expenses are:
● Wages, employee benefits expenses and car maintenance
● Selling commissions, net
● Advertising and marketing
● Depreciation and amortization (including impairment)
● Operating lease, rent and overhead expenses
5A.1m General and Administrative Expenses
The principal components of our general and administrative expenses are:
● Wages, employee benefits expenses and car maintenance
● Bad debts and allowance for doubtful accounts
● Professional fees
● Credit card and other commissions
● Depreciation
82 5A.1n Income with Respect to the Settlement Agreement with Orange
Income with respect to the Settlement Agreement with Orange consists of recognized payments received by Partner thereunder (see Item "5A.1c Settlement Agreement with Orange Brand Services Ltd."). The recognition of such payments will terminate after the second quarter of 2017.
5A.1o Other Income, Net
The principal components of our other income, net, are:
● Unwinding of trade receivables
● Capital gain from sale of property and equipment
5A.1p Finance Costs, Net
The principal component of our finance expenses is:
● Interest expenses
The principal components of our finance income are:
● Net foreign exchange rate gains
● CPI linkage income
● Interest income from cash equivalents
● Fair value gain from derivative financials instruments, net
5A.1q Key Cellular Business Indicators (Operating Data)
Our primary key cellular business indicators are described below. These indicators are widely used in the cellular telephone service industry to evaluate performance.
● Number of subscribers
● Average monthly revenue per subscriber (ARPU)
● Churn rate
5A.1r Critical Accounting Estimates and Judgments
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. See also Note 4 to the consolidated financial statements.
83 5A.1r - i Critical accounting estimates and assumptions
(1) Estimating service revenues earned but not yet billed
The Company recognizes service revenues based upon minutes, seconds and packages used, net of credits and adjustments for service discounts. Because the Company's billing cycles use cut-off dates, which for the most part do not coincide with the Company's reporting periods, the Company is required to make estimates for service revenues earned but not yet billed at the end of each reporting period. These estimates are based primarily upon actual unbilled usage of the Company's network by the customers, and also on historical data and trends. Actual billing cycle results may differ from the results estimated at the end of each period depending on subscriber usage and rate plan mix.
(2) Assessing the useful lives of assets
The useful economic lives of the Company's assets are an estimate determined by management. The Group defines useful economic life of its assets in terms of the assets' expected utility to the Group. This estimation is based on assumptions of future changes in technology or changes in the Group's intended use of these assets, and experience of the Group with similar assets, and legal or contract periods where relevant. The assets estimated economic useful lives are reviewed, and adjusted if appropriate, at least annually. See also Note 2(e) and Note 2(f) to the consolidated financial statements. See also information with respect to the change in estimate of the useful life of the "012 Smile" trade name in (3) below.
(3) Assessing the recoverable amount for impairment tests of assets with finite useful lives
The Group is required to determine at the end of each reporting period whether there is any indication that an asset may be impaired. If indicators for impairment are identified the Group estimates the assets' recoverable amount, which is the higher of an asset's fair value less costs to sell and value in use. The value-in-use calculations require management to make estimates of the projected future cash flows. Determining the estimates of the future cash flows is based on management past experience and best estimate for the economic conditions that will exist over the remaining useful economic life of the Cash Generating Unit ("CGU"). See also Note 2(i) to the consolidated financial statements.
No indicators for an impairment or reversal of impairment of assets with finite useful lives were indicated in 2016.
In the fourth quarter of 2015, the Group decided to cease using the "012 Smile" trade name in 2017. This change in business induced the Group to determine that an indicator of impairment exists for the fixed-line segment. See Note 13(2) to the consolidated financial statements.
An Impairment test in the fourth quarter of 2015 for the VOB/ISP CGU of the fixed line segment resulted in an impairment charge to certain assets in a total amount of NIS 98 million, based on the key assumptions described in Note 13(2) to the consolidated financial statements. The recoverable amount of the VOB/ISP CGU assets as of December 31, 2015 was assessed by management with the assistance of an external independent expert ("Giza Singer Even. Ltd") based on value-in-use calculations, which was NIS 250 million. The value in use calculations use pre-tax cash flow projections covering a five-year period and using extrapolation with specific adjustments expected until 2027, which is the economic life of the main asset of the CGU: the deferred expenses – Right of Use, and a pre-tax discount rate of 12.9%. The value-in-use calculations included all factors in real terms. The value-in-use of the assets of the CGU was estimated to exceed the fair value less costs to sale.
The impairment test in the fourth quarter of 2015 was based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors' behavior in response to the economic environment may affect the estimate of recoverable amounts in future periods.
As a result of the decision in 2015 to cease the usage of the "012 Smile" trade name the Group revised its expected useful life to end in 2017 as a change in accounting estimate. As a result the amortization expenses of the trade name increased in 2015 by NIS 1 million, and are expected to increase in 2016 and 2017 by approximately NIS 16 million and NIS 6 million respectively.
84 Further increase in the level of competition that will continue to push downward prices may require the Group to perform further impairment tests of assets. Such impairment tests may lead to recording significant impairment charges, which could have a material negative impact on the Group's operating and net profit.
(4) Assessing the recoverable amount of goodwill for impairment tests
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. The recoverable amount of the fixed line segment to which goodwill has been allocated to have been determined based on value-in-use calculations. For the purpose of the goodwill impairment tests as of December 31, 2014, 2015 and 2016 the recoverable amount was assessed by management with the assistance of an external independent expert (2014, 2015: "Giza Singer Even. Ltd", 2016: "BDO Ziv Haft Consulting & Management Ltd.") based on value-in-use calculations. The value-in-use calculations use pre-tax cash flow projections covering a five-year period. Cash flows beyond the five-year period to be generated from continuing use are extrapolated using estimated growth rates. The growth rate represents the long-term average growth rate of the fixed-line communications services business.
The key assumptions used in the December, 31, 2016 test were as follows:
Terminal growth rate 0.5%
After-tax discount rate 9.8%
Pre-tax discount rate 11.9%
The impairment test as of December 31, 2016 was based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors' behavior in response to the economic environment may affect the estimate of recoverable amounts. See also Note 13 and Note 2(h) to the consolidated financial statements. No impairment charges were recognized in with respect to goodwill in 2014, 2015 and 2016.
Sensitivity Analysis:
The headroom of the fixed line segment recoverable amount over the carrying amount as of December 31, 2014, 2015 and 2016 was approximately 15%, 9% and 23% respectively. Sensitivity analysis was performed for the recoverable amount as of December 31, 2016 for a change of the after-tax discount rate within the range of ± 10% multiplied by the variable 9.8% (8.8% to 10.8%), assuming all other variables constant. Sensitivity analysis was also performed for a change of the terminal permanent growth rate within the range of ± 1% of the variable 0.5% (minus 0.5% to 1.5%), assuming all other variables constant. Results showed that no impairment charge is required for both analyses.
(5) Assessing allowance for doubtful accounts
The allowance is established when there is objective evidence that the Group will not be able to collect amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, or delinquency or default in debtor payments are considered indicators that a trade receivable is impaired. Individual receivables which are known to be uncollectable are written off by reducing the carrying amount directly. The other receivables are assessed collectively. For these receivables the allowance is determined based on percentage of doubtful debts in collection, considering the likelihood of recoverability based on the age of the balances, the historical write-off experience net of recoveries, changes in the credit worthiness, and collection trends. The trade receivables are periodically reviewed for impairment.
85 (6) Considering uncertain tax positions
The assessment of amounts of current and deferred taxes requires the Group's management to take into consideration uncertainties that its tax position will be accepted and of incurring any additional tax expenses. This assessment is based on estimates and assumptions based on interpretation of tax laws and regulations, and the Group's past experience. It is possible that new information will become known in future periods that will cause the final tax outcome to be different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. See also Notes 2(q) and Note 25 to the consolidated financial statements.
5A.1r - ii Critical judgments in applying the Company's accounting policies
(1) Considering the likelihood of contingent losses and quantifying possible settlements:
Provisions are recorded when a loss is considered probable and can be reasonably estimated. Judgment is necessary in assessing the likelihood that a pending claim or litigation against the Group will succeed, or a liability will arise, quantifying the possible range of final settlement. These judgments are made by management with the support of internal specialists, or with the support of outside consultants such as legal counsel. Because of the inherent uncertainties in this evaluation process, actual results may be different from these estimates.
(2) Considering sales with multiple deliverables
The Group made judgments to determine that certain sales of equipment with accompanying services constitute an arrangement with multiple deliverables that are linked in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole, and accordingly, consideration received is allocated to each deliverable based on the relative fair value of the individual element. See also Note 2(n)(2) to the consolidated financial statements.
(3) Accounting treatment for the investment in PHI
The Board of Directors of Net 4 P.H.I Ltd., consists of three directors nominated by the Company, three directors nominated by Hot Mobile and one independent director who will act as a chairman. Net 4 P.H.I Ltd. controls PHI. This governance provides that the Company does not control PHI nor does it have joint control over it, and the Company accounts for its investment in PHI according to the equity method, see also Note 2(c)(2) and Note 9 to the consolidated financial statements.
5A.2 RESULTS OF CONSOLIDATED OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2016 COMPARED TO THE YEAR ENDED DECEMBER 31, 2015
New Israeli Shekels Year ended December 31, 2016 In millions Cellular segment Fixed-line segment Elimination Consolidated Segment revenue – Services 2,080 672 2,752 Inter-segment revenue – Services 19 194 (213) Segment revenue – Equipment 729 63 792 Total revenues 2,828 929 (213) 3,544
Segment cost of revenues – Services 1,659 617 2,276 Inter-segment cost of revenues - Services 192 21 (213) Segment cost of revenues – Equipment 596 52 648 Cost of revenues 2,447 690 (213) 2,924 Gross profit 381 239 620
Operating expenses (1) 571 118 689 Income with respect to settlement agreement with Orange 217 217 Other income, net 41 4 45 Operating profit 68 125 193 Adjustments to presentation of Segment Adjusted EBITDA –Depreciation and amortization 447 148 595 –Other (2) 47 (1) 46 Segment Adjusted EBITDA (3) 562 272 834 Reconciliation of profit for the year to Adjusted EBITDA Profit for the year 52 Depreciation and amortization 595 Finance costs, net 105 Income tax expenses 36 Other (2) 46 Adjusted EBITDA (3) 834
86 New Israeli Shekels Year ended December 31, 2015 In millions Cellular segment Fixed-line segment Elimination Consolidated Segment revenue – Services 2,275 717 2,992 Inter-segment revenue – Services 22 189 (211) Segment revenue – Equipment 1,051 68 1,119 Total revenues 3,348 974 (211) 4,111
Segment cost of revenues – Services 1,856 736(*) 2,592 Inter-segment cost of revenues – Services 187 24 (211) Segment cost of revenues – Equipment 832 48 880 Cost of revenues 2,875 808 (211) 3,472 Gross profit 473 166 639
Operating expenses (1) 506 134(*) 640 Income with respect to settlement agreement with Orange 61 61 Other income, net 44 3 47 Operating profit 72 35 107 Adjustments to presentation of Segment Adjusted EBITDA –Depreciation and amortization (including impairment charges) 510 243 753 –Other (2) 15 1 16 Segment Adjusted EBITDA (3) 597 279 876 Reconciliation of loss for the year to Adjusted EBITDA Loss for the year (40) Depreciation and amortization (including impairment charges) 753 Finance costs, net 143 Income tax expenses 4 Other (2) 16 Adjusted EBITDA (3) 876
(*) Includes impairment charges in the fixed-line segment, see Note 13 to our consolidated financial statements.
(1) Operating expenses include selling and marketing expenses and general and administrative expenses.
87
(2) Mainly amortization of employee share based compensation.
(3) Adjusted EBITDA as reviewed by the CODM 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; it is fully comparable to EBITDA information which has been previously provided for prior periods.
Total revenues. In 2016, total revenues were NIS 3,544 million (US$ 922 million), a decrease of 14% from NIS 4,111 million in 2015.
Revenues from services. Service revenues in 2016 totaled NIS 2,752 million (US$ 716 million), a decrease of 8% from NIS 2,992 million in 2015.
Revenues from equipment. Equipment revenues in 2016 totaled NIS 792 million (US$ 206 million), a decrease of 29% from NIS 1,119 million in 2015, largely reflecting a decrease in the volume of equipment sales. This decrease was mainly related to the tightening of the Company's customer credit policy, whereby stricter requirements were imposed for customers to be accepted for long term financing plans under which the customer pays for the equipment through monthly payments (generally over 12 to 36 months).
Gross profit from service revenues. The gross profit from service revenues in 2016 was NIS 476 million (US$ 124 million), compared with NIS 400 million in 2015, an increase of 19%. The trend in gross profit from service revenues was positively affected by expenses of NIS 88 million recorded in 2015 due to the impairment charge on the right of use on international fiber optic cables (NIS 76 million), on computers and information systems (NIS 7 million) and on the communication network (NIS 5 million). Compared with gross profit from service revenues excluding the impact of these impairment charges in 2015, gross profit from service revenues in 2016 decreased by 2%, largely reflecting the decrease in service revenues, partially offset by the decrease in the cost of service revenues. See also Note 22 to our consolidated financial statements.
Gross profit from equipment sales. Gross profit from equipment sales in 2016 was NIS 144 million (US$ 37 million), compared with NIS 239 million in 2015, a decrease of 40%, mainly reflecting both the decrease in the volume of equipment sales, as described above, and lower profit margins from sales which resulted largely from the tightening of the Company's customer credit policy (since profit margins are higher for sales with long term financing plans), as well as a change in product mix towards products with lower profit margins. See also "Item 5D.2 Outlook".
Selling, marketing, general and administrative expenses. Selling, marketing, general and administrative expenses totaled NIS 689 million (US$ 179 million) in 2016, an increase of 8% from 2015. Selling, marketing, general and administrative expenses for 2015 included expenses in the amount of NIS 10 million that were recorded following the impairment charge on customer relationships (NIS 8 million) and on the trade name (NIS 2 million). Compared with selling, marketing, general and administrative expenses excluding the impact of these impairment charges in 2015, selling, marketing, general and administrative expenses increased by 9%. This increase mainly reflected an increase in advertising and marketing expenses related, in part, due to the marketing activities related to the rebranding of the Company, and an increase in bad debts and allowance for doubtful accounts expenses which was mainly related to historical transactions. See also Note 22 to our consolidated financial statements.
88 Total operating expenses ("OPEX"). Total operating expenses amounted to NIS 2,324 million (US$ 604 million) in 2016, a decrease of 6% or NIS 139 million from 2015. Total operating expenses ("Opex") (not a financial measure under IFRS and not necessarily comparable to similarly titled measures for other companies) includes cost of service revenues (NIS 2,276 million in 2016) and selling, marketing, general and administrative expenses (NIS 689 million in 2016), and excludes depreciation, amortization and impairment expenses and other expenses (mainly amortization of employee share based compensation) (NIS 641 million in 2016).
Including depreciation, amortization and impairment expenses and other expenses (mainly amortization of employee share based compensation), total operating expenses in 2016 decreased by 8% compared with 2015. See also Note 22 to our consolidated financial statements.
Income with respect to settlement with Orange. In 2016, the Company recorded income with respect to the settlement agreement of the Orange brand agreement in an amount of NIS 217 million (US$ 56 million) compared with NIS 61 million recorded in 2015. As set forth in the settlement agreement, the advance payments received from Orange will continued to be recognized and reconciled evenly on a quarterly basis over a period until the second quarter of 2017, against contingent marketing, sales, customer services and other expenses to be incurred over this period. See also "Item 5A.1c Settlement Agreement with Orange Brand Services Ltd.","5D.2 Outlook" and Note 18 to our consolidated financial statements.
Other income, net. Other income, net, totaled NIS 45 million (US$ 12 million) in 2016, compared to NIS 47 million in 2015, a decrease of 4%, mainly reflecting a decrease in income from the unwinding of trade receivables. See also Note 23 to our consolidated financial statements.
Operating profit. Reported operating profit for 2016 was NIS 193 million (US$ 50 million), an increase of 80% compared with reported operating profit of NIS 107 million in 2015. Compared with operating profit for 2015 before the impairment charges described above (NIS 98 million), operating profit decreased by 6%.
Finance costs, net. Finance costs, net in 2016 were NIS 105 million (US$ 27 million), a decrease of 27% compared with NIS 143 million in 2015. The decrease reflected lower interest payment expenses due to the lower average level of debt, as well as gains from foreign exchange movements in 2016 compared with losses from foreign exchange in 2015 and lower early debt repayment expenses. This decrease in finance costs was partially offset by higher linkage expenses due to the higher CPI level. See also "Item 5B Liquidity and Capital Resources."
Profit (loss) before income tax. Profit before income taxes for 2016 was NIS 88 million (US$ 23 million), compared with loss before income tax of NIS 36 million in 2015. Compared with profit before income tax in 2015 excluding the impact of the impairment charges described above (NIS 98 million), profit before income tax in 2016 increased by 42%, reflecting principally the decrease in finance costs, net which more than offset the decrease in operating profit excluding impairment charges.
Income taxes on profit. Income taxes on profit for 2016 were NIS 36 million (US$ 9 million), compared to income taxes on loss of NIS 4 million in 2015.
In January 2016, the Law for the Amendment of the Income Tax Ordinance (No. 216) was published, enacting a reduction of corporate tax rate, from 26.5% to 25%, for the year 2016 and thereafter. In addition, in December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Year), 2016 was published, enacting that the corporate tax rate will be 24% in 2017 and 23% in 2018 and thereafter. These reductions of the corporate tax rate resulted in a reduction of NIS 7 million in the Group's deferred tax assets in 2016, which was recognized as an income tax expense.
The Company's effective tax rate is expected to continue to be higher than the corporate tax rate mainly due to nondeductible expenses. See also Note 25 to our consolidated financial statements.
Profit (Loss). Reported profit in 2016 was NIS 52 million (US$ 14 million), compared with loss of NIS 40 million in 2015. Compared with profit in 2015 before impairment charges (NIS 72 million after income tax), profit in 2016 increased by 62%. Based on the weighted average number of shares outstanding during 2016, basic earnings per share or ADS was NIS 0.33 (US$ 0.09), compared to basic loss per share of NIS 0.26 in 2015.
89 For information regarding potential downward impacts on profits in 2017, see "Item 5D.2 Outlook."
Adjusted EBITDA. Adjusted EBITDA in 2016 totaled NIS 834 million (US$ 217 million), a decrease of 5% from NIS 876 million in 2015. As a percentage of total revenues, Adjusted EBITDA in 2016 was 24%, compared with 21% in 2015.
5A.2a Cellular Services Segment
The impairment charge on fixed-line assets in 2015 did not have any impact on the results for the cellular services segment.
Total revenues. Total revenues for the cellular segment in 2016 were NIS 2,828 million (US$ 735 million), a decrease of 16% from NIS 3,348 million in 2015.
Revenues from services. Service revenues for the cellular segment in 2016 totaled NIS 2,099 million (US$ 546 million), a decrease of 9% from NIS 2,297 million in 2015. The decrease was mainly a result of the continued downward pressures on the prices of post-paid and pre-paid cellular services as a result of the continued competition in the cellular market. As an illustration of the level of competition in the cellular market, approximately 2.3 million cellular subscribers are estimated to have switched operators within the Israeli market (with number porting) in 2016, only slightly fewer than the estimated 2.5 million switchers in 2014 and 2015.
Significant price erosion continued to be caused by the amount of cellular subscribers who moved between different rateplans or airtime packages (generally to obtain a lower monthly fee) within the Company.
In addition, cellular segment service revenues were negatively affected by a decrease in revenues from wholesale services provided to other operators hosted on the Company's network, and in particular as a result of the termination of the Right of Use Agreement with HOT Mobile from the second quarter of 2016, as a result of which revenues recorded related to the Right of Use Agreement decreased from approximately NIS 120 million in 2015 to approximately NIS 51 million in 2016. See "Item 5A.1e Right of Use Agreement with HOT Mobile". This decrease was partially offset by the amortization to revenues of the Lump Sum payment from HOT Mobile under the Network Sharing Agreement in an amount of approximately NIS 23 million (US$ 6 million) in 2016.
Pre-paid cellular subscribers contributed service revenues in a total amount of approximately NIS 180 million (US$ 47 million) in 2016, a decrease of 22% from approximately NIS 230 million in 2015, as a result of the price erosion in pre-paid services and the decrease in the number of pre-paid subscribers, which was largely attributed to pre-paid subscribers moving to post- paid subscriber packages due to the significant price declines (and hence increased attractiveness) for these products.
Revenues from equipment. Revenues from equipment sales for the cellular segment in 2016 totaled NIS 729 million (US$ 190 million), a decrease of 31% from NIS 1,051 million in 2015, reflecting a decrease in the volume of sales, mainly related to the tightening of the Company's customer credit policy, whereby stricter requirements were imposed for customers to be accepted for long term financing plans, whereby the customer pays for the equipment through monthly payments (generally over 12 to 36 months).
Gross profit from equipment sales. The gross profit from equipment sales for the cellular segment in 2016 was NIS 133 million (US$ 34 million), compared with NIS 219 million in 2015, a decrease of 39%. This decrease reflected both the decrease in the volume of equipment sales, as described above, and lower profit margins from sales which was also a result of the tightening of the Company's customer credit policy (since profit margins are higher for sales with long term financing plans), as well as a change in product mix towards products with lower profit margins. See also "Item 5D.2 Outlook".
Cost of service revenues. The cost of service revenues for the cellular segment (excluding inter-segment costs) decreased by 11% from NIS 1,856 million in 2015 to NIS 1,659 million (US$ 431 million) in 2016, mainly reflecting decreases in cellular network and cable maintenance expenses, in part related to the implementation of the cost sharing mechanism under the Network Sharing Agreement with HOT Mobile, and decreases in expenses related to lower payments to transmission, communication and content providers.
90 Selling, marketing, general and administration expenses. Selling, marketing, general and administration expenses for the cellular segment in 2016 amounted to NIS 571 million (US$ 149 million), an increase of 13% from NIS 506 million in 2015. The increase mainly reflected an increase in advertising and marketing expenses related, in part, to the marketing activities connected to the rebranding of the Company, and an increase in bad debts and allowances for doubtful accounts expenses which was mainly related to historical transactions. See also Note 22 to our consolidated financial statements.
Total operating expenses ("OPEX"). Total operating expenses for the cellular segment totaled NIS 1,928 million (US$ 501 million) in 2016, a decrease of 5% or NIS 96 million from 2015. See also Note 22 to our consolidated financial statements. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), total operating expenses decreased by 5%.
Income with respect to settlement with Orange. In 2016, the Company recorded income with respect to the settlement agreement of the Orange brand agreement in an amount of NIS 217 million (US$ 56 million) compared with NIS 61 million recorded in 2015. As set forth in the settlement agreement, the advance payments received from Orange will continued to be recognized and reconciled evenly on a quarterly basis over a period until the second quarter of 2017, against contingent marketing, sales, customer services and other expenses to be incurred over this period. See also Item 5A.1c Settlement Agreement with Orange Brand Services Ltd." above and Note 18 to our consolidated financial statements.
Operating profit. Overall, operating profit for the cellular segment in 2016 was NIS 68 million (US$ 18 million), a decrease of 6% or NIS 4 million compared with NIS 72 million in 2015, reflecting the impact of the decreases in service revenues and gross profits from cellular segment equipment sales, which were partially offset by the reduction in total operating expenses and the increase in income with respect to settlement with Orange.
Adjusted EBITDA. Adjusted EBITDA for the cellular segment was NIS 562 million (US$ 146 million) in 2016, decreasing by 6% from NIS 597 million in 2015, for the same reasons as the decrease in operating profit. As a percentage of total cellular revenues, Adjusted EBITDA for the cellular segment in 2016 was 20%, compared with 18% in 2015.
5A.2b Fixed-Line Services Segment
Total revenues. Total revenues in 2016 for the fixed-line segment were NIS 929 million (US$ 242 million), a decrease of 5% compared with NIS 974 million in 2015.
Revenues from services. Service revenues for the fixed-line segment totaled NIS 866 million (US$ 225 million) in 2016, a decrease of 4% compared with NIS 906 million in 2015. The decrease mainly reflected a decrease in revenues from international calls (including in the market for wholesale international traffic) as well as decreases in revenues from other fixed line services including local lines and ISP services. Our subscriber market share in the ISP segment continues to be eroded as a result of the strong competition in the market from both existing and new service providers.
Revenues from equipment. Revenues from equipment sales for the fixed-line segment in 2016 totaled NIS 63 million (US$ 17 million), a decrease of 7% compared with NIS 68 million in 2015. The decrease mainly reflected a decrease in the sale of non-core fixed line equipment, including tablets, televisions, streamers and other audio visual devices, which was partially offset by an increase in fixed line equipment for business customers including sales of advanced business solutions.
Gross profit from equipment sales. The gross profit from equipment sales for the fixed-line segment in 2016 was NIS 11 million (US$ 3 million), compared with NIS 20 million in 2015, a decrease of 45%, mainly reflecting the decrease in the sale of non-core fixed line equipment, as described above.
91 Cost of service revenues. The cost of service revenues (excluding inter-segment costs) for the fixed-line segment decreased by 16% from NIS 736 million in 2015 to NIS 617 million (US$ 160 million) in 2016. The cost of service revenues in 2015 was negatively affected by expenses in the amount of NIS 88 million that were recorded following the impairment charge on the right of use on international fiber optic cables (NIS 76 million), on computers and information systems (NIS 7 million) and on the communication network (NIS 5 million). Compared with the cost of service revenues in 2015, excluding the impact of the impairment charges taken for that year, the cost of service revenues in 2016 decreased by 5%, reflecting decreases in transmission and communication provider expenses, salaries and related expenses, and in depreciation expenses, partially offset by increases in expenses related to payments to internet infrastructure and service providers. See also Note 22 to our consolidated financial statements.
Selling, marketing, general and administration expenses. Selling, marketing, general and administration expenses for the fixed-line segment in 2016 amounted to NIS 118 million (US$ 31 million), a decrease of 12% from NIS 134 million in 2015. Selling, marketing, general and administration expenses for 2015 included expenses in the amount of NIS 10 million that were recorded following the impairment charge on customer relationships (NIS 8 million) and on the trade name (NIS 2 million). Compared with selling, marketing, general and administration expenses excluding the impact of these impairment charges in 2015, the decrease in selling, marketing, general and administration expenses in 2016 was 5%. See also Note 22 to our consolidated financial statements.
Total operating expenses ("OPEX"). Total operating expenses for the fixed-line segment totaled NIS 609 million (US$ 158 million) in 2016, a decrease of 6% or NIS 41 million from 2015. See also Note 22 to our consolidated financial statements. Including depreciation, amortization and impairment expenses and other expenses (mainly amortization of employee share based compensation), total operating expenses decreased by 15%.
Operating profit. Operating profit for the fixed-line segment was NIS 125 million (US$ 33 million) in 2016, an increase of 257% compared to NIS 35 million in 2015. Operating profit for 2015 included impairment charges, as described above, in the amount of NIS 98 million. Compared with operating profit excluding the impairment charges in 2015, operating profit in 2016 decreased by 6%, mainly reflecting the impact of the decreases in service revenues and in gross profit from equipment sales, partially offset by the reduction in total operating expenses, as explained above.
Adjusted EBITDA. Adjusted EBITDA for the fixed-line segment decreased by 3% from NIS 279 million in 2015 to NIS 272 million (US$ 71 million) in 2016, for the same reasons as the decrease in operating profit. As a percentage of total fixed-line revenues, Adjusted EBITDA for the fixed-line segment in 2016 was 29%, unchanged from 2015.
5A.3 RESULTS OF CONSOLIDATED OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2015, COMPARED TO THE YEAR ENDED DECEMBER 31, 2014
New Israeli Shekels Year ended December 31, 2014 In millions Cellular segment Fixed-line segment Elimination Consolidated Segment revenue – Services 2,592 816 3,408 Inter-segment revenue – Services 26 188 (214) Segment revenue – Equipment 938 54 992 Total revenues 3,556 1,058 (214) 4,400
Segment cost of revenues – Services 1,963 692 2,655 Inter-segment cost of revenues – Services 185 29 (214) Segment cost of revenues – Equipment 727 37 764 Cost of revenues 2,875 758 (214) 3,419 Gross profit 681 300 981
Operating expenses (1) 509 122 631 Other income, net 49 1 50 Operating profit 221 179 400 Adjustments to presentation of Segment Adjusted EBITDA –Depreciation and amortization 534 155 689 –Other (2) 7 * 7 Segment Adjusted EBITDA (3) 762 334 1,096 Reconciliation of profit for the year to Adjusted EBITDA Profit for the year 162 Depreciation and amortization 689 Finance costs, net 159 Income tax expenses 79 Other (2) 7 Adjusted EBITDA (3) 1,096
* Representing an amount of less than 1 million.
(1) Operating expenses include selling and marketing expenses and general and administrative expenses.
92 (2) Mainly amortization of employee share based compensation.
(3) Adjusted EBITDA as reviewed by the CODM 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; it is fully comparable to EBITDA information which has been previously provided for prior periods.
Total revenues. In 2015, total revenues were NIS 4,111 million, a decrease of 7% from NIS 4,400 million in 2014.
Revenues from services. Service revenues in 2015 totaled NIS 2,992 million, a decrease of 12% from NIS 3,408 million in 2014.
Revenues from equipment. Equipment revenues in 2015 totaled NIS 1,119 million, an increase of 13% from NIS 992 million in 2014. The increase largely reflected higher average prices per device sold due to a change in product mix. (See also the comment regarding gross profit from equipment sales below).
Gross profit from service revenues. The gross profit from service revenues in 2015 was NIS 400 million, compared with NIS 753 million in 2014, a decrease of 47%. Gross profit from service revenues was negatively affected by expenses in the amount of NIS 88 million that were recorded following the impairment charge on the rights of use on international fiber optic cables, on computers and information systems (NIS 7 million) and on the communication network (NIS 5 million). Excluding the impact of these impairment charges, gross profit from service revenues was NIS 488 million in 2015, a decrease of 35% compared with 2014, largely reflecting the decrease in service revenues, partially offset by the decrease in the cost of service revenues. See also Note 22 to our consolidated financial statements.
Gross profit from equipment sales. Gross profit from equipment sales in 2015 was NIS 239 million, compared with NIS 228 million in 2014, an increase of 5%, mainly reflecting a change in product mix, with the Company devoting greater attention in 2015 on products with higher profit margins.
Selling, marketing, general and administrative expenses. Selling, marketing, general and administrative expenses totaled NIS 640 million in 2015, an increase of 1% from 2014. Selling, marketing, general and administrative expenses included expenses in the amount of NIS 10 million that were recorded following the impairment charge on customer relationships (NIS 8 million) and on the trade name (NIS 2 million). Excluding the impact of these impairment charges, selling, marketing, general and administration expenses were NIS 630 million in 2015, no significant change compared to NIS 631 million in 2014. Within the total, increases in salaries and related workforce expenses and bad debts and allowance for doubtful accounts expenses were offset by decreases in advertising and marketing expenses, in selling commissions, net, and in other expenses. See also Note 22 to our consolidated financial statements.
93 Total operating expenses ("OPEX"). Total operating expenses including cost of service revenues (NIS 2,592 million in 2015) and selling, marketing, general and administrative expenses (NIS 640 million in 2015), and excluding depreciation, amortization and impairment expenses and other expenses (mainly amortization of employee share based compensation) (NIS 769 million in 2015); this measure is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies) totaled NIS 2,463 million in 2015, a decrease of 5% or NIS 127 million from 2014, largely a result of a decrease in expenses related to payments to transmission, communication and content providers and the impact of efficiency measures, including the reduction in the Company workforce by approximately 15% on an average basis (average of workforce at beginning and end of year). This included the impact of a retirement plan during 2015, as a result of which the Company recorded onetime expenses of approximately NIS 35 million in the third quarter of 2015, which were partially offset by a resulting reduction in salaries and related expenses in 2015.
Including depreciation, amortization and impairment expenses and other expenses (mainly amortization of employee share based compensation), total operating expenses in 2015 decreased by 2% compared with 2014. See also Note 22 to our consolidated financial statements.
Income with respect to settlement with Orange. In 2015, the Company recorded income with respect to the settlement agreement of the Orange brand agreement in an amount of NIS 61 million. See also Item 5A.1c Settlement Agreement with Orange Brand Services Ltd." above and Note 18 to our consolidated financial statements.
Other income, net. Other income, net, totaled NIS 47 million in 2015, compared to NIS 50 million in 2014, a decrease of 6%, mainly reflecting a decrease in income from the unwinding of trade receivables. See also Note 23 to our consolidated financial statements.
Operating profit. Reported operating profit for 2015 was NIS 107 million, a decrease of 73% compared with operating profit of NIS 400 million in 2014. Operating profit for 2015 before the total impact of the impairment charges described above in the amount of NIS 98 million, was NIS 205 million, a decrease of 49% compared with operating profit of NIS 400 million in 2014.
Finance costs, net. Finance costs, net in 2015 were NIS 143 million, a decrease of 10% compared with NIS 159 million in 2014. The decrease was mainly due to lower losses from foreign exchange movements in 2015 compared with foreign exchange gains in 2014. See also "Item 5B Liquidity and Capital Resources."
Profit (loss) before income tax. Loss before income taxes for 2015 was NIS 36 million, compared with profit before income tax of NIS 241 million in 2014. Before the total impact of the impairment charges described above in the amount of NIS 98 million, profit before income tax was NIS 62 million in 2015, a decrease of 74% from 2014.
Income taxes on profit. Income taxes on loss for 2015 were NIS 4 million, compared to NIS 79 million in 2014.
Profit (Loss). Reported loss in 2015 was NIS 40 million, a decrease of NIS 202 million compared with profit of NIS 162 million in 2014. Profit before the impact of the impairment in the amount of NIS 72 million (after income tax), was NIS 32 million in 2015, a decrease of 80% from NIS 162 million in 2014. Based on the weighted average number of shares outstanding during 2015, basic loss per share or ADS, was NIS 0.26, compared to basic earnings per share of NIS 1.04 in 2014.
94 Adjusted EBITDA. Adjusted EBITDA in 2015 totaled NIS 876 million, a decrease of 20% from NIS 1,096 million in 2014. As a percentage of total revenues, Adjusted EBITDA in 2015 was 21%, compared with 25% in 2014.
5A.3a Cellular Services Segment
The impairment charge on fixed-line assets in 2015 did not have any impact on the results for the cellular services segment.
Total revenues. Total revenues for the cellular segment in 2015 were NIS 3,348 million, a decrease of 6% from NIS 3,556 million in 2014.
Revenues from services. Service revenues for the cellular segment in 2015 totaled NIS 2,297 million, a decrease of 12% from NIS 2,618 million in 2014. The decrease was mainly a result of the continued downward pressures on the prices of post-paid and pre-paid cellular services as a result of the continuing competition in the cellular market. As an illustration of the level of competition in the cellular market, approximately 2.5 million cellular subscribers switched operators within the Israeli market (with number porting) in 2015, largely unchanged from the number of switchers in 2014, compared with approximately 1.8 million in 2013.
Significant price erosion continued to be caused by the amount of cellular subscribers who moved between different rateplans or airtime packages (generally with a lower monthly fee) within the Company. As in 2014, in 2015 subscribers switched rateplans or packages over one million times (including subscribers who switched more than once) within the Company, signifying a significant increase in the number of switches compared with 2013.
The decrease in service revenues from our subscribers was partially offset by an increase in revenues from wholesale services provided to other operators hosted on the Company's network, particularly as a result of the Right of Use agreement with Hot Mobile. See Item 5A.1e Right of Use Agreement with HOT Mobile."
Pre-paid cellular subscribers contributed service revenues in a total amount of approximately NIS 230 million in 2015, a decrease of 23% from approximately NIS 300 million in 2014, as a result of the price erosion in pre-paid services and the decrease in the number of pre-paid subscribers, which was largely attributed to pre-paid subscribers moving to post-paid subscriber packages as a result of the significant price erosion (and hence increasing attractiveness) in these products.
Revenues from equipment. Revenues from equipment sales for the cellular segment (including cellular handsets, WI-FI-only tablets, 3G/LTE tablets, laptops, datacards and modems, related equipment, car kits and accessories, and digital audio visual equipment) in 2015 totaled NIS 1,051 million, increasing by 12% from NIS 938 million in 2014. The increase largely reflected higher average prices per device sold due to a change in product mix (see also the comment regarding gross profit from equipment sales below). As in 2014, a significant majority of sales of equipment in 2015 were offered together with long term financing plans, whereby the customer pays for the equipment through monthly payments (generally over 12 to 36 months).
Gross profit from equipment sales. The gross profit from equipment sales for the cellular segment in 2015 was NIS 219 million, compared with NIS 211 million in 2014, an increase of 4%, mainly reflecting a change in product mix, with the Company devoting greater attention in 2015 on products with higher profit margins, as explained above.
Cost of service revenues. The cost of service revenues for the cellular segment (excluding inter-segment costs) decreased by 5% from NIS 1,963 million in 2014 to NIS 1,856 million in 2015. This decrease largely reflected decreases in expenses related to payments to communication and content providers and salaries and related expenses, partially offset by increases in network and cable maintenance expenses. See also Note 22 to our consolidated financial statements.
Selling, marketing, general and administration expenses Selling, marketing, general and administration expenses for the cellular segment in 2015 amounted to NIS 506 million, a decrease of 1% from NIS 509 million in 2014. The decrease mainly reflected decreases in advertising and marketing expenses and in selling commissions, net, partially offset by increases in bad debts and allowance for doubtful accounts expenses and in salaries and related expenses. See also Note 22 to our consolidated financial statements.
95 Total operating expenses ("OPEX"). Total operating expenses for the cellular segment totaled NIS 2,024 million in 2015, a decrease of 4% or NIS 92 million from 2014. See also Note 22 to our consolidated financial statements. Including depreciation and amortization expenses and other expenses (mainly amortization of employee share based compensation), total operating expenses also decreased by 4%.
Operating profit. Overall, operating profit for the cellular segment in 2015 was NIS 72 million, decreasing by 67% compared with NIS 221 million in 2014, largely reflecting the impact of the decrease in service revenues, partially offset by the reduction of total operating expenses and the increase in gross profits from equipment sales, as described above.
Adjusted EBITDA. Adjusted EBITDA for the cellular segment was NIS 597 million in 2015, decreasing by 22% from NIS 762 million in 2014, for the same reasons as the decrease in operating profit. As a percentage of total cellular revenues, Adjusted EBITDA for the cellular segment in 2015 was 18%, compared with 21% in 2014.
5A.3b Fixed-Line Services Segment
Total revenues. Total revenues in 2015 for the fixed-line segment were NIS 974 million, a decrease of 8% compared with NIS 1,058 million in 2014.
Revenues from services. Service revenues for the fixed-line segment totaled NIS 906 million in 2015, a decrease of 10% compared with NIS 1,004 million in 2014. The decrease mainly reflected lower revenues from international calls and from local lines and ISP services. Our market share in the ISP segment continues to be eroded as a result of the strong competition in the market from both existing and new service providers.
Revenues from equipment. Revenues from equipment sales for the fixed-line segment in 2015 totaled NIS 68 million, an increase of 26% compared with NIS 54 million in 2014. The increase mainly reflected an increase in the sale of non-core fixed line equipment, including tablets, televisions, streamers and other audio visual devices, as well as in fixed line equipment for business customers.
Gross profit from equipment sales. The gross profit from equipment sales for the fixed-line segment in 2015 was NIS 20 million, compared with NIS 17 million in 2014, an increase of 18%, reflecting the increase in sales, as described above.
Cost of service revenues. The cost of service revenues (excluding inter-segment costs) for the fixed-line segment increased by 6% from NIS 692 million in 2014, to NIS 736 million in 2015. The cost of service revenues was negatively affected by expenses in the amount of NIS 88 million that were recorded following the impairment charge on the rights of use on international fiber optic cables (NIS 76 million), on computers and information systems (NIS 7 million) and on the communication network (NIS 5 million). Excluding the impact of these impairment charges, the cost of service revenues was NIS 648 million in 2015, a decrease of 6% compared with 2014, largely reflecting decreases in expenses related to payments to communication providers and in salaries and related expenses, partially offset by increases in expenses related to payments to internet infrastructure and service providers. See also Note 22 to our consolidated financial statements.
Selling, marketing, general and administration expenses. Selling, marketing, general and administration expenses for the fixed-line segment in 2015 amounted to NIS 134 million, an increase of 10% from NIS 122 million in 2014. Selling, marketing, general and administration expenses included expenses in the amount of NIS 10 million that were recorded following the impairment charge on customer relationships (NIS 8 million) and on the trade name (NIS 2 million). Excluding the impact of these impairment charges, selling, marketing, general and administration expenses were NIS 124 million in 2015, a slight increase of 2% from 2014. See also Note 22 to our consolidated financial statements.
Total operating expenses ("OPEX"). Total operating expenses for the fixed-line segment totaled NIS 650 million in 2015, a decrease of 6% or NIS 38 million from 2014. See also Note 22 to our consolidated financial statements. Including depreciation, amortization and impairment expenses and other expenses (mainly amortization of employee share based compensation), total operating expenses increased by 6%.
96 Operating profit. Operating profit for the fixed-line segment was NIS 35 million in 2015, a decrease of 80% compared to NIS 179 million in 2014. Operating profit for 2015 before the total impact of the impairment charges described above in the amount of NIS 98 million, was NIS 133 million, a decrease of 26% compared with 2014, reflecting the impact of the decrease in service revenues, partially offset by the reduction in total operating expenses and the increase in gross profit from equipment sales, explained above.
Adjusted EBITDA. Adjusted EBITDA for the fixed-line segment decreased by 16% from NIS 334 million in 2014 to NIS 279 million in 2015, for the same reasons as the decrease in operating profit. As a percentage of total fixed-line revenues, Adjusted EBITDA for the fixed-line segment in 2015 was 29%, compared with 32% in 2014.
5A.4 SEASONALITY
Our service revenues and profitability show some seasonal trends over the year, resulting mainly from revenues from roaming services which tend to increase during Jewish holiday periods and during the summer months.
Whilst most of our post-paid cellular tariff plans for private customers are bundles including unlimited amounts of call minutes and SMS, for other cellular subscribers in plans which charge according to usage, airtime minutes and consequently airtime revenues are affected by the number of monthly work days and daylight hours in the day, which varies throughout the year. In addition, airtime revenues for such subscribers are lower in February, which is a shorter than average month. However, due to the increased penetration of bundled plans which offer unlimited or fixed amounts of airtime and SMS usage, the impact of such effects has significantly decreased over the last two years. There is no assurance that these trends will continue in the future.
Three months ended NIS in millions March 31 June 30 Sept. 30 Dec. 31 (Unaudited) Service Revenues
2014 876 862 862 808
2015 759 757 760 716
2016 710 692 698 652
5A.5 IMPACT OF EXCHANGE RATE FLUCTUATIONS AND INFLATION
Substantially all of our revenues and a majority of our operating expenses are denominated in shekels. However, in recent years, approximately one quarter of our operating expenses (excluding depreciation), including a substantial majority of our handset purchases, were linked to non-NIS currencies, mainly the US dollar. These expenses related principally to the acquisition of handsets, where the price paid by us is based mainly on US dollars. In addition, a substantial amount of our capital expenditures (including with respect to our networks) are incurred in, or linked to, non-NIS currencies, mainly the US dollar. See "ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK".
Our Note payable series C and our borrowings in a total principal amount of NIS 621 million as of December 31, 2016, are currently in NIS and are linked to the CPI. If the CPI increases, we may not be permitted to raise our tariffs in a manner that would fully compensate for any increase in our finance expenses. In 2016, the CPI decreased 0.3 %, which reduced our finance costs, net, by NIS 2 million, compared to a CPI decrease of 0.9% in 2015, which reduced our finance costs, net, by NIS 9 million. The CPI for each month is published on the 15th day of the following month; references above to the annual change in CPI for a given year is the change from the CPI published on the 15th day of December of the preceding year to the CPI published on the 15th day of December of the relevant year, which for the purposes of this annual report, covers the twelve months beginning January 1 through December 31 of the relevant year.
97 5B. Liquidity and Capital Resources
The discussion below first describes our financial indebtedness (Notes payable, long-term borrowings and total financial debt) and capital expenditures, then our dividend payments, and finally our main sources of liquidity.
5B.1 NOTES PAYABLE
The notes payable are unsecured non-convertible and listed for trade on the TASE.
The notes payable have been rated ilA+, on a local scale, by Standard & Poor's Maalot.
Members of our Board of Directors and senior management may have purchased a portion of the various Series Notes through stock exchange transactions.
The table below sets forth the composition and terms of the notes payable issued by the Company and outstanding at December 31, 2016:
Linkage terms (principal and interest) Annual interest rate Interest payment terms Original issuance date Notes payable series C CPI 3.35% CPI adj. Semi-annual April 2010 Notes payable series D 'Makam'(*) plus 1.2% Quarterly April 2010 Notes payable series E 5.5% fixed Semi-annual April 2010
(*) 'Makam' is a variable interest that is based on the yield of 12 month government bonds issued by the government of Israel. The interest is updated on a quarterly basis. The interest rates paid (in annual terms, and including the additional interest of 1.2%) during 2016 are set forth in the table below:
Period Interest rate
October 1, 2016 to December 30, 2016 1.29%
July 1, 2016 to September 30, 2016 1.29%
March 31, 2016 to June 30, 2016 1.31%
December 31, 2015 to March 30, 2016 1.34%
The table below sets forth the payments of principal to be made on our notes payable at December 31, 2016 (for payments including interest payments, see "Item 5F Aggregate Contractual Obligations"):
Less offering 2020 expenses to Total and 2017 2018 2019 2021 undiscounted discounts Total discounted New Israeli Shekels in millions
Notes payable series C (*) 212 212 424 (1) 423
Notes payable series D 109 109 109 219 546 (3) 543
Notes payable series E 121 121 ** 121 442 321 109 219 1,091 (4) 1,087
(*) Linked to the CPI as of December 31, 2016. (**) Representing an amount of less than NIS 1 million.
98 5B.2 Long-Term Borrowings
The Company has received borrowings from leading Israeli commercial banks and other institutions. The Company may, at its discretion prepay the borrowings, subject to certain conditions, including that the Company shall reimburse the lenders for losses sustained by the lenders as a result of the prepayment. The reimbursement is mainly based on the difference between the interest rate that the Company would otherwise pay and the current market interest rate on the prepayment date.
The Israeli Prime interest rate is determined by the Bank of Israel and updated on a monthly basis. The Israeli Prime interest rate as of December 31, 2015 and 2016 was 1.6%.
Borrowings as of December 31, 2016 are set forth below:
Linkage terms (principal and interest) Annual interest rate Interest payment terms Original reception date
Borrowing C 5.7% fixed Annual June 2010
Borrowing D 5.7% fixed Annual June 2010
Borrowing E Prime minus 0.025% Quarterly May 2011
Borrowing F CPI 3.42% CPI adj. Quarterly April 2011
Borrowing G 3.08% fixed Quarterly November 2014
Borrowing H 2.93% fixed Quarterly November 2014 Borrowing I 3.17% fixed Quarterly January 2015 Borrowing J 2.75% fixed Quarterly January 2015 Borrowing K 3.71% fixed Quarterly March 2015 Borrowing L 4.25% fixed Semi-annual March 2015 Borrowing M 3.884% fixed Quarterly July 2015 Borrowing N 4.95% fixed Quarterly December 2016
The table below sets forth the payments of principal to be made on our borrowings, as of December 31, 2016 (for payments including interest payments see Item "5F Aggregate Contractual Obligations"):
2020 2022 to to 2017 2018 2019 2021 2023 Total
Borrowing C 25 25 25 75
Borrowing D 25 25 25 75
Borrowing E 152 152
Borrowing F (*) 197 197
Borrowing G 20 20 40 20 100
Borrowing H 20 20 40 20 100
Borrowing I 30 40 50 120
Borrowing J 15 15 15 17 62
Borrowing K 23 30 23 76
Borrowing L 33 33 67 67 200
Borrowing M 17 33 33 67 50 200 Borrowing N 25 25 67 133 250 57 249 657 487 157 1,607
(*) Linked to the CPI as of December 31, 2016
99 Buy-back of Notes payable by the Company during 2016:
Following the Board of Directors' resolution in October 2015, to approve a notes buy-back plan of the Company's series B, C and E notes, which are traded on the Tel Aviv Stock Exchange, the repurchases of the following notes were executed (these notes are considered legally extinguished):
Notes payable Series B In March 2016, the Company repurchased approximately NIS 43 million par value of notes payable series B, at an average transaction price of approximately 1.104 NIS par value. The total amount paid was approximately NIS 48 million.
Notes payable Series E In March 2016, the Company repurchased approximately NIS 131 million par value of notes payable series E, at an average transaction price of approximately 1.073 NIS par value. The total amount paid was approximately NIS 141 million.
Notes payable Series C In April 2016, the Company repurchased approximately NIS 54 million par value of notes payable series C, at an average transaction price of approximately 1.136 NIS par value. The total amount paid was approximately NIS 61.5 million.
The buy-back costs of the aforementioned repurchases were recorded in finance expenses in an amount of NIS 12 million.
New borrowings made during 2016:
Borrowing N: On December 28, 2016, the Company received a long-term loan from a group of institutional corporations in the principal amount of NIS 250 million. The Loan will bear unlinked interest at the rate of 4.95% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2017.
Off balance sheet deferred loan commitments in favor of the Company:
On November 27, 2014, the Company engaged in a loan agreement with a group of institutional corporations ("Lenders"), according to which on December 26, 2017 the Lenders will provide the Company a loan in the principal amount of NIS 100 million. The loan will bear unlinked interest at the rate of 4.44% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2018.
On November 30, 2014, the Company engaged in a loan agreement with a group of institutional corporations ("Lenders"), according to which on December 26, 2017 the Lenders will provide the Company a loan in the principal amount of NIS 100 million. The loan will bear unlinked interest at the rate of 4.34% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2018.
All of the off-balance sheet deferred loan commitments include provisions which allow the lenders to not provide the loans should any of the events of default defined for our existing loans occur prior to the date for providing the deferred loans. These events of default include a material adverse change in the Company's business and non-compliance with the financial covenants set forth below, as well as other customary terms. See "Item 3D.2b 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."
100 Financial covenants. The terms of borrowings require the Company to comply with financial covenants on a consolidated basis. The main provisions are the following two ratios:
(1) The ratio of (a) the amount of all financial obligations of the Company including bank guarantees that the Company has undertaken ("Total Debt") to (b) EBITDA less Capital Expenditures shall not exceed 6.5 (the ratio as of December 31, 2015 and 2016, was 5.5 and 4.5, respectively); and
(2) The ratio of (a) Total Debt to (b) the EBITDA of the Company shall not exceed 4 (the ratio as of December 31, 2015 and 2016, was 3.8 and 3.4, respectively).
"EBITDA" is defined as the sum of (a) the net income before extraordinary items, (b) the amount of tax expenses set against the profit including, without double counting, any provisions for tax expenses, (c) amortization and depreciation expenses, and (d) any finance costs net.
Capital Expenditures are defined as any expenditure classified as fixed and intangible asset in the financial statements.
The Group was in compliance with all covenants stipulated for the years 2015 and 2016. The covenants are measured every six months (on June 30, and December 31) on an annualized basis of twelve months and are based on the financial results for the preceding period of twelve months.
The existing loan agreements allow the lenders to demand an immediate repayment of the loans 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 forth in those agreements.
Negative pledge. The Company provided a negative pledge undertaking (including, among others, not to pledge any of its assets to a third party), except for a number of exceptions that were agreed upon, including pledges (other than by way of floating charge) in favor of a third party over specific assets or rights of the Company, securing obligations no greater than NIS 100 million in aggregate.
5B.3 TOTAL NET FINANCIAL DEBT
At December 31, 2016, total net financial debt (the sum total of current notes payable and borrowings (NIS 498 million) and non-current borrowings and notes payable (NIS 2,196 million) less cash and cash equivalents (NIS 716 million) and less short-term deposits (NIS 452 million)) amounted to NIS 1,526 million, compared to NIS 2,175 million (the sum total of current notes payable (NIS 554 million) and non-current borrowings and notes payable (NIS 2,547 million) less cash and cash equivalents (NIS 926 million)) at December 31, 2015. The decrease in net financial debt compared with 2015 principally reflected the reduction in borrowings and notes payable, as well as the increase in cash and cash equivalents together with short-term deposits, whereby the increase in cash and cash equivalents together with short-term deposits mainly reflected the increase in adjusted free cash flow (cash flows from operating activities, net of cash flows used for investment activities less short-term investments in deposits, see reconciliation to cash flows below; adjusted free cash flow is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies) generated during 2016. The decrease in financial debt compared with 2015 also reflected the buy-back of notes payable made during 2016. See Note 15 to the consolidated financial statements (see also "Item 5B.2 Long-term Borrowings" above).
Reconciliation of cash flows to Adjusted Free Cash Flow Year ended December 31, 2015 2016 NIS in millions
Cash flows from operating activities 922 945
Cash flows from investing activities (356) (639) Short-term investment in deposits 452
Adjusted Free Cash Flow 566 758
101 At December 31, 2016, the current portion of our total financial debt (including future interest payments during 2017) amounted to NIS 587 million, as compared to NIS 659 million at December 31, 2015, and was composed of the amounts set forth in the table below. We intend to fund the repayment of the current portion of our Notes payable, borrowings and interest in 2017, through available cash or operational cash flow, new borrowings, issuance or sale of corporate notes, or a combination of one or more of these resources.
Current Portion Payable in 2017 as of December 31, 2016 NIS in millions
Principal on notes payable 442 Principal on borrowings 57
Accrued interest on notes payables 28
Accrued interest on long term borrowings 60
Total 587
Capital Expenditures. The cellular telephone business is highly capital intensive, requiring significant capital to acquire a license and to construct and maintain a mobile telecommunications network. The capital requirements of our network are determined by the coverage desired, the expected call and data traffic and the desired quality and variety of services. Cellular network construction costs are mainly related to the number of cells in the service area, the number of radio channels in the cell and the switching equipment required.
In the years ended December 31, 2014, 2015 and 2016, our capital expenditures as represented by additions to property and equipment and intangible assets, amounted to NIS 434 million, NIS 271 million and NIS 202 million, respectively, and were principally related to our cellular network. The decrease in capital expenditures from 2015 to 2016 partly reflected the fact that amounts expended to improve PHI's network are (since PHI began operations) recorded as deferred expenses – right of use, whereas prior to that date, these outflows were recorded as capital expenditures. Deferred expenses of the right to use PHI's assets increased from NIS 4 million in 2015 to NIS 41 million in 2016. In addition, the decrease in capital expenditures reflected the one- time payment to the Ministry of Communications for 4G frequencies of NIS 34 million in 2015.
At December 31, 2016, our capital expenditure commitments totaled NIS 20 million. For further information regarding our capital expenditure commitments at December 31, 2016, see "Item 5F Aggregate Contractual Obligations".
Dividend payments. For the year ending December 31, 2016, the Company did not distribute any dividends.
5B.4 MAIN SOURCES OF LIQUIDITY
• Cash on hand;
• Short-term deposits;
• Operating cash flows, net of cash flow used for investing activities;
• Existing credit facilities;
• Off balance sheet loan commitments.
Cash on hand. At December 31, 2016, we had NIS 716 million in cash on hand, compared to NIS 926 million at December 31, 2015.
Short-term deposits. At December 31, 2016, we had NIS 452 million in short-term deposits, compared to none at December 31, 2015.
Cash generated from operations. Cash generated from operations increased by 2% from NIS 922 million in 2015 to NIS 945 million (US$ 245 million) in 2016. The increase mainly reflected the significant decrease in operating assets, which was mainly explained by the significant decrease in the volume of equipment sales under long-term payment plans in 2016 compared with in 2015. In addition, the increase reflected the payment by HOT Mobile in 2016 of the lump sum of NIS 250 million under the Network Sharing Agreement. These two factors were partially offset by the payment in 2015 of €90 million received from Orange as part of the settlement agreement of the Orange brand license agreement, and by the decrease in Adjusted EBITDA excluding the recorded income with respect to the settlement agreement of the Orange brand agreement. The adjusted free cash flow for 2016 was NIS 758 million compared to NIS 566 million for 2015, representing an increase of 34% (adjusted free cash flow is calculated as cash flows from operating activities, net of cash flows from investment activities less short-term investment in deposits; adjusted free cash flow is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies).
102 Existing credit facilities. During 2016 and at December 31, 2016, we did not have any active credit facilities with banks.
Off balance sheet loan commitments. On November 27, 2014, the Company engaged in a loan agreement with a group of institutional corporations, according to which on December 26, 2017, they will provide the Company a loan in the principal amount of NIS 100 million. The loan will bear unlinked interest at the rate of 4.44% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2018. On November 30, 2014, the Company engaged in a loan agreement with a group of institutional corporations, according to which on December 26, 2017, they will provide the Company a loan in the principal amount of NIS 100 million. The loan will bear unlinked interest at the rate of 4.34% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2018.
We believe that cash flows from our operations, together with our cash on hand, our short-term deposits and the two loan commitments described in the preceding paragraph, will provide us with enough liquidity and resources to fund our on-going operations, expected capital expenditure needs, payment of amounts due on our notes, as well as under our financing agreements, our license payments, and our other material commitments, at least for the next 12 months. However, the actual amount and timing of our future requirements may differ materially from our estimates.
As noted in "Item 3D.1o Our mobile telephone license imposes certain obligations on our shareholders and restrictions on who can own our shares. Ensuring compliance with these obligations and restrictions may be outside our control, and may limit our ability to raise new equity capital. If the obligations or restrictions are not respected by our shareholders, we could lose our license.", if the Company decides to raise capital, it may face significant difficulties, since the current holdings of Israeli entities (as defined in the license) are approximately 5% and any equity offering to the public or to the Company's employees and office holders will require an equivalent equity offering of shares to Israeli entities, in a manner in which the total Israeli entities founding shareholders' holdings will not be less than 5% of the total issued share capital. Since these Israeli entity shares require pre-approval of the MoC to determine that the receiving shareholder is eligible to be an Israeli entity, they are limited in their capability of transfer to another shareholder. The Company may need to grant a significant discount in an equity offering of these Israeli entity shares. If the Company would be required to raise capital and this issue would prevent it, there could be an adverse impact on our business (e.g. reduction in sales with long term credit arrangements and/or reduction in capital investments). See also "Item 5D.2 Outlook".
5C. Research and Development, Patents and Licenses
We are primarily a user rather than a developer of technology. Accordingly, we did not engage in any significant research and development activities during the past three years.
5D. Trend Information
5D.1 RECENT DEVELOPMENTS
See "Item 5D.2 Outlook". See also recent regulatory developments in "Item 4B.13e Regulatory Developments" and "Item 3D.1 RISKS RELATING TO THE REGULATION OF OUR INDUSTRY".
103 5D.2 OUTLOOK
In 2016, competition in the Israeli telecommunications market remained intense, although cellular price erosion and churn rates were lower than in the previous two years. This was reflected in further substantial price erosion in both cellular and fixed line services following the substantial price erosion already experienced in previous years. As a result, there was a further significant negative impact on the Company's service revenues and operating profitability.
Depending on regulatory and other developments in the market, our operating results may continue to decline in 2017 and beyond, which may adversely affect our financial condition. See also "Item 3D.2a As a result of substantial and continuing changes in our regulatory and business environment, our operating results and profitability have decreased significantly in the past five years, with a loss for 2015. We managed to earn a profit of NIS 52 million (US$ 14 million) for 2016, but our operating results may again decline in 2017 and beyond, which may adversely affect our financial condition."
In addition to the decrease in service revenues, revenues and gross profit from equipment sales decreased significantly in 2016, by 29% and 40% respectively. Both the decrease in the amount of equipment sales and in profit margins were mainly related to the tightening of the Company's customer credit policy, whereby stricter requirements were imposed for customers to be accepted for long-term financing plans. The decrease in profit margins also reflected a change in product mix.
In order to mitigate the impact of the competition on the price erosion and decreases in service revenues and in gross profits from equipment sales, the Company continued to adjust its cost structure and to implement operational efficiency measures through 2016, which was reflected in a decrease in 2016 in total operating expenses of NIS 139 million (including cost of service revenues (NIS 2,276 million in 2016) and selling, marketing and administrative expenses (NIS 689 million in 2016), and excluding depreciation, amortization and impairment expenses (NIS 641 million in 2016); this measure is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies). A significant proportion of the decrease in total operating expenses was related to the implementation of the cost sharing mechanism under the Network Sharing Agreement with HOT Mobile from the second quarter of 2016.
With regards to income from the settlement agreement with Orange, whilst in 2016 the Company recorded income from the settlement agreement in an amount of NIS 217 million (US$ 56 million) (compared with NIS 61 million recorded in 2015), the recognition of the advance payments received from Orange will cease from the third quarter of 2017. Therefore the recognition of the advance payments in 2017 will be limited to an amount of NIS 108 million. See also "Item 5A.1c Settlement Agreement with Orange Brand Services Ltd." above and Note 18 to our consolidated financial statements.
Partner's expected entry into the television market during the first half of 2017 will also require significant investment and incremental operating expenses and is expected to provide a negative contribution to our results of operation for 2017. See "Item 3D.2c Entry into the television services market entails costs, without expectations of profitability in the short term."
The statements above under this section regarding trends are "forward-looking" statements. We have based these forward-looking statements on our current knowledge and our present beliefs and expectations regarding possible future events. These forward-looking statements are subject to risks, uncertainties and assumptions about Partner, consumer habits and preferences in mobile telephone usage, trends in the Israeli telecommunications industry in general, possible regulatory and legal developments and trends in general economic conditions. For a description of some of the risks we face, see "Item 3D. Key Information – Risk Factors", "Item 4. Information on the Company", "Item 5. Operating and Financial Review and Prospects" and "Item 8A. Consolidated Financial Statements and Other Financial Information – Legal and Administrative Proceedings". In light of these risks, uncertainties and assumptions, the forward-looking events discussed above might not occur, and actual results may differ materially from the results anticipated.
5E. Off-Balance Sheet Arrangements
As of December 31, 2016, the Company provided bank guarantees in a total amount of NIS 171 million. For further details see Note 17 (6) to the consolidated financial statements.
104 During 2014, the Company engaged in several future loan agreements with a group of institutional corporations according to which the lenders will provide the Company with loans in the amount of NIS 200 million on December 2017. See "5B.2 Long-term Borrowings".
Other than the aforementioned guarantees and deferred loans, there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. See also "Item 5F Aggregate Contractual Obligations".
5F. Aggregate Contractual Obligations
Set forth below are our contractual obligations and other commercial commitments as of December 31, 2016:
Payments due by period (NIS in millions) 2022 and Contractual Obligations Total 2017 2018-2019 2020-2021 thereafter
Notes Series C* 445 226 219
Notes Series D* 567 116 228 223
Notes Series E* 128 128
Long term borrowings* 1,805 117 1,005 519 164
Operating Leases 630 137 193 132 168
Trade payables 681 681
Payables in respect of employees 81 81
Other payables 18 18
Contribution to defined benefit plan 12 12
Commitments to pay for inventory purchases** 1,128 648 480 Commitments to pay for property, equipment purchases and software elements purchases (capital expenditures)** 20 20
Commitments to pay for rights of use** 273 46 92 91 44
Total Contractual Cash Obligations 5,788 2,230 2,217 965 376
* The figures include expected payments of interest on our long-term debt (borrowings and notes payable).
** See Note 17 to the consolidated financial statements.
105 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6A. Directors and Senior Management
6A.1 DIRECTORS
Below is a list of the directors of the Company as of the date of this annual report.
Name of Director Age Position
Adam Chesnoff* 51 Chairman of the Board of Directors
Elon Shalev* 65 Vice-Chairman of the Board of Directors (1)(2)(3)(4) Dr. Michael J. Anghel 78 Director (1)(2)(3)(4) Barry Ben Zeev 65 Director
Fred Gluckman* 46 Director Barak Pridor* 51 Director (5) (6) Osnat Ronen 54 Director
Yoav Rubinstein* 43 Director
Arieh Saban* 70 Director Yehuda Saban 37 Director (1)(2)(4) Arik Steinberg 52 Director
Ori Yaron* 51 Director
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) External Director under the Israeli Companies Law (See "Item 6C Board Practices")
(4) Independent Director under NASDAQ rules and under the Israeli Companies Law
(5) Independent Director under NASDAQ rules
(6) Appointed by the Israeli founding shareholders
* Nominated by S.B. Israel Telecom
106 Adam Chesnoff was appointed to the Board of Directors of Partner effective as of January 29, 2013 and was appointed to serve as Chairman of the Board of Directors on November 20, 2013. Mr. Chesnoff serves as the President and Chief Operating Officer of Saban Capital Group, Inc., responsible for overseeing its investment and business activities, including private equity and public market investments. Mr. Chesnoff is a member of the Board of Directors of Univision Communications Inc., the largest Spanish-language media company in the United States; a member of the Board of Directors of Celestial Tiger Entertainment Ltd., an owner and operator of pay television channels across Asia. Mr. Chesnoff is also a member of the Board of Commissioners of MNC Ltd., an Indonesian media company. In addition, Mr. Chesnoff served as Vice-Chairman of the Board of Directors of ProSiebenSat.1 Media AG from 2003 until 2007. From 2005 to 2010, Mr. Chesnoff served on the Board of Directors of Bezeq Israel Telecommunication Company Ltd. Mr. Chesnoff holds a B.A. in economics and management from Tel-Aviv University and an M.B.A from UCLA's Anderson School of Business.
Elon Shalev was appointed to the Board of Directors of Partner effective as of January 29, 2013 and was appointed to serve as Vice Chairman of the Board of Directors on November 20, 2013. Mr. Shalev serves as a senior advisor to Saban Capital Group, Inc. Mr. Shalev was the founder of Channel 2 news and from 1993 to1995 served as its Chief Executive Officer. From 1996-1999, he served as Editor in Chief of "Yediot Aharonot", and from 2000 to 2001 he served as Executive Vice President of Discount Investment Corporation Ltd. of the IDB Group. Mr. Shalev was the co- founder of SHL Telemedicine Ltd. and still serves as a director in the company. Mr. Shalev served in the past on the Board of Directors of Bezeq Israel Telecommunication Company Ltd., DBS Satellite Services (1998) Ltd. (Yes) and Bezeq International Company Ltd. Mr. Shalev holds a B.A. in political science from Tel Aviv University.
Dr. Michael J. Anghel was appointed to the Board of Directors of Partner in March 2006. From 1977 to 1999, he led the Discount Investment Corporation Ltd. (of the IDB Group) activities in the fields of technology and communications. Dr. Anghel was instrumental in founding Tevel, one of the first Israeli cable television operators and later in founding Cellcom. In 1999 he founded CAP Ventures, an advanced technology investment company. From 2004 to 2005, Dr. Anghel served as CEO of DCM, the investment banking arm of the Israel Discount Bank. He has been involved in various technology enterprises and has served on the Board of Directors of various major Israeli corporations and financial institutions including Elron, Elbit, Nice, Gilat, American Israeli Paper Mills, Maalot (the Israeli affiliate of Standard and Poor's) and Hapoalim Capital Markets and served as the Chairman of the Center for Educational Technology. He currently serves on the Board of Directors of Syneron Medical Ltd., Dan Hotels Ltd, Orbotech Ltd., BiolineRx Ltd. and the Strauss-Group Ltd. Prior to launching his business career, Dr. Anghel served as a full-time member of the Recanati Graduate School of Business Administration of the Tel Aviv University, where he taught finance and corporate strategy. He currently serves as Chairman of the Tel Aviv University's Executive Program. Dr. Anghel holds a B.A. in economics from the Hebrew University in Jerusalem and an M.B.A. and Ph.D. in finance both from Columbia University in New York.
Barry Ben Zeev (Woolfson) was appointed to the Board of Directors of Partner in October 2009. He has been providing strategic business consulting services since 2009. Mr. Ben Zeev served as the Deputy-Chief Executive Officer & Chief Financial Officer of Bank Hapoalim in 2008. He joined the bank in 1976 and served in a variety of senior positions in the branch system and the international division including New York. Mr. Ben Zeev served in the following executive positions prior to becoming Deputy-Chief Executive Officer & Chief Financial Officer of Bank Hapoalim: Executive Vice President & Head of International Operations during the years 2001-2002, Deputy-Chief Executive Officer & Head of International Private Banking during the years 2002- 2006, Chairman of Poalim Asset Management during the years 2001-2006, Chairman of Bank Hapoalim Switzerland during the years 2002-2006, Deputy Chairman of the Board of Directors of Signature Bank in New York during the years 2001-2002 and Deputy-Chief Executive Officer and Head of Client Asset Management during the years 2006-2007. Mr. Ben Zeev serves on the Board of Directors of the following companies: Ellomay Capital Ltd., Poalim Asset Management UK Ltd., Ben Zeev (Woolfson) Consultants Ltd., Hiron-Commerce Investments & Mivnei Ta'asiya Ltd., Kali Pension Administration Management Ltd. and Altshuler Shaham Provident and Pension Ltd. He also served as a member of the Board of Directors of the Tel Aviv Stock Exchange during the years 2006-2007. Mr. Ben Zeev holds a B.A. in economics and an M.B.A both from Tel-Aviv University.
107 Fred Gluckman was appointed to the Board of Directors of Partner effective as of January 29, 2013. Mr. Gluckman serves as the Chief Financial Officer and executive vice president of Saban Capital Group, Inc. ("SCG"). In this position, Mr. Gluckman is responsible for all financial, accounting, tax, HR and IT functions of the firm, and has been an active member of the firm's investment team since joining the firm in 2003. Mr. Gluckman is a member of the Board of Directors of Celestial Tiger Entertainment and serves on its Audit Committee. Mr. Gluckman's experience, prior to joining SCG, includes international and domestic advisory work in the London and Southern California practices of Deloitte. Mr. Gluckman is actively engaged in the community, serving on multiple boards of national and local charitable organizations including on the national executive committee of the Friends of the IDF. Mr. Gluckman is a CPA and holds a B.S. in economics from Wharton Business School and studied at the Hebrew University in Jerusalem.
Barak Pridor was appointed to the Board of Directors of Partner in February 2016. Mr. Pridor served from 2000 until 2011 as CEO of ClearForest, a software startup that was acquired by Thomson Reuters in 2007. Following the acquisition, Mr. Pridor continued to serve as CEO of ClearForest as well as an Executive Vice President at Thomson Reuters until 2011. Mr. Pridor serves as Chairman of the Board of Directors of Applicaster Ltd. from 2015 and as a director on the Board of Directors of: Playbuzz Ltd. from 2016, Leadspace Ltd. from 2013, and of Sosa Tlv Ltd. from 2013. Mr. Pridor holds a B.Sc. in Mathematics and Computer Science from Tel Aviv University and a M.B.A. from INSEAD Business School.
Ms. Osnat Ronen was appointed to the Board of Directors of Partner in December 2009. Ms. Ronen founded FireWind 01 GP in 2015 and has since served as its general partner. Ms. Ronen has also served as an advisor to Liquidnet, Inc. from 2013 to 2015. She previously served as a General Partner of Viola Private Equity from 2008 until 2013. From 1994 to 2007, Ms. Ronen served in various positions at Bank Leumi Le Israel BM, including as the Deputy Chief Executive Officer of Leumi Partners Ltd. from 2001 to 2007 and as Deputy Head of the Subsidiaries Division of the Leumi Group from 1999 to 2001. Between 2004 and 2007, Ms. Ronen also led the strategic planning, deployment and execution of the Bachar Reform, one of Israel's largest financial reforms, at Leumi Group. As part of the implementation, Ms. Ronen managed the sale of Leumi's holdings in mutual, provident and training funds. Ms. Ronen currently serves on the Board of Directors of Mizrahi-Tefahot Bank Ltd., Fox-Wizel Ltd. and Perion Network Ltd. She also volunteers as a director of the College for Management (Michlala Le-Minhal) and Yissum Research Development Company of the Hebrew University of Jerusalem. Ms. Ronen served on the Board of Directors of several portfolio companies of Viola including: Amiad Water Systems Ltd., Orad Hi-tech Ltd., Aeronautics Ltd., Degania Medical Ltd., and Matomy Media Group Ltd. Ms. Ronen holds a B.Sc. in mathematics and computer science from Tel Aviv University and an M.B.A. from the Recanati School of Business Administration at Tel Aviv University.
Yoav Rubinstein was appointed to the Board of Directors of Partner effective as of January 29, 2013. Mr. Rubinstein joined SHL Telemedicine Ltd. as Senior Vice President, Head of Global Business Development in March 2012. Previously, Mr. Rubinstein served as an investment professional at Apax Partners for nine years and as Senior Advisor to Saban Capital Group, Inc. Mr. Rubinstein holds a B.A. in business administration from the Interdisciplinary Center in Herzliya.
Arieh Saban was appointed to the Board of Directors of Partner effective as of January 29, 2013. Mr. Saban has served since 2010 as Chairman of the Board of Directors of Saban Brands Israel Ltd. From 1983 until 2002 Mr. Saban served as the CEO of Israel Audio-Visual Corporation, a media distribution, licensing and merchandising agency that he founded. From 2000 until 2002 he served as Chairman of the Board of Directors of Fox Kids Israel, a joint venture with Fox Kids Europe. From 2005 until 2012, Mr. Saban served on the Board of Directors of the following companies: Keshet Broadcasting Ltd., Pelephone Communications Ltd., DBS Satellite Services (1998) Ltd. (Yes) Bezeq Israel Telecommunication Company Ltd. and Bezeq International Company Ltd.
Yehuda Saban was appointed to the Board of Directors of Partner in April 2015. Mr. Saban served between 2011- mid 2015 as Vice President Economics & Regulation and FLNG (Floating Liquefied Natural Gas) manager at Delek Drilling & Avner oil exploration. Previously, Mr. Saban served over 6 years in various capacities with the budget department of the Ministry of Finance as Manager of the Telecommunications and Tourism Unit, Manager of the Budget and Macroeconomics unit and as an economist in the Energy unit. During those years, Mr. Saban was also an active partner in a number of committees and authorities in the energy, telecommunications and infrastructure fields. Mr. Saban holds a B.A. in Economics & Business Management (graduated with honors) and an M.B.A specializing in Financing, both from the Hebrew University in Jerusalem.
108 Arie (Arik) Steinberg was appointed to the Board of Directors of Partner in January 2012. Mr. Steinberg served from 2006-2010 as Chairman of the Board of Directors of Psagot Investment House, Ltd., as well as other companies in the Psagot Group, leading and overseeing the business strategies of the Psagot Group. Mr. Steinberg served as Chairman on behalf of York Capital. In addition, he served on the Board of Directors of the Tel-Aviv Stock Exchange. Mr. Steinberg also served between 1999-2003 as Chief Executive Officer of Ilanot Batucha Investment House from the IDB Group, as well as a director of Maalot (the Israeli affiliate of Standard and Poor's).Prior to that, Mr. Steinberg served as Managing Director of Etgar- Portfolio Management Trust Co. owned by Bank Mizrahi. He also served on the Advisory Boards of Mobileye Technologies and Novotrans Group SA. Mr. Steinberg serves on the Board of Directors of Leumi Partners Ltd and as the Chairman of the Board of Trustees of the Academic College of Tel-Aviv-Yaffo. Mr. Steinberg studied economics at Tel-Aviv University.
Ori Yaron was appointed to the Board of Directors of Partner in May 2014. Mr. Yaron practices law and manages Ilan Yaron Law Offices that specializes in the areas of insurance and torts. Mr. Yaron served from 2010 until 2016 as a member of the Board of Directors of the Geophysics Institute and served from 2006 until 2007 as a member of the Board of Directors of Mekorot Development & Enterprise and from 2011 until 2014 as a member of the Board of Directors of Hozei Israel Ltd. Mr. Yaron holds a B.A. in economics and an LL.B. both from Tel-Aviv University and is a member of the Israeli Bar Association.
6A.2 SENIOR MANAGEMENT
Below is a list of the Senior Management of the Company as of the date of this annual report:
Name of Officer Age Position
Isaac Benbenisti 52 Chief Executive Officer
Yuval Keinan 42 Deputy Chief Executive Officer
Ziv Leitman* 58 Chief Financial Officer
Hadar Vismunski-Weinberg** 43 Vice President, Chief Legal Counsel & Corporate Secretary
Einat Rom 51 Vice President, Human Resources & Administration
Zvika Shenfeld 44 Vice President, Private & Retail Division
Atara Litvak Shacham 45 Vice President Marketing & Growth Engines Division Liran Dan 38 Vice President Strategy & Business Development Raz Bartov 39 Vice President Technologies & IT Division Noach Hacker 35 Vice President Regulations Division
*Effective April 2, 2017, David (Dudu) Mizrahi will be replacing Ziv Leitman as the Company's Chief Financial Officer.
** Effective March 16, 2017, Hadar Vismunski-Weinberg replaced Nomi Sandhaus as the Company's Chief Legal Counsel and Corporate Secretary.
109 Isaac Benbenisti was appointed as Chief Executive Officer effective July 1, 2015 after having served as the Deputy CEO of Partner from November 2014. Prior to joining the Company, Mr. Benbenisti served from 2007 until 2014, as the CEO of Bezeq International Ltd. From 2003 through 2006, Mr. Benbenisti served as a director and C.E.O of the System Group and Distribution Channels Division at Hewlett-Packard (HP). Prior to that, he held a variety of managerial positions, including as the CEO of CMS Compucenter Ltd. Mr. Benbenisti holds a B.A. in economics and an M.B.A specializing in finance and marketing, both from the Hebrew University of Jerusalem.
Yuval Keinan was appointed as Deputy CEO effective January 1, 2016, after having served from 2008 until 2015 as the Vice President and CTO of Bezeq, the Israel Telecommunications Corp., Ltd. Prior to that, he served for three years as Vice President technology division, engineering & IT and CTO of Bezeq International Ltd. Mr. Keinan holds a B.Sc. in computer science from Mercy College.
Ziv Leitman was appointed as Chief Financial Officer of Partner in 2011. Prior to joining the Company, Mr. Leitman served as the Deputy CEO and CFO of Paz Oil Company Ltd., the largest energy and convenience retailer company in Israel traded on the Tel Aviv stock exchange. Previously, Mr. Leitman served as Executive Vice President and CFO of Comverse Inc., global leading provider of systems to telecommunication companies and as Executive Vice President and CFO of Discount Investments Corporation Ltd. and, Lucent Technology –EIS, Prior to this, Mr. Leitman served as CFO of Hogla-Kimberly Ltd. and Optrotech Ltd (Orbotech). Mr. Leitman is a CPA and holds a B.A in economics and accounting and an M.B.A in finance and information systems all from Tel Aviv University.
David (Dudu) Mizrahi was appointed as Chief Financial Officer of Partner effective April 2, 2017. Prior to joining the Company, Mr. Mizrahi served from 2012 until 2016 as the Deputy CEO and CFO of Bezeq-The Israel Telecommunication Corp., Ltd. ("Bezeq"). Between 2007 and 2012, Mr. Mizrahi served as the Vice President Economics and Budget at Bezeq and between 2001-2007 he served as the Regulatory and Government Relations Department Manager at Bezeq. Mr. Mizrahi holds a B.A. in Economics from the Hebrew University in Jerusalem.
Hadar Vismunski-Weinberg was appointed as Vice President, Chief Legal Counsel and Corporate Secretary effective March 16, 2017. Prior to joining the Company, Ms. Vismunski- Weinberg served since 2013 as Vice President and General Counsel- global R&D of Teva Pharmaceutical Industries Ltd. ("Teva"). Between 2007 and 2013. Ms. Vismunski-Weinberg served in other senior positions at Teva. Ms. Vismunski-Weinberg holds an LL.B from the Hebrew University in Jerusalem.
Einat Rom, was appointed as Vice President of Human Resources effective November 1, 2012 after having served as Vice President of Private Customers Division since December 1, 2010. Prior to joining Partner, Mrs. Rom served as Vice President of Service in Better Place Company and prior to that, she served as Vice President of Private Division in Bezeq The Israel Telecommunication Corp. and as Vice President of Service in Pelephone Communications Ltd. Mrs. Rom holds a B.A. in social science from Haifa University.
Zvika Shenfeld was appointed as Vice President, Private & Retail Division after having served prior to that as the Vice President of Marketing and Content Division, the Acting Head of Marketing, Content and Growth Engines Division and as the deputy of the head of the division since joining the Company in March 2012. From 2009 to 2012 he served as the marketing, strategy and business development at Newpan, an electronic home and small appliances distributor and retail chain. From 2006 until 2009, Mr. Shenfeld held various positions at the Eurocom Group including VP marketing and Business development at Internet Gold and Deputy CEO of MSN Israel. From 2003 until 2006 he served as Marketing Manager of AIG Israel. From 1999 until 2003 he held various economic and marketing positions at 013 Barak ILD. Mr. Shenfeld holds a B.A. in economics and logistics from Bar Ilan University and an M.B.A. from the ONO academic center.
Atara Litvak Shacham was appointed as Vice President of Marketing in December 2014 and joined Partner on February 10, 2015. Before joining Partner, Ms. Litvak Shacham served during 2014 as the Chief Marketing Officer at Colmobil Group, Carter Venture and prior to that as the Vice President of Marketing at Bezeq International Inc. from 2005-2013. Prior to that, Ms. Litvak Shacham served in various management positions. Ms. Litvak Shacham holds a B.A. with honors in behavioral sciences and HR management and industrial management from Ben-Gurion University, an M.B.A. specializing in marketing from the Hebrew University and attended the Management Acceleration Program (MAP) at INSEAD.
110 Liran Dan was appointed as Vice President Strategy and Business Development in October 2015, after having served from 2012 until 2015 as the Director of the Public Diplomacy and Media at the Prime Minister's office. Prior to that, he held a series of executive positions at Channel 2 News. In his last position, as the V.P. Digital Media, he established the digital desk of Channel 2 News. Mr. Dan holds an Executive M.B.A. degree from Tel-Aviv University, and a B.A. in political science and history from Bar-Ilan University.
Raz Bartov was appointed as Vice President Technologies and IT in May 2016 after have served in the Company over the years in various managerial positions and performed a broad spectrum of roles in the various technological units in the IT and engineering departments. Within the scope of his positions, Mr. Bartov took part in leading significant business and technological courses of action in the Company. Prior to joining the Company, Mr. Bartov was employed by Amdocs. Mr. Bartov holds a B.Sc. in computer science from Tel-Aviv University, and an M.B.A. from Ben-Gurion University.
Noach Hacker was appointed as Vice President, Regulation effective September 2016. Prior to joining the Company, Mr. Hacker served for over nine years in various capacities with the budget department of the Ministry of Finance as Senior Deputy to the Head of Budgets-Security Affairs, Security Budget Coordinator, Coordinator on the Infrastructure Team and as the Liaison of the Water Sector. Mr. Hacker holds a combined B.A in political science, economics and interdisciplinary studies from Bar Ilan University and an M.A. in political science from Haifa University.
Appointments and Resignations
None of the above directors, except for Mr. Arieh Saban, who is the brother of Mr. Haim Saban, the owner and CEO of Saban Capital Group, has any family relationship with any other director or senior manager of the Company. None of the above members of senior management has any family relationship with any other director or senior manager of the Company.
6B. Compensation
The terms of employment of the CEO are approved by the compensation committee, the Board of Directors and the general meeting of shareholders (by a special majority) and must comply with the Company's Compensation Policy for Office Holders (as this term is defined in Item 6C.8 below) (except for certain exceptions, as set by the Israeli Companies Law). The "special majority" requires the approval of a majority of the Company's shareholders participating at the general meeting and voting on the matter and at least one of the following conditions: (i) such majority includes a majority of the votes cast by shareholders who are not controlling parties (as defined in the Israeli Companies Law) in the Company and who do not have a personal interest in the resolution, and who are present and voting (abstentions are disregarded), or (ii) the votes cast against the resolution by shareholders who are not controlling parties and who do not have a personal interest in the resolution, who are present and voting, constitute two percent or less of the outstanding voting power in the Company). The terms of employment of other senior management (Office Holders) are approved by the compensation committee and the Board of Directors, and must comply with the Company's Compensation Policy (except for certain exceptions, as set by the Israeli Companies Law). See "Item 6C.6b COMPENSATION COMMITTEE". Senior management is generally appointed by the CEO with the approval of the Board of Directors for an indefinite term of office and may be removed by the CEO with the approval of the Board of Directors at any time.
Pursuant to the provisions of the Israeli Companies Law, the compensation policy of a company shall be submitted for the approval of the general meeting of shareholders, at least once every three years. We first adopted a compensation policy that sets forth the guidelines and framework for the mode of compensation of the Company's Office Holders following the approval of the Company's shareholders, at the extraordinary general meeting of shareholders, held on October 17, 2013 (the "Former Compensation Policy"). A new Compensation Policy was approved by the Company's shareholders at the annual general meeting of shareholders held on September 28, 2016 (the "Compensation Policy"). The Compensation Policy sets forth the principles and procedures for determining Office Holders' compensation, including ongoing remuneration, bonuses (including annual bonuses, severance bonuses and special bonuses), equity compensation, indemnification, insurance and release. The recently adopted Compensation Policy revises the Former Compensation Policy with respect to various matters and issues that needed to be updated and amended since the adoption of the Former Compensation Policy, due to changes in market practices since then, as well as adaption to legislative changes. See Exhibit 15.(b).1.
111 According to the Compensation Policy, annual bonus payments for our senior management are determined with respect to a given year based on targets set for the Company as a whole, targets set for each of the Company divisions as well as on personal evaluations. The targets for the CEO and the senior management are set by the compensation committee and the Board of Directors generally in accordance with the overall Company objectives. Upon the approval of the Company's annual results, bonus payments are determined based on the extent to which the Company and division targets have been met, as well as on the personal evaluation of each Office Holder at the discretion of the compensation committee and the Board of Directors, in light of the recommendations made by the Chairman of the Board of Directors with respect to the CEO, and, in light of recommendations made by the CEO, with respect to senior management reporting to the CEO.
Compensation for senior management may also be provided in the form of equity based compensation which includes stock options to purchase our ordinary shares and restricted shares. In 2016 options were granted to our senior management under the 2004 Amended and Restated Equity Incentive Plan to purchase up to 559,480 of our ordinary shares at a weighted average exercise price of NIS 18.17 per option with some of the options vesting at the earliest in January 2017. These options will expire at the latest by November 2022. In addition, in 2016, 230,929 restricted shares were granted to our senior management under the 2004 Amended and Restated Equity Incentive Plan, with some of the restricted shares vesting at the earliest in January 2017. For more information, see "Item 6E.2 Equity Incentive Plan".
The aggregate compensation paid, and benefits in kind granted to or accrued on behalf of all our directors and senior management for their services in all capacities to the Company and its subsidiaries during the year ended December 31, 2016, was approximately NIS 42 million (US$ 11 million). This amount included approximately NIS 3 million (US$ 0.8 million) set aside or accrued to provide pension and retirement benefits on behalf of all our senior management during the year ended December 31, 2016.
CEO Compensation
Mr. Isaac Benbenisti has served as the CEO of the Company since July 1, 2015. The terms of his employment were approved by the Compensation Committee, the Board of Directors and the general meeting of shareholders of the Company. Until December 1, 2015, the CEO was employed though an agreement with a private company, fully owned by him, for the provision of management services to the Company. Following a resolution of the compensation committee to make an immaterial change to the CEO's terms of employment, the CEO's employment format was changed to that of a company employee ("Employment Agreement"). The engagement in the Employment Agreement is for an unlimited time period with the right of each party to terminate upon 6 months prior written notice. In addition to the advance notice period, upon termination, the CEO will be entitled to a 6 month period during which he will receive a salary without being required to provide services.
The CEO's monthly salary (gross) will be an amount of NIS 150 thousand, linked to the CPI as of the index June 2015 (at the end of 2016 the monthly salary (gross) was NIS 150.3 thousand). In addition, the CEO will be entitled to reimbursement for the cost of vehicle use and maintenance as well as accepted related terms that are usually granted to the other office holders in the Company including telephone, food, cellular phone and other benefits in accordance with the Company's compensation policy and procedures (including indemnification, release and insurance arrangements as customary in the Company) and social benefits including sick days, vacation and allocations to plans and funds.
The annual bonus of the CEO is based on two elements: (a) 90% - Company targets (see below) while using the main performance indices determined by the Compensation Committee and Board of Directors after approval of the Company's annual budget, and (b) 10% - CEO performance evaluation for that year by the Compensation Committee and Board of Directors, based on qualitative and quantitative criteria.
The minimum criterion for receiving the annual financial bonus with respect to the CEO, as of the beginning of his said tenure as CEO, is that the Company achieved as least 80% of the Company's targets for the relevant year and in addition, that the total EBITDA shall not have decreased by more than 40% of the EBITDA for the year preceding the year in respect of which the bonus is payable.
112 With respect to the amount of the annual financial bonus, tiers were set to calculate the amount of the bonus according to the CEO's global achievement rate with respect to all of the elements of the annual bonus (a weighted score of the company targets and an evaluation of the CEO's performances), as follows: achievement at a rate lower than 80% will not entitle the CEO to an annual bonus; achievement at a rate between 80%-120% will entitle the CEO to 80%-120% of the annual bonus budget; achievement at a rate that exceed 120% will entitle the CEO to 120% of the annual bonus budget. For the year ending December 31, 2016, the annual bonus budget (100%) for the period during Mr. Benbenisti's tenure as CEO was approximately NIS 1,503 thousand. These sums are linked to the CPI.
The CEO's Company targets for the year 2016 were determined by the Board of Directors of the Company in March 2016 based on the annual work plan of the Company for the year. They include seven individual targets: (1) Company EBITDA target with a weight of 30% of the Company's targets (the 2016 achievement rate: 107%); (2) Cash flow target from the ongoing business with a weight of 20% of the Company's targets (2016 achievement rate: 200%); (3) Net subscriber target (combined cellular, fixed, activation and subscriber churn index) with a weight of 10% of the Company's targets (2016 achievement rate: 74%); (4) Cellular ARPU Base target with a weight of 10% of the Company's targets (2016 achievement rate: 106%); (5) Branding target (including brand awareness, budget and annual branding work plan) with a weight of 10% of the Company's targets (2016 achievement rate: 117%); (6) Digital service and sales target with a weight of 10% of the Company's targets (2016 achievement rate: 51%) and (7) Fixed-line service target (meet quality of service targets and other operational index targets that were determined) with a weight of 10% of the Company's targets (2016 achievement rate: 91%).
With respect to the above Company targets, a threshold and upper limit for achieving the target were determined as follows: achievement at a rate lower than 20% of the target will not allow eligibility for a bonus for that criteria; achievement at a rate between 20% - 200% of the target will allow eligibility at a rate of 20% - 200% for that criteria; achievement at a rate above 200% will allow eligibility of 200% for that criteria. With regard to the Company EBITDA target, an achievement at a rate lower than 80% of the target will not allow eligibility for a bonus for that criteria.
The global achievement rate of the CEO of all of the elements of the annual bonus for 2016 was 120%.
On March 29, 2017, the Board of Directors examined the CEO's achievement of targets and in accordance with the achievement of the said targets, the bonus that will be granted to the CEO for 2016, is in the amount of NIS 1,804 thousand.
CEO Equity Incentive Grant
In accordance with the resolutions of the Compensation Committee, Board of Directors and annual meeting of shareholders, Mr. Benbenisti was granted in 2015, in accordance with the Company's equity incentive plan, 1,471,971 options (non-tradeable) of the Company, at an exercise price of NIS 18.08, that constitutes a premium of 5% on the average share price of the Company, during the 30 days preceding the grant date. Mr. Benbenisti's granted options vest in three tranches: 33% of the entire amount of the options as of October 28, 2016, 33% of the entire amount of options as of October 28, 2017 and the balance of the options as of October 28, 2018. Mr. Benbenisti's eligibility to exercise each of the above detailed tranches will be available to him until October 27, 2021. The fair value of the options as of the grant date according to Black-Scholes model was NIS 8 million.
113 Highest Office Holder Compensation
The table below sets forth information regarding compensation on an individual basis for the five Office Holders with the highest compensation for the year 2016.
Other compensation & vehicle (the compensation amounts are displayed in Compensation for services terms of cost (the compensation amounts are displayed in terms for the of cost for Company) Total the Company) (NIS (NIS Details of the Compensation Recipient (NIS thousands) thousands) thousands) Payroll & Related Annual Share based Name Position expenses Bonus payments Other Isaac Benbenisti Chief Executive Officer 2,339 1,804 4,680(1)(11) 665(2) 9,488(3) Yuval Keinan Deputy Chief Executive Officer 1,737 1,284 1,938(4)(11) 1,595(5) 6,554 Ziv Leitman Chief Financial Officer 1,316 534 1,677(6)(11) 114(7) 3,641 Zvika Shenfeld Vice President, Private & Retail Division 1,083 435 1,677(8)(11) 222(9) 3,417 Einat Rom Vice President, Human Resources & Administration 1,132 473 1,677(10) (11) 121(7) 3,403
(1) In 2014, 137,200 share options were granted to Mr. Isaac Benbenisti in his capacity as Deputy CEO at the time, with a vesting period of up to four years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.8 million. Mr. Isaac Benbenisti waived these options and they were cancelled when the terms of service and employment of Mr. Benbenisti as the Company's CEO were approved.
In 2015, 1,471,971 share options were granted to Mr. Isaac Benbenisti, in his capacity as the Company's CEO with a vesting period of up to three years at an exercise price of NIS 18.08 that constitutes a premium of 5% on the average share price of the Company, during the 30 days preceding the grant date. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 8 million. Mr. Benbenisti's granted options vest in three tranches: 33% of the entire amount of the options as of October 28, 2016, 33% of the entire amount of options as of October 28, 2017 and the balance of the options as of October 28, 2018. Mr. Benbenisti's eligibility to exercise each of the above detailed tranches will be available to him until October 27, 2021.
(2) "Other compensation" includes: expenses for retirement that were accumulated during the reporting period of this Annual Report and will be paid only upon retirement and vehicle expenses.
(3) For further information regarding the CEO's compensation see above under CEO Compensation.
(4) In 2016, 269,000 share options and 114,000 restricted shares were granted to Mr. Yuval Keinan with a vesting period of up to three years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 1.3 million and the fair value of the restricted shares was approximately NIS 2 million.
(5) "Other compensation" includes: expenses for retirement that were accumulated during the reporting period of this Annual Report and will be paid only upon retirement; vehicle expenses and a special signing grant in a total of NIS 550 thousand, which was approved by the Compensation Committee and the Board of Directors in September 2015, according to article 5.5.3 of the Company's Compensation Policy.
114 (6) In 2014, 68,600 share options and 29,130 restricted shares were granted to Mr. Ziv Leitman with a vesting period of up to four years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.4 million and the fair value of the restricted shares was approximately NIS 0.7 million. As of March 23, 2017, the share price was NIS 20.25 whereas the option exercise price (dividend adjusted) is NIS 25.95. As long as the option exercise price is higher than the market share price, the grant of the options has no actual value for Mr. Ziv Leitman; however a restricted share has the value of the share price.
In 2015, an additional 161,369 share options and 76,378 restricted shares were granted to Mr. Ziv Leitman with a vesting period of up to three years. In accordance with a resolution of the Compensation Committee and the Board of Directors in January 2017, those share options and restricted shares that are due to vest or be earned on November 2018, will vest or be earned in accordance with the vesting or earning schedule after the termination date of Mr. Leitman's employment and could be exercised within three months from their vesting or earning date. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.9 million and the fair value of the restricted shares was approximately NIS 1.4 million.
(7) Represents vehicle expenses only
(8) In 2014, 68,600 share options and 29,130 restricted shares were granted to Mr. Zvika Shenfeld with a vesting period of up to four years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.4 million and the fair value of the restricted shares was approximately NIS 0.7 million. As of March 23, 2017, the share price was NIS 20.25 whereas the option exercise price (dividend adjusted) is NIS 25.95. As long as the option exercise price is higher than the market share price, the grant of the options has no actual value for Mr. Shenfeld; however a restricted share has the value of the share price.
In 2015, an additional 161,369 share options and 76,378 restricted shares were granted to Mr. Shenfeld with a vesting period of up to three years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.9 million and the fair value of the restricted shares was approximately NIS 1.4 million.
(9) "Other compensation" includes: expenses for retirement that were accumulated during the reporting period of this Annual Report and will be paid only upon retirement and vehicle expenses;
(10) In 2014, 68,600 share options and 29,130 restricted shares were granted to Ms. Einat Rom with a vesting period of up to four years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.4 million and the fair value of the restricted shares was approximately NIS 0.7 million. As of March 23, 2017, the share price was NIS 20.25 whereas the option exercise price (dividend adjusted) is NIS 25.95. As long as the option exercise price is higher than the market share price, the grant of the options has no actual value for Ms. Rom; however a restricted share has value of the share price.
In 2015, an additional 161,369 share options and 76,378 restricted shares were granted to Ms. Rom with a vesting period of up to three years. The theoretical fair value of the share options (according to Black-Scholes model) as measured of the grant was approximately NIS 0.9 million and the fair value of the restricted shares was approximately NIS 1.4 million.
(11) These sums represent the relative portion of the expenses of all option and restricted share allocations recorded during the reported period and include expenses for the 2016 vesting period of options and restricted shares (including those which have not fully vested yet).
115 All options and restricted shares noted above were granted pursuant to the terms of the 2004 Equity Incentive Plan, among others, with respect to the exercise or earning periods and the expiration date of the options. See "Item 6E.2 EQUITY INCENTIVE PLAN ".
6C. Board Practices
References in this annual report to "external directors" are to those directors who meet the definition of external directors under the Israeli Companies Law ("dahatz"), and references in this annual report to "US independent directors" are to those directors who meet the definition of independence under applicable listing requirements of NASDAQ. References in this annual report to "Israeli independent directors" are to any director who meets the definition of independence under the Israeli Companies Law ("bilty taluy").
6C.1 TERMS OF DIRECTORS
Directors are generally elected by the annual general meeting of shareholders to serve (i) for three years, in the case of external directors under the Israeli Companies Law, or (ii) until the next annual general meeting of the shareholders (unless their office becomes vacant earlier, in accordance with the provisions of our Articles of Association). An extraordinary general meeting of shareholders may elect any person as a director, to fill an office which became vacant, or to serve as an additional member to the then existing Board of Directors, or to serve as an external director, or in any event in which the number of the members of the Board of Directors is less than the minimum set in the Articles of Association (seven directors), provided that the maximum number of seventeen directors is not exceeded. Any director elected in such manner (excluding an external director) shall serve in office until the coming annual general meeting of shareholders. The Articles of Association also provide that the Board of Directors, with the approval of a simple majority of the directors, may appoint an additional director to fill a vacancy or to serve as an additional member to the then existing Board of Directors, provided that the maximum number of seventeen directors is not exceeded. Any director elected in such manner shall serve in office until the coming annual general meeting of shareholders and may be re-elected.
Israeli directors are appointed by the Israeli founding shareholders, generally upon a written notice signed by at least two of the Israeli founding shareholders who are the record holders of (i) at least 50% of minimum Israeli holding shares or (ii), who hold in the aggregate the highest number of minimum Israeli holding shares among the Israeli founding shareholders. Any Israeli founding shareholders who have specified connections to a competing mobile radio telephone operator (as defined in the license) of the Company are prohibited from participation in any such appointment. The notice is addressed to our company secretary indicating the appointment until the appointee's successor is elected by a similar notice. See "10B.3 Rights Attached to Shares". In 2009, Ms. Osnat Ronen was appointed as a director on behalf of the Israeli founding shareholders.
No director has a service contract with the company or its wholly-owned subsidiaries providing for benefits upon termination of employment.
Our Office Holders (generally senior managers) serve at the discretion of the Board of Directors or until their successors are appointed. See "Item 4B.13f Our Mobile Telephone License" for a description of additional requirements of the composition of our Board of Directors and the appointment of its members.
6C.2 ALTERNATE DIRECTORS
Our Articles of Association provide that a director may appoint an individual to serve as an alternate director. An alternate director may not serve as such unless such person is qualified to serve as a director. In addition, no person who already serves as a director or an alternate director on the Company's Board of Directors may serve as an alternate director of another director on the Company's Board of Directors. Under the Israeli Companies Law, an alternate director is generally treated as a director. Under our Articles of Association, an alternate director shall have all the authorities of the director appointing him. The alternate director may not vote at any meeting at which the director appointing him is present. Unless the time period or scope of any such appointment is limited by the appointing director, such appointment shall be effective for all purposes and for an indefinite time, but will expire upon the expiration of the appointing director's term.
116 6C.3 EXTERNAL DIRECTORS UNDER THE ISRAELI COMPANIES LAW
The Israeli Companies Law generally requires that Partner shall have at least two external directors on its Board of Directors who meet the independence criteria set by the Israeli Companies Law. The appointment of an external director (for the initial term of three years) under the Israeli Companies Law must be approved by the general meeting of shareholders provided that either: (a) the majority of votes in favor of the appointment shall include at least a majority of the votes of shareholders not constituting controlling parties (as stated in the Israeli Companies Law) in the Company, or those having a personal interest (as defined in the Israeli Companies Law) (other than a personal interest not resulting from their relations with the controlling parties) in the approval of the appointment participating in the vote, which votes shall not include abstaining votes; or (b) the total number of objecting votes of the shareholders mentioned in clause (a) does not exceed 2% of the total voting rights in the company.
Dr. Michael Anghel and Mr. Barry Ben-Zeev serve as our external directors under the Israeli Companies Law.
In general, external directors may be re-appointed for two additional three-year terms by one of the following mechanisms:
(i) the Board of Directors proposed the nominee and his appointment is approved by the shareholders in the manner required to appoint external directors for their initial term (described above);
(ii) one or more shareholders that hold at least 1% or more of the company's voting rights proposed the external director for re-appointment, and the nominee is approved by a majority of the votes cast at the shareholders meeting, provided that: (A) the total number of shareholders' votes at the shareholders meeting shall not include the votes of shareholders who are controlling parties and those having a personal interest in the appointment approval (other than a personal interest not resulting from their relations with the controlling parties) and abstaining votes; (B) the aggregate votes cast by shareholders who are not excluded under clause (A) above in favor of the appointment exceed 2% of the voting rights in the company; and (B) the external director (a) is not a related or competing shareholder, or the relative of such a shareholder, at the time of the appointment and (b) is not affiliated with a related or competing shareholder at the time of the appointment or the two years preceding the appointment (the term "related or competing shareholder" is defined as a shareholder who nominated the external director for reappointment or a material shareholder (a shareholder that holds more than 5% of the shares or voting rights in the company), if at the date of such appointment, any of either such shareholder, the controlling shareholder of such shareholder, or a company controlled by either of them, has business with the company or is a competitor of the company); and
(iii) the external director proposed himself or herself and is approved by the process under clause (ii) above.
Under regulations promulgated under the Israeli Companies Law, certain companies, including dual listed companies, like Partner, may re-appoint external directors for additional three- year terms (beyond the three terms of three years each), provided that all of the following conditions are fulfilled: (1) the Audit Committee and, subsequently, the Board of Directors, approves that, considering the external director's expertise and special contribution to the work of the Board of Directors and its committees, his re-appointment for an additional term of office is in the best interest of the Company; (2) the re-appointment for the additional term of office is done in conformity with one of the mechanisms described above; (3) prior to approving the re-appointment, the general meeting of shareholders is informed of the duration of the external director's service as an external director and is presented with the rationale of the Audit Committee and the Board of Directors for extending the external director's term of office.
The Israeli Companies Law requires that at least one external director has accounting and financial expertise, and that the other external director(s) have professional competence, as determined by the company's Board of Directors. Under promulgated regulations, a director having accounting and financial expertise is a person who, due to his education, experience and talents, is highly skilled in respect of, and understands, business-accounting matters and financial reports in a manner that enables him to understand in depth the company's financial statements and to stimulate discussion regarding the manner in which the financial data is presented. Under the regulations, a director having professional competence is a person who has an academic degree in either economics, business administration, accounting, law or public administration or has another academic degree or has other higher education, all in the main business sector of the company or in a relevant area for the Board of Directors position, or has at least five years' experience in one or more of the following (or a combined five years' experience in at least two or more of the following): a senior position in the business management of a corporation with a substantial scope of business, a senior public officer or a senior position in the public service or a senior position in the field of the company's business.
117 6C.4 FINANCIAL EXPERTS UNDER THE ISRAELI COMPANIES LAW
In accordance with the Israeli Companies Law, Partner's Board of Directors has determined that the minimum number of directors with "accounting and financial expertise" that Partner believes is appropriate, in light of the particulars of Partner and its activities, is three. Under the Israeli Companies Law, only one of such "experts" is required to be an external director. The Board of Directors has determined that eight of our current directors have "accounting and financial expertise": Mr. Adam Chesnoff, Mr. Fred Gluckman, Mr. Yoav Rubinstein, Dr. Michael Anghel, Mr. Barry Ben-Zeev (Woolfson), Ms. Osnat Ronen, Mr. Arie Steinberg and Mr. Yehuda Saban.
6C.5 NASDAQ CORPORATE GOVERNANCE RULES AND OUR PRACTICES
Under NASDAQ Rule 5615(a)(3), a foreign private issuer such as the Company may follow its home country practice in lieu of the requirements of the NASDAQ Rule 5600 Series ("Corporate Governance Requirements"), with certain exceptions, provided that it discloses each requirement that it does not follow and describes the home country practice followed in lieu of such requirement. We describe below the areas where we follow our home country practice rather than the NASDAQ Corporate Governance Requirements:
– In order to comply with the conditions and restrictions imposed on us by the Ministry of Communications, including in our mobile license, in relation to ownership or control over us, under certain events specified in our Articles of Association, the Board of Directors may determine that certain ordinary shares are dormant shares. Consequently, we received an exemption from NASDAQ with respect to its requirement (now under NASDAQ Rule 5640) that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the US Securities Exchange Act cannot be disparately reduced or restricted through any corporate action or issuance.
– As permitted under Israeli Companies Law, the Company's Board of Directors generally proposes director nominees for shareholder approval. The conditions of NASDAQ Rule 5605(e), that director nominees must either be selected or recommended to the Board by the independent directors or a nomination committee comprised solely of independent directors, are thus not satisfied.
– According to applicable Israeli legal requirements, the establishment or amendment of certain stock option or purchase plans require the approval of the company's Board of Directors and approval of the shareholders' meeting only for the grant of equity compensation to the Chief Executive Officer, directors or controlling partners. We received an exemption from the requirement set out in NASDAQ Rule 5635(c) that listed companies receive shareholder approval when certain stock option or purchase plans are to be established or materially amended, or certain other equity compensation arrangement made or materially amended, based on the fact that the NASDAQ requirement is inconsistent with the applicable Israeli legal requirements described above.
– The Israeli Companies Law, requires that at least two members of the Board of Directors satisfy the conditions of "external directors", which also satisfies the conditions of an Israeli independent director ("bilty taluy"). Two of our twelve directors are external directors and satisfy the conditions of both Israeli independent directors and independent directors according to NASDAQ criteria. Two additional directors, (who are not external directors) satisfy the conditions of independent directors according to NASDAQ criteria, one of whom satisfies the conditions of an Israeli independent director. However, the requirement of NASDAQ Rule 5605(b), that a majority of the Board of Directors be comprised of independent directors, is thus not satisfied.
118 6C.6 BOARD COMMITTEES
The Company's Articles of Association provide that the Board of Directors may delegate its authorities or any part of them to committees of the Board of Directors as it deems appropriate, subject to the provisions of the Israeli Companies Law. Our Board of Directors has established an audit committee, a compensation committee and a security committee.
6C.6a AUDIT COMMITTEE
Pursuant to the rules of the Securities and Exchange Commission (the "SEC") and the listing requirements of the NASDAQ Global Select Market, as a foreign private issuer, we are required to establish an audit committee consisting only of members who are U.S. "independent" directors as defined by SEC rules. In accordance with the Company's Audit Committee Charter, our audit committee is responsible among other things, for overseeing the Company's financial reporting process and the audits of the Company's financial statements, including monitoring the integrity of the Company's financial statements and the independence and performance of the Company's internal and external auditors. Our audit committee is also directly responsible for the appointment, remuneration and oversight of our independent auditor and for establishing procedures for receiving and handling complaints received by the Company regarding accounting, internal controls and audit matters.
The Israeli Companies Law requires public companies, including Partner, to appoint an audit committee comprised of at least three Board of Directors members, including all the company's external directors, the majority of whom must be Israeli independent directors and the chairman of the audit committee is required to be an external director. Under the Israeli Companies Law neither the controlling party or his relative, the chairman of the Board of Directors, any director employed by the company or by its controlling party or by an entity controlled by the controlling party, any director who regularly provides services to the company, to its controlling party or to an entity controlled by the controlling party, nor any director who derives most of its income from the controlling party, may be eligible to serve as a member of the audit committee.
The responsibilities of our audit committee under the Israeli Companies Law include, among others, identifying irregularities in the management of the company's business and approving related party transactions as required by law, determining whether certain related party actions and transactions are "material" or "extraordinary" in connection with their approval procedures (See 6C.9 APPROVAL OF RELATED PARTY TRANSACTIONS AND COMPENSATION), assessing the scope of work and remuneration of the company's independent auditor, assessing the company's internal audit system and the performance of its internal auditor and making arrangements regarding the handling of complaints by employees about company's business management deficiencies and regarding the protection given to employees who have made complaints.
The Company's audit committee was appointed by our Board of Directors to review our financial statements, in compliance with U.S. legal requirements (as described above) and in compliance with Israeli regulations (from which we are exempt).
Our audit committee is comprised of three Board of Directors members: Dr. Michael Anghel (external director), Mr. Barry Ben Zeev (committee chairman; external director), and Mr. Arik Steinberg (Israeli independent director). All of the audit committee members meet the SEC's definition of independent directors for the purpose of serving as audit committee members as well as the Israeli Companies Law's definition of Israeli independent directors. In accordance with the SEC definition of "independent" director, none of them is an affiliated person of Partner or any subsidiary of Partner.
The Board of Directors has determined that all three audit committee members are "audit committee financial experts" as defined by applicable SEC regulations. See "Item 16A Audit Committee Financial Expert" below.
119 6C.6b COMPENSATION COMMITTEE
The Israeli Companies Law requires public companies, including Partner, to appoint a compensation committee comprised of at least three Board of Directors members, including all the company's external directors who must constitute the majority of its members. Other members of the committee should be directors whose terms of compensation are the same as external directors and the chairman of the compensation committee is required to be an external director.
Under the Israeli Companies Law, the compensation committee's responsibilities include, among others, recommending to the Board of Directors, a compensation policy for office-holders to be approved by the shareholders of the Company, see "6B Compensation". The compensation committee also makes recommendations to the Board of Directors once every three years regarding the continuing effectiveness of the compensation policy, reviews modifications to the compensation policy from time to time and its implementation and approves the actual compensation terms of Office Holders which require the compensation committee's approval according to the relevant provisions of the Israeli Companies Law.
Our compensation committee is comprised of three Board of Directors members: Dr. Michael Anghel (external director), Mr. Barry Ben Zeev (committee chairman; external director) and Mr. Arik Steinberg (Israeli independent director). All of the compensation committee members meet the SEC's definition of independent directors for the purpose of serving as the compensation committee members as well as the Israeli Companies Law's definition of Israeli independent directors. In accordance with the SEC definition of "independent" director, none of them is an affiliated person of Partner or any subsidiary of Partner.
6C.6c SECURITY COMMITTEE
Pursuant to an amendment to our license from April 2005, a Board of Directors committee has been formed to deal with security matters. Only directors with the required clearance and those deemed appropriate by Israel's General Security Service may be members of this committee. The committee must consist of at least four members, who are subject to the clearance required from the Israeli General Security Service and at least one external director. Where any matter requires a Board of Directors' resolution and it is a security matter, then the committee should be authorized to discuss and to resolve such security matter and the resolution should bind the Company. However, in cases where the security matter concerned requires review by the Board of Directors or the audit committee according to the Israeli Companies Law or other applicable law, such as a transaction with a related party, it should be submitted for approval in accordance with the requirements of the applicable U.S. law, the Israeli Companies Law and any other applicable laws, provided that, in any case, only directors with security clearance can participate in any forum which will deal with security matters. In April 2005, our Board of Directors approved the formation of the security committee to consist of four Israeli directors, who are subject to Israeli security clearance and security compatibility to be determined by the General Security Service. Currently, Mr. Elon Shalev, Dr. Michael Anghel, Ms. Osnat Ronen and Mr. Arieh Saban are members of the security committee.
6C.7 INTERNAL AUDITOR
The Israeli Companies Law requires the Board of Directors of a public company to appoint an internal auditor nominated by the audit committee. A person who does not satisfy certain independence requirements may not be appointed as an internal auditor. The role of the internal auditor is to examine, among other things, the compliance of the company's conduct with applicable law and orderly business procedures. Our internal auditor is Mr. Yehuda Motro, formerly the internal auditor of the Tel Aviv Stock Exchange.
6C.8 FIDUCIARY DUTIES OF AN OFFICE HOLDER
The Israeli Companies Law governs the duty of care and duty of loyalty which an Office Holder owes to the company. An "Office Holder" is defined in the Israeli Companies Law as a director, general manager, chief executive officer, executive vice president, vice president, or any other person assuming the responsibilities of any of the foregoing positions without regard to such person's title and other managers directly subordinated to the general manager.
120 The duty of loyalty requires the Office Holder to act in good faith and in the company's favor and to avoid any conflict of interest between the Office Holder's position in the company and personal affairs, and proscribes any competition with the company or the exploitation of any business opportunity of the company in order to receive personal advantages for him or others. This duty also requires him to reveal to the company any information or documents relating to the company's affairs that the Office Holder has received due to his position as an Office Holder. The duty of care requires an Office Holder to act in a way that a reasonable Office Holder would have acted in the same position and under the same circumstances. This includes the duty to utilize reasonable means to obtain information regarding the advisability of a given action submitted for his approval or performed by virtue of his position and all other relevant information.
6C.9 APPROVAL OF RELATED PARTY TRANSACTIONS AND COMPENSATION
6C.9a Approval of Related Party Transactions
The Israeli Companies Law requires that a transaction between the company and its Office Holder, and also a transaction between the company and another person in which an Office Holder has a personal interest, requires the approval of the Board of Directors if such a transaction is not an "extraordinary transaction", although, as permitted by law and subject to any relevant stock exchange rule, our Articles of Association allow our audit committee to approve such a transaction, without the need for approval from the Board of Directors. If such a transaction is an extraordinary transaction (that is, a transaction not in the ordinary course of business, not on market terms, or that is likely to have a material impact on the company's profitability, assets or liabilities), generally in addition to audit committee approval, the transaction also must be approved by our Board of Directors, and, in certain circumstances, also by the general meeting of shareholders. Under the Israeli Companies Law, an extraordinary transaction between a public company and a controlling party of the company or an extraordinary transaction between a public company and another person, in which the controlling party has a personal interest (including a private placement), and a transaction between a public company and a controlling party or his relative, directly or indirectly, including, without limitation, via an entity controlled by the controlling party, for receiving services by the company (and if the controlling party is also an Office Holder in the company for his terms of service, and if he is an employee of the company (but not an Office Holder in it) his employment in the company) must be approved by the audit committee or the compensation committee if relates to terms of employment (as the case may be), the Board of Directors and the general meeting of shareholders, provided that either: (a) the majority of votes in favor of the transaction shall include at least a majority of the votes of shareholders who do not have a personal interest in approval of the transaction, who participate in the voting, or (b) the total number of objecting votes of the shareholders mentioned in clause (a) does not exceed 2% of the total voting rights in the company.
The audit committee is also authorized to determine, with respect to related party transactions with a controlling shareholder or in which the controlling shareholder has a personal interest, even if they are not extraordinary transactions, an obligation to conduct a competitive process (to be supervised by the audit committee, or any person authorized on its behalf or via any other method approved by the audit committee) or to determine that other processes will be conducted prior to the engagement in such transactions and all in accordance with the type of transaction. The specific criteria for such a process may be determined by the audit committee annually in advance. In addition, the audit committee is authorized to determine the approval process for transactions that are not negligible, as well as determine which types of said transactions would require the approval of the audit committee. "Non-negligible transactions" are defined as related party transactions with a controlling shareholder or in which the controlling shareholder has a personal interest, that the audit committee has deemed not to be an extraordinary transaction, but which have also been classified by the audit committee as a non-negligible transaction. Additionally, the audit committee may decide on such classifications for these types of transactions, based on criteria set annually in advance.
The Israeli Companies Law requires that an Office Holder or a controlling party promptly disclose any personal interest that he has and all related material information known to him, in connection with any existing or proposed transaction by the company. The company may then approve the transaction in accordance with the provisions of its Articles of Association and the Israeli Companies Law. Under the Israeli Companies Law, if the Office Holder or a controlling party has a personal interest in the transaction, an approval that the transaction is in the best interest of the company is required.
121 In most circumstances, the Israeli Companies Law restricts Office Holders who have a personal interest in a matter which is considered at a meeting of the Board of Directors or the audit committee from being present at such meeting, participating in the discussions or voting on any such matter. An exemption exists in the event that a majority of the directors in the meeting have a personal interest in the matter provided, that in case a majority of the Board of Directors has a personal interest in the matter, the transaction will require the approval of the general meeting of shareholders.
For information concerning the direct and indirect personal interests of certain of our Office Holders and principal shareholders in certain transactions, see "ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS".
6C.9b Compensation
The terms of employment of Office Holders including compensation, equity awards, severance and other benefits, exemption from liability and indemnification require the approval of the compensation committee and the Board of Directors. The terms of employment of directors and the Chief Executive Officer must also be approved at the general meeting of shareholders by a majority of the Company's shareholders, provided that (i) such majority includes at least a majority of the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, who participate in the voting (abstentions are disregarded), or (ii) the total number of objecting votes of the shareholders mentioned in clause (i) does not exceed 2% of the total voting rights in the company. Notwithstanding the foregoing, a company may be exempted from receiving shareholder approval with respect to the terms of employment of a candidate for a Chief Executive Officer position, if such candidate meets certain independence criteria, the terms are in line with the Compensation Policy and the compensation committee has determined for specified reasons that shareholder approval would prevent the engagement. See "6C.6b COMPENSATION COMMITTEE".
Changes to existing terms of employment of Office Holders (other than directors) can be made with the approval of the compensation committee only (following adoption of the Compensation Policy), if the committee determines that the change is not substantially different from the existing terms.
Under the Israeli Companies Law and related regulations, the compensation payable to external directors and Israeli independent directors is subject to certain further limitations.
6C.10 DUTIES OF A SHAREHOLDER
Under the Israeli Companies Law, a shareholder has a general duty to act in good faith and in a customary manner towards the company and the other shareholders and to refrain from improperly exploiting his power in the company, particularly when voting in the general meeting of shareholders on (a) any amendment to the articles of association, (b) an increase of the company's authorized share capital, (c) a merger, or (d) approval of related party transactions which require shareholder approval. A shareholder should also avoid deprivation of other shareholders. In addition, any controlling party, any shareholder who knows that it possesses power to determine the outcome of a shareholder vote and any shareholder that, pursuant to the provisions of the articles of association, has the power to appoint or prevent an appointment of an Office Holder in the company or any other power towards the company, is under a duty to act in fairness towards the company under the Israeli Companies Law.
6C.11 INDEMNIFICATION AND RELEASE
6C.11a Indemnification
As permitted by the Israeli Companies Law, our Articles of Association provide that Partner may indemnify an Office Holder of Partner to the fullest extent permitted by law.
122 Without derogating from the foregoing, and subject to limitations set forth in the Israeli Securities Law, our Articles of Association specifically provide that Partner may indemnify an Office Holder of Partner for liability or expense he incurs or that is imposed upon him as a result of an action or inaction by him (or together with other Office Holders of Partner) in his capacity as an Office Holder of Partner including (subject to specified conditions) also in advance, as follows:
1. Financial liability incurred by, or imposed upon the Office Holder in favor of another person in accordance with a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by an authorized court;
2. Reasonable legal expenses, including attorney fees, incurred by the Office Holder or which he was ordered to pay by an authorized court in the context of a proceeding filed against him by Partner or on Partner's behalf or by a third party, in a criminal proceeding in which he was acquitted or in a criminal proceeding in which he was convicted of an offense which does not require criminal intent;
3. Reasonable legal expenses, including attorney fees, incurred by the Office Holder due to an investigation or proceeding conducted against him by an authority authorized to conduct such investigation or proceeding and which ended without filing of an indictment against him and without the imposition of a financial liability as a substitute for a criminal proceeding or that was ended without filing of an indictment against him but for which he was subject to a financial liability as a substitute for a criminal proceeding relating to an offense which does not require criminal intent, within the meaning of the relevant terms under the law or in connection with a financial sanction("itzum caspi");
4. Payment to an injured party as a result of a violation set forth in Section 52.54(a)(1)(a) of the Israeli Securities Law, including by indemnification in advance or expenses incurred in connection with a proceeding ("halich") under Chapters H3, H4 or I1 of the Israeli Securities Law, or under Chapter 4 of Part 9 of the Israeli Companies Law, in connection with any affairs, including reasonable legal expenses, which term includes attorney fees, including by indemnification in advance; and
5. Expenses, including reasonable legal fees, including attorney fees, incurred by an Office Holder with respect to a proceeding in accordance with the Restrictive Trade Practices Law- 1988 ("Restrictive Trade Practices Law").
Our Articles of Association also permit us to indemnify any Office Holders of Partner for any other liability or expense in respect of which it is permitted or will be permitted under applicable law to indemnify an Office Holder of Partner.
The Israeli Companies Law and our Articles of Association also permit us to undertake in advance to indemnify an Office Holder with respect for items (2), (3) and (4) above, or any other matter permitted by law. The Israeli Companies Law and our Articles of Association also permit us to undertake in advance to indemnify an Office Holder with respect to item (1) above, provided however, that the undertaking to indemnify is restricted to events which in the opinion of the Board of Directors are anticipated in light of Partner's activities at the time of granting the undertaking to indemnify, and is limited to a sum or measurement determined by the Board of Directors to be reasonable under the circumstances. The undertaking to indemnify shall specify the events that, in the opinion of the Board of Directors are expected in light of the Company's actual activity at the time of grant of the undertaking and the sum or measurement which the Board of Directors determined to be reasonable under the circumstances.
The Israeli Companies Law combined with our Articles of Association also permits us to indemnify an Office Holder retroactively for all kinds of events, subject to any applicable law.
In no event may we indemnify an Office Holder for any of the following:
1. a breach of the duty of loyalty toward us, unless the Office Holder acted in good faith and had reasonable grounds to assume that the action would not harm Partner's interest;
123
2. a breach of the duty of care done intentionally or recklessly ("pzizut") other than if made only by negligence;
3. an act intended to unlawfully yield a personal profit;
4. a fine, a civil fine ("knas ezrahi"), a financial sanction ("itzum kaspi") or a penalty ("kofer") imposed on him; and
5. a proceeding ("halich").
We have undertaken to indemnify our Office Holders, subject to certain conditions as aforesaid. We consider from time to time the indemnification of our Office Holders, which indemnification will be subject to approval of our compensation committee, Board of Directors and in certain cases, such as indemnification of directors and the CEO, also of our shareholders.
Under the indemnification letters granted to Office Holders prior to the extraordinary general meeting of shareholders held on October 17, 2013 ("October 2013 EGM"), the aggregate indemnification amount payable by us to Office Holders and other indemnified persons pursuant to all letters of indemnification issued to them by us will not exceed the higher of (i) 25% of shareholders equity and (ii) 25% of market capitalization, each measured at the time of indemnification (the "Combined Maximum Indemnity Amount", and "the Original Indemnification Letter").
Under the indemnification letters granted to Office Holders after the October 2013 EGM, the aggregate indemnification amount payable by us to Office Holders (including, among others, Office Holders nominated on behalf of Partner in subsidiaries) pursuant to all letters of indemnification issued or that may be issued to them by Partner on or after the October 2013 EGM, for any occurrence of an event set out in such a letter (including an attachment thereto) will not exceed 25% of shareholders equity (according to the latest reviewed or audited financial statements approved by Partner's Board of Directors prior to approval of the indemnification payment) ("the Revised Indemnification Letter"). However, under the circumstances where indemnification for the same event is to be made in parallel under the Revised Indemnification Letter and to one or more indemnified persons under the Original Indemnification Letter, the maximum indemnity amount for the indemnified persons that received the Revised Indemnification Letter shall be adjusted so it does not exceed the Combined Maximum Indemnity Amount to which any other indemnified person is entitled under the Original Indemnification Letter.
6C.11b RELEASE
The Companies Law and our Articles of Association authorize the Company, subject to obtaining the required approvals (of our compensation committee, Board of Directors and in certain cases, such as release of directors and the CEO, also of our shareholders), to release our Office Holders, in advance, from such persons' liability, entirely or partially, for damage in consequence of the breach of the duty of care toward us as set forth in accordance with any law, including the liabilities and expenses for which the Company may indemnify Office Holders as set forth above, see Item 6C.11a Indemnification. Furthermore, the Company may release Office Holders that are controlling shareholders or their relatives, subject to the receipt of the approvals in accordance with any law. Said release will not apply to a resolution or transaction in which the controlling shareholder or any Office Holder in the Company (including other Office Holders than the Office Holder being granted the release) has a personal interest.
Notwithstanding the foregoing, we may not release such person from such person's liability, resulting from any of the following events: (i) the breach of duty of loyalty towards us; (ii) the breach of duty of care made intentionally or recklessly ("pzizut"), other than if made only by negligence; (iii) an act intended to unlawfully yield a personal profit; (iv) a fine ("knass"), a civil fine ("knass ezrahi"), a financial sanction ("itzum caspi") or a penalty ("kofer") imposed upon such person; and (v) the breach of duty of care in a distribution ("haluka").
In addition to the Original Indemnification Letter and the Revised Indemnification Letter, the Company granted new indemnification and release letters to our Office Holders at the annual general meeting of shareholders held on September 28, 2016.
124 6C.12 INSURANCE
The Israeli Companies Law and the Company's Articles of Association authorize the Company (subject to certain exceptions) to enter into an insurance contract, and to arrange and pay all premiums in respect of an insurance contract, for the insurance of the liability of our Office Holders for liabilities the Office Holder incurs as a result of a direct or indirect action or inaction undertaken by such person (or together with other Office Holders of the Company) in his capacity as an Office Holder of the Company for any of the following:
(1) The breach of the duty of care towards the Company or towards any other person;
(2) The breach of the duty of loyalty towards the Company provided that the Office Holder has acted in good faith and had reasonable grounds to assume that the action would not harm the Company;
(3) A financial liability imposed on him in favor of another person;
(4) A payment which the office holder is obligated to pay to an injured party as set forth in section 52.54(a)(1)(a) of the Securities Law and expenses that the Office Holder incurred in connection with a proceeding under Chapters H3, H4 or I1 of the Securities Law, or under Chapter 4 of Part 9 of the Israeli Companies Law, in connection with any affairs, including reasonable legal expenses, which term includes attorney fees.
(5) Expenses, including reasonable legal expenses fees, including attorney fees, incurred by the Office Holder with respect to a proceeding in accordance with the Restrictive Trade Practices Law.
(6) Any other matter in respect of which it is permitted or will be permitted under any law to insure the liability of an Office Holder in the Company.
6D. Employees
At December 31, 2016, we had 2,686 employees on a full time equivalent basis, compared with 2,882 employees at December 31, 2015, and 3,575 at December 31, 2014. The number of full- time equivalent employees at year-end 2014, 2015 and 2016, according to their activity, was as follows:
At December 31, 2014** 2015** 2016
Customer service* 1,835 1,655 1,463
Sales and sales support* 605 434 457 Information technology (including Engineering) 633 365 337
Marketing and Content 65 53 56
Finance 87 71 71 Human Resources, Administration & Security 119 96 94
Operations & Logistics 157 134 132
Remaining operations 74 73 76
TOTAL 3,575 2,882 2,686
*Many positions in Customer service and Sales and sales support are filled by more than one part-time employee so that the employee headcount for those activities is about 12% greater than the number of full-time equivalents set forth above.
125 ** Due to organizational structure changes during 2016, that included consolidation of certain divisions and the shifting of manpower between divisions, we have revised the 2014 and 2015 numbers to provide comparable information between the years 2014-2016.
On March 13, 2016, we signed a collective employment agreement with the employees' representatives and the Histadrut, the employees' union. The agreement includes an organizational chapter that is for a period of three years (2016-2018) and includes, among others, provisions regarding manning and changing of positions, termination of employment tenure and a dispute resolution mechanism. The agreement includes an economic chapter that was valid until December 31, 2016 and on December 12, 2016 we signed a new economic chapter that is valid for the years 2017-2018. The economic chapter includes, among others, provisions regarding terms of employment, benefits and welfare. In addition, the economic chapter provides for annual bonuses to employees and a profit sharing mechanism provision under certain conditions. The agreement applies to the Company's employees, excluding certain managerial and specific positions. The estimated cost of the 2017 economic chapter is approximately NIS 7 million in addition to the implementation of all of the sections of the 2016 economic chapter (which is estimated at approximately NIS 10 million). The total estimated amount of the expense in 2017, for the collective employment agreement, is therefore expected to be higher than 2016 by approximately NIS 17 million. The cost of the 2018 economic chapter is estimated at approximately NIS 23 million, in addition to the estimated expense for the Company for 2017 for the collective employment agreement. The collective employment agreement also refers to the participation of employees in the Company's profits and regulates the eligibility conditions for receipt of these awards for the years 2017- 2018. See also "Item 3D.2h The unionization of our employees has negatively affected and may continue to negatively affect our financial results. "
In addition, we are subject to various Israeli labor laws and practices, as well as orders extending certain provisions of collective bargaining agreements between the Histadrut and the Coordinating Bureau of Economic Organizations, the federation of employers' organizations. Such laws, agreements and orders cover a wide range of areas and impose minimum employment standards including, working hours, minimum wages, vacation and severance pay, and special issues, such as equal pay for equal work, equal opportunity in employment, and employment of women, youth, disabled persons and army veterans.
Our employees are entitled to a pension insurance, in the amounts as follows (amounts vary according to choice of a pension fund or a manager's insurance fund): employer provision for pension and compensation: 12.5% - 17.33% of the employee's salary and employee provision for pension: 6% -7% of the employee's salary.
We also offer some of our employees the opportunity to participate in a "Continuing Education Fund," which also functions as a savings plan. Each of the participating employees contributes an amount equal to 2.5% of their salary and we contribute between 5% - 7.5% of such employee's salary. In addition, in accordance with the collective employment agreement, employees that have been employed for 36 months or more by the Company are entitled to participate in a "Continuing Education Fund," by contributing an amount equal to 2.5% of their salary and we contribute 7.5% of such employee's salary.
According to the National Insurance Law, Israeli employers and employees are required to pay predetermined sums to the National Insurance Institute. These contributions entitle the employees to health insurance and benefits in periods of unemployment, work injury, maternity leave, disability, reserve military service, and bankruptcy or winding-up of the employer. We have never experienced a strike or work stoppage. We believe that our relations with our employees are good.
Most of our employees participate in a Health Insurance Program which provides additional benefits and coverage which the public health system does not provide. Eligibility to participate in the policy does not depend on seniority or position.
Israeli labor law subjects employers to increased liability, including monetary sanctions and criminal liability, in cases of violations of certain labor laws and certain violations by contractors providing maintenance, security and cleaning services.
In January 2015, the Minimum Wage Law was amended to increase the minimum wage paid to employees in Israel in four installments, from April 2015 to January 2017. The increase may adversely affect our results of operations.
126 In November 2016 we launched, together with the employees' representatives of the labor union, a retirement plan for employees, in which approximately 90 employees have retired.
6E. Share Ownership
6E.1 SHARE OWNERSHIP OF DIRECTORS AND SENIOR MANAGEMENT
As of March 1, 2017, to the best of the Company's knowledge, none of our directors or senior management held more than 1% of our issued and outstanding ordinary shares, except as may be set forth under Item 7A. Directors and senior management do not have different voting rights than other shareholders of the Company.
As of March 1, 2017, our senior management held, in the aggregate, outstanding options to purchase up to 4,074,567 of our ordinary shares, of which 1,389,266 options were vested and exercisable as of that date, in addition to 811,501 "restricted shares" of which 57,420 restricted shares were vested as of that date (as described in "Item 6E.2 Equity Incentive Plan" below). No individual senior manager holds options to purchase 1% or more of our outstanding ordinary shares. No options or restricted shares have been granted to our directors.
The table below sets forth the number of outstanding options held by our senior management of the Company according to exercise price and expiration date as of March 1, 2017:
Weighted average exercise price Number of outstanding options (NIS) held Option expiration Year 43.93 373,970 2020 19.61 3,065,413 2021 17.83 340,480 2022 20.75 294,704 2023 21.78 4,074,567 TOTAL
6E.2 EQUITY INCENTIVE PLAN
The Amended and Restated 2004 Equity Incentive Plan (formerly known as the 2004 Equity Incentive Plan) (the "Plan") is intended to promote the interests of the Company and its shareholders by providing employees, directors, officers and advisors of the Company with appropriate incentives and rewards to encourage them to enter into and continue in the employ of, or service to, the Company and to acquire a proprietary interest in the long-term success of the Company.
The Plan's principal terms include:
Exercise price determination. The compensation committee shall determine the option and restricted share unit ("RSU") (as further explained below) exercise price per ordinary share, subject to applicable law, regulations and guidelines. Unless otherwise provided in the grant instrument, the option exercise price shall be paid in NIS and the RSU exercise price shall be zero.
Exercise price adjustment. The exercise price of options shall be reduced in the following events: (1) dividend distribution other than in the ordinary course: by the gross dividend amount so distributed per share, and (2) dividend distribution in the ordinary course: With respect to certain options (depending on the date of the granting of the options), the exercise price shall be reduced by the amount of a dividend in excess of 40% of the Company's net income for the relevant period per share, or else by the gross dividend amount so distributed per share.
Cashless exercise. Most of the options may be exercised only through a cashless exercise procedure; while holders of other options may choose between cashless exercise and the regular option exercise procedure. In accordance with such cashless exercise, the option holder would receive from the Company, without payment of the exercise price, only the number of shares whose aggregate market value equals the economic gain which the option holder would have realized by selling all the shares purchased at their market price, net of the option exercise. Unless otherwise determined by the committee in the grant instrument, the Company at its sole and absolution discretion may obligate the grantee to pay the nominal value of the ordinary shares issued and in such event the ordinary shares will not be issued (and the options and RSUs will not be exercised) prior to the payment of such nominal value.
127 Exercise Period. The option holder may exercise all or part of his options at any time after the date of vesting but no later than the expiration of the exercise period, which will not exceed ten years from the date of option grant (considering, if applicable, among others, the provisions of the Compensation Policy) unless shortened pursuant to the terms of the Plan.
Vesting. The vesting schedule of granted securities will be determined by the compensation committee and Board of Directors at their sole discretion and will be detailed in the grant instrument. The committee may set performance targets as a vesting criterion (independently or in combination with other criteria).
Acceleration of vesting and adjustment. In the event of termination of employment following a change of control, vesting of granted securities and exercisability of outstanding granted securities shall be accelerated. Upon the occurrence of any merger, consolidation, reorganization or similar event or transaction (e.g., subdivision or consolidation), equitable changes or adjustments to the number of shares subject to each outstanding option and RSU will be made in order to prevent dilution or enlargement of the option and RSU holders' rights and appropriate adjustments shall be made in the number and other pertinent elements of any outstanding restricted shares, with respect to which restrictions have not yet lapsed prior to any such change.
Restricted Shares. The Company may grant "restricted shares" to beneficiaries of the Plan. Restricted shares awarded to a grantee are held by the Plan's trustee in custody for the benefit of the grantee generally until the restrictions thereon have lapsed (e.g., earning period and the other applicable conditions and restrictions under the Plan and the grant instrument under which these restricted shares were awarded). In accordance with the Plan, as long as the restricted shares are held by the trustee, the trustee shall not exercise the voting rights of the underlying ordinary shares at the general meetings of shareholders unless requested to do so by the Company. In such event, the trustee shall vote the underlying ordinary shares proportionally to the shareholders vote and if the vote of public shareholders is counted separately, proportionally to the public shareholders vote. Notwithstanding the foregoing, the Company has reserved the right, upon recommendation of legal counsel, to request the grantee to exercise individually his or her voting rights. In addition, any dividend distributed during the period in which the restricted shares are held by the trustee, is accumulated and transferred to the grantee when the shares have been earned (i.e. when the restrictions lapse).
Except as provided in the immediately preceding paragraph and in the Plan and subject to the terms of the grantee's relevant grant instrument, the grantee shall have, with respect to his or her restricted shares, all of the rights of a shareholder of the Company, including the right to vote the ordinary shares (endorsed to the trustee as long as the restricted shares are held by the trustee), and the right to receive any dividend thereon (accumulated together with the underlying restricted shares).
Restricted Share Units. The Company may grant "restricted share units" to beneficiaries of the Plan. Restricted share units are options, bearing an exercise price of no more than the underlying share's nominal value. Upon the lapse of the vesting period of a RSU, such RSU shall automatically become an issued and outstanding share of the Company, subject to certain applicable conditions and restrictions under the Plan and the grant instrument and unless otherwise determined by the Board of Directors, the grantee shall pay to the Company its nominal value as a precondition to the issuance of such share.
Change in Control and other certain events. Upon a Change in Control (as defined in the Plan) transaction of the Company as well as other certain events including a merger, reorganization and consolidation, granted securities shall, at the sole and absolute discretion of the Board of Directors, either solely or in any combination: be substituted for similar granted securities to purchase shares of a successor entity, be assumed by a successor entity, be substituted for similar "phantom" granted securities of the Company or the successor entity, or each non-vested granted securities shall become fully exercisable. In the event that the ordinary shares will no longer be traded on any stock exchange, at the sole and absolute discretion of the Board of Directors, either solely or in any combination: each granted securities shall be substituted for a similar phantom granted securities, or each non-vested granted securities shall become fully exercisable.
128 Amendment and termination of the Plan. The Plan may generally be altered or amended in any respect by a resolution of the Board of Directors of the Company, subject to the Plan, applicable law and the rules and regulations of any stock exchange applicable from time to time to the Company, by reason of their applicability to its shareholders or otherwise. The Board of Directors may, at any time and from time to time, terminate the Plan in any respect, subject to any applicable approvals or consents that may be otherwise required by law, regulation or agreement, including by reason of their applicability to the shareholders or otherwise, and provided that no termination of the Plan shall adversely affect the terms of any granted security which has already been granted.
Administration of the Plan. The Plan is administered by the compensation committee of the Board of Directors. Subject to the restrictions of the Companies Law, the compensation committee is authorized, among other things, to exercise all the powers and authorities, either specifically granted to it under the Plan or necessary or advisable for the administration of the Plan.
The description of the Plan above is only a summary and is qualified by reference to the full text thereof which has been included as an annex to this Annual Report. See Exhibit 15.(a).1 incorporated by reference in this annual report.
On November 10, 2015, the Company's Board of Directors approved the increase in the number of shares which may be granted under the Plan by three million shares, which represented approximately 1.87% of the Company's issued share capital as of November 10, 2015, up to a total of 22,917,000 ordinary shares.
On March 13, 2016, the Board of Directors approved certain amendments to the Plan. The main amendments to the Plan include: (a) amendment to the cashless exercise formula; (b) the ability to allocate restricted share units to the Company's employees and office holders; (c) automatic extension of the exercise period due to black-out periods; (d) adjustments to the grantee's rights under any granted securities due to the occurrence of certain events, including a rights offering; (e) a provision allowing the Company's management bodies to decide to pay a grantee the financial benefit embedded in his equity compensation in cash compensation instead of equity compensation, in certain events in which the Company is unable to issue shares resulting from exercise of options or RSUs or to release any restricted share to a grantee; (f) extension of the exercise period as a result of a change of control event; (g) a provision that allows the Company to limit a grantee from making transactions in the granted securities in connection with any underwritten public offering of the Company and (h) certain exercise restrictions in accordance with the Tel Aviv stock exchange rules.
Share options and restricted shares (collectively, "granted securities") have been granted to employees in accordance with the Plan. The total number of Company shares reserved for issuance upon exercise of all options granted and for earning of all restricted shares granted under the Plan is 22,917,000 shares. Upon exercise each option provides the right to acquire one ordinary share that confers the same rights as the other ordinary shares of the Company. As of December 31, 2016, options to acquire a total of 11,285,901 ordinary shares and 1,955,414 restricted shares are outstanding.
Information in respect of options and restricted shares granted under the Plan is set forth below:
Through December 31, 2016 Number of Number of options RSAs2 Granted 30,102,849 3,791,622 Shares issued upon exercises and vesting (6,111,330) (864,412)
Cancelled upon net exercises, expiration and forfeitures (12,705,618) (971,796) Outstanding 11,285,901 1,955,414 Of which: Exercisable 5,912,904 - Vest in 2017 2,535,575 916,070 Vest in 2018 2,481,751 890,588 Vest in 2019 355,671 148,756
2 See Note 21 (a) to our consolidated financial statements
129 In 2016, following the approval of the Company's Board of Directors, 998,433 share options and 417,176 restricted shares were granted to senior officers, managers and other employees of the Company and its subsidiary, compared to 5,519,031 share options and 1,779,596 restricted shares granted during 2015. The vesting of the options and the earning of the restricted shares granted after June 2014 are subject to vesting or restriction periods and are also subject to performance conditions set by the Company's organs.
In January 2017, the Company approved the allocation of 458,478 options and 200,845 restricted shares for some of the Company's office holders and other managers, all in accordance with the Company's Equity Incentive Plan, as amended. The vesting of these options and the earning of these restricted shares are subject to vesting / restriction period of three years from the grant date (one third will vest or be earned in each year), as well as performance conditions set by the Company's organs.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7A. Major Shareholders
The following table sets forth certain information as of March 1, 2017, with respect to each person whom we believe to be the beneficial owner of 5% or more of our ordinary shares. Except where otherwise indicated, we believe, based on information publicly filed with the Securities and Exchange Commission or furnished to us by the principal shareholders, that the beneficial owners of the ordinary shares listed below have sole investment and voting power with respect to such ordinary shares. None of our major shareholders has any different voting rights than any other shareholder. See "Item 10B.3 Rights Attached to Shares".
Issued and Shares beneficially Issued Shares Outstanding Name owned (1)% Shares (1)%
S.B. Israel Telecom Ltd.(2) 48,050,000 29.92 30.18
Phoenix-Excellence Group (3) 13,118,690 8.17 8.24
Meitav Dash Group (4) 7,986,967 4.97 5.02
Psagot Investment House Ltd. (5) 15,879,724 9.89 9.97 Menora Mivtachim Holdings Ltd. (6) 8,179,476 5.09 5.14
Treasury shares (7) 1,394,511 0.87 -
Public (8) 66,000,873 41.09 41.45
Total 160,610,241 100.00 100.00
(1) As shown above and used throughout this annual report, the term "Issued and Outstanding Shares" does not include any treasury shares held by the Company. Treasury shares, which are included in "Issued Shares", have no voting, dividend or other rights under the Israeli Companies Law, as long as they are held by the Company ("dormant shares").
130 (2) 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 held on March 1, 2017, approximately 30.18% of our Issued and Outstanding shares and voting rights. S.B. Israel Telecom also purchased from Scailex Corporation Ltd. ("Scailex") (which in 2016 changed its name to "Suny Cellular Communication Ltd.") 2,983,333 ordinary shares representing another, approximately 1.87% of our Issued and Outstanding shares and voting rights, which shares are to be transferred by Scailex to S.B. Israel Telecom free and clear of any lien on one or more future deferred closing dates, subject to the conditions set forth in the share purchase agreement entered into between Scailex and S.B. Israel Telecom.
(3) Phoenix Holdings Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange ("Phoenix"), and Excellence Investments Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange ("Excellence"), which is controlled by Phoenix, hold shares in the Company directly and through its wholly owned subsidiaries. (Phoenix, Excellence and their subsidiaries collectively, the "Phoenix-Excellence Group"). These holdings are held according to the following segmentation: 1,194,845 ordinary shares are held by Excellence Provident and Pension funds; 274,487 ordinary shares are held by Excellence Trust Funds; 1,898,390 ordinary shares are held by Excellence ETFs; 732,864 ordinary shares are held by Phoenix "Nostro" accounts; 21,000 ordinary shares are held by Phoenix Provident and Pension funds; 108,421 ordinary shares are held by Linked insurance policies of Phoenix; 8,488,952 ordinary shares are held by Partnership for Israeli shares; 402,730 ordinary shares are held by Partnership for investing in the TA 100. 1,935,000 shares of the 13,118,690 shares held by the Phoenix- Excellence Group, representing approximately 1.22% of our Issued and Outstanding shares and total voting rights, are registered in the Company's Shareholders Register as part of the shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes.
(4) Meitav Dash Investments Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and through its wholly owned subsidiaries (Meitav Dash and their subsidiaries collectively, the "Meitav Dash Group"). These holdings are held according to the following segmentation: 4,607,329 ordinary shares are held by Meitav Dash Provident funds; 1,038,184 ordinary shares are held by Meitav DS Mutual Funds; 2,195,473 ordinary shares are held by Meitav Dash ETFs; 145,981 ordinary shares are held by Meitav Dash Portfolio Management. 805,000 shares of the 7,986,967 shares held by the Meitav Dash Group, representing approximately 0.51% of our Issued and Outstanding shares and total voting rights, are registered in the Company's Shareholders Register as part of the shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes.
(5) Psagot Investment House Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and through its wholly owned subsidiaries (Psagot Investment House and their subsidiaries collectively, the "Psagot Investment House"). These holdings are held according to the following segmentation: 4,107,244 ordinary shares are held by portfolio accounts managed by Psagot Securities Ltd.; 7,571,496 ordinary shares are held by Psagot Provident and Pension funds; 2,403,971 ordinary shares are held by Psagot Mutual Funds; 1,764,643 ordinary shares are held by Psagot ETFs ; 32,370 ordinary shares are held by Psagot Insurance.
131 (6) Menora Mivtachim Holdings Ltd., ("Menora"), an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and through its wholly owned subsidiaries. On January 11, 2017, Menora filed a Schedule 13G, reporting holdings of 8,021,993 shares of Partner. On March 16, 2017, Menora informed us that their holdings as of such date were 8,179,476 shares of Partner held as follows: 6,366,690 ordinary shares are held by Menora Mivtachim Provident and Pension funds; 165,216 ordinary shares are held by Menora Mivtachim Vehistadrut Hamehandesim Nihul Kupot Gemel Ltd.; 17,411 ordinary shares are held by Shomera Insurance Company Ltd.; 1,630,159 ordinary shares are held by Menora Mivtachim Insurance Ltd.
(7) Treasury shares do not have a right to dividends or to vote. During 2008, the Company purchased 4,467,990 shares a part of a buy-back plan. Under the Company's 2004 Amended and Restated Equity Incentive Plan, the Company allocated to a trustee on behalf of the Company's employees 2,209,067 restricted shares which were allocated from the treasury shares. As of March 1, 2017, 864,412 restricted shares were earned and are no longer listed as restricted shares. See "Item 6E.2 EQUITY INCENTIVE PLAN".
(8) The shares under "Public" include 5,317,712 shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes. These shares, together with 1,935,000 shares held by the Phoenix-Excellence Group and 805,000 shares held by the Meitav Dash Group, represent approximately 5.02% of our issued shares (approximately 5.06% of the Issued and Outstanding Shares). Under the terms of our mobile telephone license, the Israeli founding shareholders from among our founding shareholders and their approved substitutes must hold at least 5% of our issued and outstanding share capital and of each of our means of control. The Israeli founding shareholders must meet the requirements of "Israeli entities" which are defined as individuals who are citizens and residents of Israel and entities formed in Israel and controlled, directly or indirectly, by individuals who are citizens and residents of Israel, provided that indirect control is only through entities formed in Israel, unless otherwise approved by the Minister of Communications.
As of March 1, 2017, to the best of the Company's knowledge, none of our directors and senior management held more than 1% of our outstanding ordinary shares, except as may be otherwise set forth above; their holdings have been included under "Public" in the table above. For information regarding options held by our senior management to purchase ordinary shares, see "6E- Share Ownership".
We are not aware of any arrangements that might result in a change in control of our Company.
7A.1 OTHER
On March 1, 2017, 5,758,071 ADSs (equivalent to 5,758,071 ordinary shares) or approximately 3.62% of our total Issued and Outstanding ordinary shares, were held of record by 37 registered holders in the United States. There were 4 registered holder accounts of the 37 with registered addresses outside of the United States. Certain accounts of record with registered addresses other than in the United States may hold our ordinary shares, in whole or in part, beneficially for United States persons. We are aware that many ADSs and ordinary shares are held of record by brokers and other nominees and accordingly the above numbers are not necessarily representative of the actual number of persons who are beneficial holders of ADSs and ordinary shares, or the number of ADSs and ordinary shares beneficially held by such persons.
132 7B. Related Party Transactions
7B.1 RELATIONSHIP AGREEMENT
Our Israeli founding shareholders are parties to a Relationship Agreement with S.B. Israel Telecom in relation to its direct holdings of our shares and the rights associated with such holdings. See Exhibit 4.(a).1.2 incorporated by reference in this annual report.
License Conditions: Required Minimum Israeli and Founding Shareholder Percentages
The parties to the Relationship Agreement have agreed that they shall at all times comply with the terms of our license requiring that our founding shareholders or their approved substitutes hold in aggregate at least 26% of our means of control, and that our Israeli founding shareholders or their approved substitutes (from among the founding shareholders and their approved substitutes) hold at least 5% of our means of control. See "Item 4B.13f Our Mobile Telephone License."
Compulsory Transfer in the Event of Default
If a party to the Relationship Agreement commits certain events of default described in the agreement, it may be required to offer its shares to the other parties on a pre-emptive basis. Events of default for this purpose include a breach of the Relationship Agreement which has a material adverse effect on Partner, and in the case of such breach, the purchase price at which the shares are to be sold will be market value less a 17.5% discount.
Term and Termination
The Relationship Agreement continues in full force and effect until we are wound up or cease to exist unless terminated earlier by the parties. The Relationship Agreement will terminate in relation to any individual party after it ceases to hold any share beneficially if it is required to comply with the minimum holding requirements for founding shareholders or Israeli founding shareholders, as applicable, and the transfer of the shares was not made in breach of the Relationship Agreement.
Related agreement among Israeli founding shareholders
A shareholders agreement among the Israeli founding shareholders, or their approved substitutes, purports to establish the procedures, rights and obligations with respect to the appointment of the Israeli director. The Company's position, which is based among others upon a legal opinion from outside counsel, is that the arrangement set in this agreement with respect to the procedures, rights and obligations pertaining to the appointment of the Israeli director is not valid and the Company does not give effect to that arrangement and it acts according to the provision of its license and Articles of Association in connection with the appointment of the Israeli director. In November 2014, the agreement was amended and among other things, Israeli founding shareholders were removed from the Shareholders Agreement, leaving only Scailex (whose shares in the Company that constitute the holdings of Israeli founding shareholders are controlled by a court appointed receiver in light of Scailex's failure to comply with its obligations to its noteholders for the benefit of Scailex's noteholders) and Suny Electronics Ltd. (whose shares in the Company are mortgaged to a trustee on behalf of Suny's noteholders and constitute part of the holdings of Israeli founding shareholders) as parties to the Shareholders Agreement.
7B.2 REGISTRATION RIGHTS
On October 17, 2013, following approval of our general meeting of shareholders, we have entered into a registration rights agreement with S.B. Israel Telecom, our principal shareholder, in which we granted S.B. Israel Telecom:
(1) the right to require us to register ordinary shares held by them under the US Securities Act and to freely dispose of their shares in the U.S. public market. We have agreed that, upon request from S.B. Israel Telecom, we will file a registration statement under the US Securities Act to register ordinary shares held by them, subject to a maximum of one request in any 6-month period and to certain other limitations. There is no limit to the number of registrations that can be requested under the registration rights agreement. The minimum amount of shares that must be included in any registration requested under the registration rights agreement is 2.65% of our outstanding shares.
133 (2) the right to include their ordinary shares in any registration statement covering offerings of ordinary shares by us.
The registration rights agreement will terminate upon the earlier of October 16, 2018, and such time as the holder can sell its ordinary shares into the United States public market pursuant to an exemption from the registration requirements of the Securities Act without regard to holding period, volume or manner-of-sale limitations.
7B.3 TRANSACTIONS WITH PHI
Pursuant to the Network Sharing Agreement between the Company and the limited partnership PHI, the Company has transactions during the normal course of business with PHI. See "Item 4B.9a Overview- cellular network sharing", "Item 5B.3 TOTAL NET FINANCIAL DEBT" and also note 26(d) to the consolidated financial statements.
7C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8A. Consolidated Financial Statements and Other Financial Information
Audited financial statements for the three fiscal years ended December 31, 2016, are included under "Item 18. Financial Statements."
8A.1 LEGAL AND ADMINISTRATIVE PROCEEDINGS
In addition to the legal proceedings discussed below, we are party to a number of legal and administrative proceedings arising in the ordinary course of our business. We do not currently expect the outcome of such matters individually or in the aggregate to have a material adverse effect upon our business and financial condition, results of operations and cash flows.
We have been named as defendants in a number of civil and criminal proceedings related to our network infrastructure and consumer claims regarding, for example, our tariff plans and billing methods, which may result in civil liabilities or criminal penalties against us or our officers and directors. Plaintiffs in some of these proceedings have successfully sought or are seeking certification as class actions. The costs that may result from these lawsuits are only accrued for when it is more likely than not that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. The amount of the provisions recorded is based on a case-by-case assessment of the risk level, 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 counsel and on the Company's estimate of the probable settlement amounts that are expected to be incurred, if such settlements are agreed by both parties. See Note 20 to the consolidated financial statements for further information regarding litigation and proceedings of which we are currently aware. See also "Item 3D.2p We are exposed to, and currently engaged in, a variety of legal proceedings, including requests to approve lawsuits as class actions related primarily to our network infrastructure and consumer claims."
The litigations described below involve claims for which requests for certification as class actions were filed and which specify an amount of damages, and which we consider may have a potentially material effect on the Company. The total amount of pending claims (claims which have not been dismissed by the Court or settled) made by plaintiffs in the litigations described below is NIS 1.36 billion.
1. On September 7, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company unlawfully charges its customers for services of various content providers, which are sent through text messages (SMS). The total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 405 million. The claim was certified as a class action in December 2016. In February 2017, the plaintiffs filed an appeal to the Supreme Court, regarding the definition of the group of customers.
134 2. On July 15, 2014, a claim and a motion to certify the claim as a class action were filed against the Company and against additional cellular operators and content providers. The claim alleges that the cellular operators, including the Company, breached legal provisions and provisions of their licenses and thereby created a platform that led to the customers' damages alleged in the claim. The total amount claimed against all of the defendants is estimated by the plaintiff to be approximately NIS 300 million. The claim is still in its preliminary stage of the motion to be certified as a class action.
3. On November 12, 2015, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner required their customers to purchase a router and/or a call adaptor and/or terminal equipment as a condition for using its fixed-line telephony services, not in accordance with the provisions of their licenses. The total amount claimed against Partner is estimated by the plaintiff to be approximately NIS 116 million. The claim is still in its preliminary stage of the motion to be certified as a class action.
4. On November 12, 2015, a claim and a motion to certify the claim as a class action were filed against 012 Smile. The claim alleges that 012 Smile required their customers to purchase a router and/or a call adaptor and/or terminal equipment as a condition for using its fixed-line telephony services, not in accordance with the provisions of their licenses.The total amount claimed against 012 Smile is estimated by the plaintiff to be approximately NIS 64 million. The claim is still in its preliminary stage of the motion to be certified as a class action.
5. On January 4, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner charges its customers the full price of telecommunication packages that are intended for use abroad despite the fact that the packages are not fully utilized and does not allow to transfer the balance to the next trip abroad or to receive a credit for the balance.The total amount claimed against Partner is estimated by the plaintiff to be approximately NIS 234 million. The claim is still in its preliminary stage of the motion to be certified as a class action.
6. On September 11, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner automatically charges its customers that use the maximum volume of their data packages, for additional data volume, without their consent. The total amount claimed against Partner is estimated by the plaintiff to be approximately NIS 250 million. The claim is still in its preliminary stage of the motion to be certified as a class action.
With respect to the following claims which totaled an amount of NIS 14.3 billion, claims totaling NIS 13.4 billion have been dismissed. With regards to the remaining claims, the Company has reached settlement agreements (as noted below, some settlement agreements are still subject to Court approval) and the Company does not believe that they will have a material adverse effect on the Company individually or in the aggregate.
1. On April 22, 2009, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleged that the Company charged certain customers for certain calls not according to their rate plan. The total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 187 million. The Parties filed a number of settlement agreements which were submitted for the Court's approval and the latest revised settlement agreement was filed on June 12, 2014 and approved in July 2016.
135 2. On April 12, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleged that the Company charged its customers for certain content services without their consent. The total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 343 million. In March 2016, the parties filed a request to approve a settlement agreement and are waiting for the Court's decision.
3. On May 23, 2010, a claim and a motion to certify the claim as a class action were filed against the Company and all other cellular operators. The claim alleged that the Company, as well as the other defendants, breached its contractual and/or legal obligation to erect cellular sites in the appropriate scope, quantity and coverage in order to provide cellular services in the required and appropriate quality. The plaintiffs claimed that this omission also caused, among others, monetary damages caused to consumers as a result of lack of sufficient coverage, including call disconnections, insufficient voice quality etc., as well as a significant increase in the non-ionized radiation that the public is exposed to mainly from the cellular telephone handset. In addition, it was claimed that the Company and the other defendants breached their contractual and/or legal obligation to ensure and/or check and/or repair and/or notify the consumer, that after repair and/or upgrade and/or exchange of cellular handsets, the handsets may emit radiation in levels that exceed the levels of radiation as set forth by the manufacturer in the handset data and even exceeds the maximum permitted levels set forth by law. In addition, it was claimed that the Company and the other defendants did not fulfill their obligation to caution and warn the consumers of the risks involved in holding the handset and the proximity of the handset to the body while carrying it and during a phone call. In addition, it was claimed that if the handsets marketed by the Company and the other defendants emit non- ionizing radiation above the permitted level, at any distance from the body, then the marketing and sale of such handsets is prohibited in Israel. The total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 3.600 billion. In November 2013, the parties filed a request to approve a settlement agreement and in February 2014, the parties filed a request to approve a revised settlement agreement. The settlement agreement also includes a claim and a motion to certify the claim as a class action that was filed in a similar matter as set forth in section 4 below. In July 2014, the Court approved the settlement agreement and in October 2014, the plaintiffs filed an appeal with the Supreme Court. In April 2016, the Court dismissed the appeal.
4. On June 6, 2011, a claim and a motion to certify the claim as a class action were filed against the Company and the three other cellular operators. The claim alleged that the Company sold or supplied accessories that are intended for carrying cellular handsets on the body, in a manner that contradicts the instructions and warnings of the cellular handset manufacturers and the recommendations of the Ministry of Health, all this without disclosing the risks entailed in the use of these accessories when they are sold or marketed. The total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 1,010 million. On November 7, 2013, the parties filed a request to approve a settlement agreement and on February 5, 2014, the parties filed a request to approve a revised settlement agreement. The settlement agreement also included a claim and a motion to certify the claim as a class action that was filed in a similar matter as set forth in section 3 above. In July 2014, the Court approved the settlement agreement and in October 2014, the plaintiffs filed an appeal with the Supreme Court with respect to the Court's decision not to appoint an external examiner regarding the radiation measurement method as well as attorney fees. In April 2016, the Court dismissed the appeal.
5. On October 5, 2011, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleged that the Company enabled its customers to subscribe to a content back up service for cellular handsets without informing them in cases in which the handset does not support the service or only partially supports such service. The total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 117 million. In November 2014, the claim was dismissed and in January 2015, the plaintiff filed an appeal with the Supreme Court. In March 2016, the Court dismissed the appeal.
136 6. On February 6, 2012, a claim and a motion to certify the claim as a class action were filed against the Company and other cellular operators. The claim alleged that the Company, as well as the other defendants did not comply with the requirements set by the Equal Rights for People with Disabilities (Accessibility to Telecommunications Services and Telecommunications Devices) Regulations of 2009. The total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 120 million. In December 2015, the parties filed a settlement agreement for the Court's approval, which was approved in April 2016.
7. On November 13, 2013, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleged that the Company increased tariffs for its customers not in accordance with their agreements. The total amount claimed from Partner was estimated by the plaintiff to be NIS 150 million. The parties filed a settlement agreement in October 2015 and are waiting for the Court's decision.
8. On March 24, 2014, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleged that the Company did not include in the severance pay calculation for its employees various components that constitute an addition to the salary for the severance pay calculation and thereby acted unlawfully. The total amount claimed from Partner was estimated by the plaintiff to be approximately NIS 100 million. In November 2015, the plaintiff filed an amended claim and a motion to certify the claim as a class action. In September 2016, the parties filed a settlement agreement for the Court's approval.
9. On April 1, 2014, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleged that the Company charged its customers for cellular internet services abroad not in accordance with the subscriber agreement. The claim was estimated by the plaintiff to be approximately NIS 2 Billion. In April 2016, the Court dismissed the claim.
10. On November 19, 2015, a claim and a motion to certify the claim as a class action were filed against the Company and other cellular operators. The claim alleged that the Company coordinated prices with other cellular operators of pre-paid plans that it markets, and by doing so prevented competition and breached legal provisions. The total amount claimed against Partner was estimated by the plaintiff to be approximately NIS 6.6 billion. In September 2016, the claim was dismissed. In November 2016, the plaintiff filed an appeal with the Supreme Court and in January 2017, the Court dismissed the appeal.
11. On December 29, 2015, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleged that Partner charges its customers, while they are abroad, for incoming calls that are transferred to voice mail. The total amount claimed against Partner was estimated by the plaintiff to be approximately NIS 70 million. In January 2017, the Court dismissed the claim.
12. On March 3, 2016, a claim and a motion to certify the claim as a class action were filed against the Company and another cellular operator. The claim alleged that Partner unlawfully charges its customers that are abroad for rejecting an incoming call. The plaintiffs noted that they could not estimate the total amount claimed in the lawsuit, if the lawsuit is certified as a class action On March 2, 2017, the Court dismissed the claim.
The litigations described below involve claims for which requests for certification as class actions were filed and which do not claim any specific amount of damages. Based on its best judgment of the merits or lack thereof of the class actions described below, the likely range of damages which may be involved, and any provisions made in respect thereof in the Company's balance sheet, the Company does not currently believe that the outcome of these class actions, individually or in the aggregate, will have a material negative effect on its financial situation.
1. On July 14, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner is breaching its contractual and/or legal obligation and/or is acting negligently by charging V.A.T for roaming services that are consumed abroad. The plaintiff demands to return the total amount of V.A.T that was charged by Partner for roaming services that were consumed abroad. The plaintiff also pursued an injunction that will order Partner to stop charging VA.T for roaming services that are consumed abroad. In August 2014, the claim was dismissed and in October 2014, the plaintiff filed an appeal with the Supreme Court. The hearing was held in May 2016 before an expanded panel of seven judges and the parties are waiting for the Court's decision.
137 2. On August 8, 2012, a claim and a motion to certify the claim as a class action were filed against 012 Smile and another Internet Service Provider. The claim alleges that the defendants breached certain provisions of their licenses by not offering their services at a unified tariff to all customers. The total amount claimed against 012 Smile, if the lawsuit is certified as a class action, was not stated by the plaintiff. The claim is still in its preliminary stage of the motion to be certified as a class action.
3. On May 6, 2015, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges, that Partner discriminated between its cellular customers, including between new customers and existing customers, by offering the same type of customers, different terms, not in accordance with the provisions of its license. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, if the lawsuit is certified as a class action. The claim is still in its preliminary stage of the motion to be certified as a class action.
4. On September 7, 2015, a claim and a motion to certify the claim as a class action were filed against the Company and 012 Smile. The claim alleges that Partner and 012 Smile overcharge its customers according to a special tariff for overseas call destinations that are defined by the Company as special tariff destinations despite the fact that they are fixed-line destinations. The total amount claimed against Partner and 012 Smile if the lawsuit is certified as a class action was not stated by the plaintiff. The parties were referred to mediation.
5. On February 24, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company harasses recipients by sending advertising messages without receiving their prior approval for this. In addition, the content of the advertisements does not comply with the legal provisions, among others, with respect to the fact that most of the advertising messages do not easily include an option to remove or send a refusal notice. The total amount claimed against the Company if the lawsuit is certified as a class action was not stated by the plaintiff. The claim is still in its preliminary stage of the motion to be certified as a class action.
6. On April 21, 2016, a claim and a motion to certify the claim as a class action were filed against 012 Smile. The claim alleges that 012 Smile's infrastructure does not support data speeds that the Company publishes to its customers. The total amount claimed against the Company if the lawsuit is certified as a class action was not stated by the plaintiff. The claim is still in its preliminary stage of the motion to be certified as a class action.
7. On November 1, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company sends text messages regarding the volume rate of data packages, which unlawfully include advertisement content, intended to encourage purchasing another data package. The total amount claimed against the Company if the lawsuit is certified as a class action was not stated by the plaintiff. The claim is still in its preliminary stage of the motion to be certified as a class action.
138 With respect to the following claims, we have begun to assess the risk involved for the Company but at this stage in our analysis we are unable to evaluate, with any degree of certainty, the probability of success of the lawsuit or the range of potential exposure, if any.
1. On September 11, 2016, a claim and a motion to certify the claim as a class action were filed against 012 Smile and two other international long distance operators. The claim alleges that the defendants charged excessive tariffs from occasional customers for each long distance call minute, contrary to the Telecommunications Law (Telecommunications and Broadcasting), that allows a licensee to charge reasonable payment for a telecommunication service that it provides. The total amount claimed against 012 Smile if the lawsuit is certified as a class action was not stated by the plaintiff. The claim is still in its preliminary stage of the motion to be certified as a class action.
2. On September 29, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner refunded its customers, in cases where it was apparent that they were overcharged, not in accordance with legal provisions. In addition, the claim alleges that Partner charges some of its customers that subscribe to the "One" service for the provision of this special service even though it was terminated. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. The claim is still in its preliminary stage of the motion to be certified as a class action.
During 2016, no new criminal proceedings were brought against us concerning the erection of network sites without building permits. As of December 31, 2016, two criminal proceedings were pending against us concerning the erection of network sites without building permits, none of which was pending against our officers and directors. We are currently negotiating with the relevant local authorities to reach a settlement regarding the relocation of affected sites or obtaining building permits for those sites. Settlements of previous criminal proceedings brought against us resulted in Partner, but not its officers or directors, admitting guilt and paying a fine, and also resulted in the imposition of demolition orders for the relevant sites, the execution of which have been stayed for a period of time to allow us to obtain the necessary permits or to relocate the relevant network site.
8A.2 DIVIDEND DISTRIBUTION POLICY
Our Articles of Association allow for our Board of Directors to approve all future dividend distributions, without the need for shareholder approval, subject to the provisions governing dividends under the Israeli Companies Law.
The Board of Directors resolved on September 19, 2012, to assess dividend distributions (and their scope) from time to time, by reference to, among other factors, the Company's cash flow, profitability, debt level, debt coverage ratios and the business environment in general. For the years ended December 31, 2014, 2015 and 2016, no dividend was declared by the Company. For risks relating to future payments of dividends see "Item 3D.2v Based on a decision of the Board of Directors in 2012, dividend distributions are assessed from time to time on the basis of various factors. There can be no assurance that dividends will be declared or, if they are, at what level. No dividends have been distributed since 2013.
We intend to pay any dividends which may be declared in shekels. Under current Israeli regulations, any dividends or other distributions paid in respect of ordinary shares may be freely repatriated in non-Israeli currencies at the rate of exchange prevailing at the time of conversion, provided that Israeli income tax has been paid on or withheld from such dividends. Because exchange rates between the shekel and the US dollar fluctuate continuously, a holder of ADSs will be subject to currency fluctuation generally and, particularly, between the date when dividends are declared and the date dividends are paid.
8B. Changes
No significant change has occurred since December 31, 2016, except as otherwise disclosed in this annual report. See also "Item 5D.2 Outlook".
139 ITEM 9. THE OFFER AND LISTING
9A. Offer and Listing Details
Our capital consists of ordinary shares, which are traded on the Tel Aviv Stock Exchange under the symbol "PTNR". American Depositary Shares ("ADSs"), each representing one of the Company's ordinary shares, are quoted on the NASDAQ Global Select Market under the symbol "PTNR". The ADSs are evidenced by American Depositary Receipts ("ADRs") originally issued by JPMorgan Chase, as depositary under a Deposit Agreement, dated as of November 1, 1999, among the Company, JPMorgan Chase and registered holders from time to time of ADRs. ADSs were first issued in October 1999. From March 2006 until November 27, 2011, the Bank of New York served as our depositary for ADSs. Since November 28, 2011, Citibank serves as our depositary for ADSs.
The tables below set forth, for the periods indicated, the reported high and low closing quotations, not adjusted for dividends, based on information supplied by the National Association of Securities Dealers, Inc., and information supplied by the Tel Aviv Stock Exchange.
NASDAQ Tel Aviv Stock Exchange ($ per ADS) (NIS per ordinary share) High Low High Low
2012 9.23 3.12 35.35 12.37
2013 9.75 5.46 35.00 20.30
2014 9.57 5.05 33.10 20.14
2015
First Quarter 4.99 2.72 19.54 11.05
Second Quarter 2.82 2.18 11.43 8.50
Third Quarter 5.00 2.52 19.65 10.01
Fourth Quarter 4.95 3.70 19.40 14.58
2016
First Quarter 4.84 4.07 19.16 16.20
Second Quarter 5.48 4.03 20.80 15.9
Third Quarter 5.02 4.44 19.66 17.14
Fourth Quarter 5.08 4.33 19.50 16.94
September 2016 5.02 4.46 19.01 17.14 October 2016 4.64 4.33 18.00 17.17 November 2016 4.85 4.36 18.98 16.94 December 2016 5.08 4.65 19.50 18.13 January 2017 5.87 5.09 22.34 18.44 February 2017 6.25 5.51 23.60 20.95 March 2017 (through March 23) 6.28 5.53 23.67 20.12
9B. Plan of Distribution
Not applicable.
140 9C. Markets
Our ADSs are quoted on the NASDAQ Global Select Market under the symbol "PTNR". Our ordinary shares are traded on the Tel Aviv Stock Exchange under the symbol "PTNR".
9D. Selling Shareholders
Not applicable.
9E. Dilution
Not applicable.
9F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
10A. Share Capital
Not applicable.
10B. Memorandum and Articles of Association
10B.1 PURPOSES AND OBJECTS OF THE COMPANY
We are a public company registered under the Israeli Companies Law as Partner Communications Company Ltd., registration number 52-004431-4.
Pursuant to our Articles of Association, we were formed for the purpose of participating in the auction for the granting of a license to operate cellular radio telephone services in Israel, to provide such services, and without derogating from the above, we are also empowered to hold any right, obligation or legal action and to operate in any business or matter approved by the Company.
Pursuant to section three of our Articles of Association, our purpose is to operate in accordance with business considerations to generate profits; provided, however, that the Board of Directors is entitled to donate reasonable amounts to worthy causes, even if such donation is not within the frame of these business considerations.
Pursuant to section four of our Articles of Association, our objective is to engage in any legal business.
10B.2 THE POWERS OF THE DIRECTORS
The power of our directors to vote on a proposal, arrangement or contract in which the director is personally interested is limited by the relevant provisions of the Israeli Companies Law and our Articles of Association. In addition, the power of our directors to vote compensation to themselves or any members of their body, requires the approval of the compensation committee, the Board of Directors and the general meeting of shareholders. Generally, the Annual Meeting of the Shareholders must be convened to elect directors and a shareholders meeting could terminate the term of office of directors. In addition, our Articles of Association provide that, in certain circumstances relating to our compliance with the license, our Board of Directors may remove any director from the Board of Directors by a resolution passed by 75% or more of the directors present and voting at the relevant meeting. See also "Item 6C Board Practices".
141 10B.3 RIGHTS ATTACHED TO SHARES
Our registered share capital consists of a single class of 235 million ordinary shares, par value NIS 0.01 per share, of which 160,610,241 ordinary shares were issued and 159,215,730 were issued and outstanding as of March 1, 2017. All outstanding ordinary shares are validly issued and registered. The rights attached to our ordinary shares are described below.
Dividend Rights
Holders of ordinary shares are entitled to the full amount of any cash or share dividend subsequently declared. The Board of Directors may propose and approve distribution of a dividend with respect to any fiscal year or quarter only out of profits, subject to the provisions of the Israeli Companies Law. See "Item 10E Taxation."
Shares which are treated as dormant under section 44.6 of our Articles of Association (under circumstances relating to compliance with our license) retain the rights to receive dividends or other distributions to shareholders, and to participate in rights offerings, but no other rights. See "Item 4B.13f Our Mobile Telephone License".
One year after a dividend has been declared and is still unclaimed, the Board of Directors is entitled to invest or utilize the unclaimed amount of the dividend in any manner to the benefit of the Company until it is claimed. We are not obligated to pay interest or linkage on an unclaimed dividend.
Voting Rights
Holders of issued and outstanding ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders either in person or by proxy. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. The quorum required for a general meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least one third of the voting rights of the issued share capital. In the event that a quorum is not present within thirty minutes of the scheduled time, the shareholders' meeting will be adjourned to the same day of the following week, or the next business day thereafter, at the same time and place, or such time and place as the Board of Directors may determine. If at such reconvened meeting a quorum is not present after the lapsing of 30 minutes from the time appointed for holding the meeting, one or more shareholders present in person or by proxy holding or representing in the aggregate at least 10% of the voting rights in the Company will generally constitute a quorum. Any shareholder seeking to vote at a general meeting of our shareholders must first notify us if any of the shareholder's holdings in the Company requires the consent of the Ministry of Communications. The instructions of a shareholder will not be valid unless accompanied by a declaration by the shareholder as to whether or not the shareholder's holdings in the Company or the shareholder's vote requires the consent of the Ministry of Communications due to a breach by the shareholder of the restrictions on transfer or acquisition of means of control, or provisions regarding cross-ownership with other mobile telephone operators or shareholdings or agreements which may reduce or harm competition. If the shareholder does not provide such certification declaration, his instructions will be invalid and his vote not counted.
An ordinary resolution, such as a resolution for the election of directors (excluding external directors), or the appointment of auditors, requires approval by the holders of a majority of the voting rights represented at the meeting, in person or by proxy, and voting thereon. Under our Articles of Association, resolutions such as a resolution amending our Articles of Association or approving any change in the share capital, liquidation, changes in the objectives of the company, or the name of the company, or other changes as specified in our Articles of Association, requires approval of a special majority, representing the holders of no less than 75% of the voting rights represented at the meeting, in person or by proxy, and voting thereon.
Under our Articles of Association our directors are generally elected by an ordinary majority of the shareholders at each duly convened annual meeting, and serve until the next annual meeting, and our external directors are elected in accordance with applicable law and/or relevant stock exchange rules applicable to us; or until their respective successors are elected and qualified, whichever occurs first, or in the case of Israeli directors who are appointed by the founding Israeli shareholders, generally upon a written notice signed by at least two of the founding Israeli shareholders who are the record holders of (i) at least 50% of minimum Israeli holding shares or (ii), who hold in the aggregate the highest number of minimum Israeli holding shares among the Israeli founding shareholders. Any Israeli founding shareholders who have specified connections to a competing mobile radio telephone operator (as defined in the license) of the Company are prohibited from participation in any such appointment. The notice is addressed to the Company's company secretary indicating his appointment, until their respective successors are elected upon such notice. In each annual meeting the directors that were elected at the previous annual meeting are deemed to have resigned from their office, excluding the external directors, who according to the Israeli Companies Law, are elected for a period of three years and the Israeli director whose appointment is terminated generally by a written notice by himself or by the founding Israeli shareholders. A resigning director may be reelected. Each ordinary share represents one vote. No director may be elected or removed on the basis of a vote by dormant shares. The ordinary shares do not have cumulative voting rights in the election of directors.
142 Under our Articles of Association our shareholders discuss our annual consolidated financial statements, at the annual general meeting of shareholders.
Directors may be appointed also in certain circumstances by an extraordinary general meeting and by the Board of Directors upon approval of a simple majority of the directors. Such director, excluding the external directors, shall serve for a term ending at the next annual general meeting.
Rights in the Company's Profits
Our shareholders have the rights to share in our profits distributed as a dividend and any other permitted distribution. See "Item 10B.3 Rights Attached to Shares-–Dividend Rights."
Rights in the Event of Liquidation
All of our ordinary shares confer equal rights among them with respect to amounts distributed to shareholders in case of liquidation.
Rights in the Event of Reorganization
Upon the sale of the property of the Company, the Board of Directors or the liquidators (in case of a liquidation) may receive and, if the Company's profits so permit, distribute among the shareholders fully or partially paid up shares, bonds or securities of another company or any other property of the Company without selling them or depositing them with trustees on behalf of the shareholders, provided, however, that they have received the prior authorization adopted by a special majority of the shareholders of the Company (representing at least 75% of the votes of shareholders participating and voting in the relevant general meeting). Such special majority may also decide on the valuation of such securities or property, unless the Company is in or beginning a liquidation process.
Limitations on Ownership and Control
Ownership and control of our ordinary shares are limited by the terms of our licenses and our Articles of Association. See "Item 4B.13f Our Mobile Telephone License-License Conditions" and "Revoking, limiting or altering our license."
In order to comply with the conditions and restrictions imposed on us by the Ministry of Communications or under our licenses in relation to ownership or control over us, under certain events specified in our Articles of Association, the Board of Directors may determine that certain ordinary shares are dormant shares. According to our Articles of Association, dormant shares bear no rights as long as they are dormant shares, except for the right to receive dividends and other distributions to shareholders. Consequently, we have received an exemption from the requirement set out in NASDAQ's Marketplace Rule 4351 that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the US Securities Exchange Act cannot be disparately reduced or restricted through any corporate action or issuance. In addition, the Board of Directors shall not register a person as a holder of a share before receipt of their declaration that they are not a "relevant person" as defined in our Articles of Association.
Our Compensation Policy allows us to allocate in addition to shares, restricted shares. For rights attached to restricted shares see "Item 6E.2 EQUITY INCENTIVE PLAN".
143 10B.4 CHANGING RIGHTS ATTACHED TO SHARES
According to our Articles of Association, in order to change the rights attached to any class of shares, the general meeting of the shareholders must adopt a resolution to change such rights by a special majority, representing at least 75% of the votes of shareholders participating and voting in the general meeting, and in case of changing the rights attached to certain class of shares, the approval by special majority of each class meeting, is required.
10B.5 ANNUAL AND EXTRAORDINARY GENERAL MEETINGS
The Board of Directors must convene an annual general meeting of shareholders at least once every calendar year, within fifteen months of the last annual general meeting. In accordance with our Articles of Association, notice of a general meeting must be sent to each registered shareholder no later than five days after the record date set by the Board of Directors for that meeting, unless a different notice time is required under applicable law. An extraordinary meeting may be convened by the Board of Directors, as it decides or upon a demand of any two directors or 25% of the directors, whichever is lower, or of one or more shareholders holding in the aggregate at least 5% of our issued capital and at least 1% of the voting rights of the Company; or (ii) at least 5% of the voting right of the Company, can seek to convene a shareholders meeting or as otherwise permitted by the Israeli Companies Law. See "Item 10B.3 RIGHTS ATTACHED TO SHARES–Voting Rights."
One or more shareholders holding (alone or in the aggregate), 1% or more of the share capital of the Company may request that the Board of Directors include an issue on the agenda of a general meeting of shareholders (including the nomination of a candidate to the board of directors), provided that such issue is suitable to be discussed in the general meeting of shareholders. Pursuant to an amendment to regulations promulgated under the Israeli Companies Law, effective from July 2014, said shareholder request should be submitted to the company within three or seven days (depending on the type of resolution dealt with in the convened meeting) following publication of the Company's notice with respect to its general meeting of shareholders, or, if the Company publishes a preliminary notice stating its intention to convene such meeting and the agenda thereof, within fourteen days of such preliminary notice. Any such proposal must further comply with the information requirements and time frames under Israeli law.
10B.6 LIMITATIONS ON THE RIGHTS TO OWN OUR SECURITIES
For limitations on the rights to own our securities see "Item 4B.13f Our Mobile Telephone License– License Conditions," " – Our Permit Regarding Cross Ownership" and "Item 10B.3 Rights Attached to Shares – Limitations on Ownership and Control."
10B.7 LIMITATIONS ON CHANGE IN CONTROL AND DISCLOSURE DUTIES
For limitations on change in control see "Item 4B.13f Our Mobile Telephone License– License Conditions" and "– Our Permit Regarding Cross Ownership".
10B.8 CHANGES IN OUR SHARE CAPITAL
Changes in our share capital are subject to the approval of the shareholders at a general meeting of shareholders by a special majority of 75% of the votes of shareholders participating and voting in the general meeting of shareholders.
10B.9 OUR LICENSE PREVAILS IN CASE OF AN INCONSISTENCY
If any article of our Articles of Association is found to be inconsistent with the terms of our mobile telephone license granted by the Ministry of Communications (see "Item 4B.13f Our Mobile Telephone License") or of any other telecommunications license we hold, the provisions of such Article shall be deemed null and void.
144 10C. Material Contracts
Settlement Agreement with Orange Brand Services Ltd. In June 2015, we entered into a settlement agreement with Orange regarding the brand license agreement between the parties, according to which each of the parties had the right to terminate the brand license agreement under certain conditions. The settlement agreement also provided for payments to Partner in the event that Partner chose to terminate the brand license agreement. –see "Item 5A.1c Settlement Agreement with Orange Brand Services Ltd."
Network sharing agreement. In April 2015, the Ministry of Communications approved the 15- year Network Sharing Agreement that we entered into with HOT Mobile. Pursuant to the Network Sharing Agreement, the parties created a 50-50 limited partnership, the purpose of which is to operate and develop a cellular network to be shared by both parties, starting with a pooling of both parties' radio access network infrastructures to create a single shared radio access network. The limited partnership began operations in August 2015. See "Item 4B.9 OUR NETWORK".
Right of Use Agreement with HOT Mobile. Partner and HOT Mobile entered into a Right of Use agreement, which took effect on November 8, 2013, and was valid until April 1, 2016. Under the Right of Use agreement, Partner provided services to HOT Mobile in the form of a right of use of Partner's radio cellular network. According to the Right of Use agreement, HOT Mobile paid Partner fixed base payments with additional variable payments based, among other things, on traffic volume exceeding a defined threshold. See "Item 4B.9 OUR NETWORK".
i-Phone Agreement. Following the expiration of a previous agreement, in June 2016, we entered into a non-exclusive agreement with Apple Distribution International for the purchase and resale of iPhone handsets in Israel. Pursuant to the agreement, we agreed to purchase a minimum quantity of iPhone handsets per year, for a period of three years. These purchases will represent a significant portion of our expected handset purchases and sales over that period.
Fixed-line transmission services. In April 2012, we signed a five- year agreement with Bezeq effective as of January 1, 2012, for the supply of transmission services for use in Partner's mobile network. The agreement replaced an earlier transmission agreement between the parties from 2008. The transmission services to be purchased in accordance with this agreement, together with the use of the Company's own transmission network, will allow Partner to meet all its transmission requirements, at an improved cost during the next five years. Partner's minimum annual commitment was NIS 57 million for the year 2013 and gradually increased to NIS 71 million for the year 2016 due to the increase in the scope of the capacity purchased in accordance with the layout agreed upon by the parties. Commencing April 2015, Hot Mobile undertakes its share in these expenses through PHI according to the OPEX-CAPEX mechanism, see Note 9 to the consolidated financial statements.
Registration Rights Agreement. We have entered into registration rights agreements with S.B, Israel Telecom, our principal shareholder, in which we granted our principal shareholders the right to require us to register ordinary shares held by them under the US Securities Act. See "Item 7B.2 REGISTRATION RIGHTS".
Network upgrade and deployment of fourth generation network. On October 25, 2010, we entered into an agreement with Ericsson for the upgrade of our existing networks and the deployment of our fourth generation network in Israel for an initial term that ended at the end of 2014. We extended the initial period by an additional period of one year for the provision of support and maintenance services until the end of 2015 and again until the end of 2016 and recently we have ordered maintenance services for the years 2017 and 2018. See "Item 4B.9f Suppliers" and "Item 5A.1g Agreement for the Upgrade of Our Existing Networks and the Deployment of Fourth Generation Network in Israel".
Med Nautilus Agreement. We have an agreement with Med Nautilus for the provision of international capacity services through submarine infrastructure, which connects countries bordering the Mediterranean Sea to all major Western European countries and from there to the rest of the world until 2023 with an option to extend the agreement until 2030.
145 10D. Exchange Controls
There are no Israeli government laws, decrees or regulations that restrict or that affect our export or import of capital or the remittance of dividends, interest or other payments to non- resident holders of our securities, including the availability of cash and cash equivalents for use by us and our wholly-owned subsidiaries, except or otherwise as set forth under "Item 10E Taxation."
Under Israeli law (and our Memorandum and Articles of Association), persons who are neither residents nor nationals of Israel may freely hold, vote and transfer ordinary shares in the same manner as Israeli residents or nationals.
10E. Taxation
Israeli Tax Considerations
The following discussion is not intended, and should not be construed, as legal or professional tax advice and should not be relied on any specific case since it does not exhaust all possible tax considerations.
The following is a summary of the current tax laws of the State of Israel as they relate to us and to our shareholders and also includes a discussion of the material Israeli tax consequences for persons purchasing our ordinary shares or ADSs, both referred to below as the "Shares". To the extent that the discussion is based on legislation yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein will accord with any such interpretation in the future. This discussion is not intended and should not be construed as legal or professional tax advice and does not cover all possible tax considerations.
Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of our Shares, including, in particular, the effect of any foreign, state or local taxes.
Israeli Tax Reforms
On July 24, 2002, the Israeli Parliament enacted income tax reform legislation, commonly referred to as the "2003 Tax Reform". The 2003 Tax Reform has introduced fundamental and comprehensive changes into Israeli tax laws. Most of the legislative changes took effect on January 1, 2003. The 2003 Tax Reform has introduced a transition from a primarily territorial-based tax system to a personal-based system of taxation with respect to Israeli residents. The 2003 Tax Reform has also resulted in significant amendment of the international taxation provisions, and new provisions concerning the taxation of capital markets including the abolishment of currently "exempt investment routes" (e.g., capital gains generated by Israeli individuals from the sale of securities traded on the Tel-Aviv Stock Exchange). Under the 2003 Tax Reform legislation the Shares are no longer regarded and defined as "foreign traded securities" and thus certain associated Israeli tax aspects will accordingly be subject to change as discussed below.
A relatively short time after the 2003 Tax Reform, the Israeli Parliament approved on July 25, 2005 an additional income tax reform legislation (the "2006 Tax Reform") pursuant to the recommendations of a committee appointed by the Israeli Minister of Finance, which incorporated additional fundamental changes to Israeli tax law. The 2006 Tax Reform outlines a path towards uniformity in the taxation of interest, dividend and capital gains derived from securities. The "Tax Burden Distribution Law" legislation amendments (2011) that were published in December 2011, which became effective on January 1, 2012, abolished the reduction of income tax rates for corporations and individuals and increased, amongst other things, the corporate tax rate and the tax rates on individual's dividend income. On July 27, 2013 following the Tax Burden Distribution Law, the Israeli Parliament approved The Law For the Change in National Priorities (Legislation Amendment to Achieving Budget Goals for years 2013 and 2014), 2013 (the "2013 Amendment"). On January 4, 2016, the Israeli Parliament approved an amendment for the Israeli tax Ordinance (Number 216), according to which corporate tax rate will be updated for 2016 (the "2016 Amendment"). It should be noted that the 2016 amendment was considered an event after the reporting period which influenced the Company's deferred taxes as of the tax year 2016. Would the law have been approved at December 31, 2015, the deferred tax asset as of December 31, 2015 would have decreased in the amount of approximately NIS 4 million, with corresponding decrease in deferred tax expenses in the income statement. On December 29, 2016, the Israeli Parliament passed the Israeli Economic Recuperation Law (legislated amendments to achieve implementation of the Economic Policy for the budget years 2017-2018) ("The New Amendment"), which, amongst other things, reduces the regular corporate tax rate, and changes the requirement regarding surplus tax.
146 Various issues related to the above legislations remain unclear in view of the legislative language utilized and the lack of authoritative interpretations at this stage. The analysis below is therefore based on our current understanding of the new legislation.
General Corporate Tax Structure
Israeli companies are generally subject to corporate tax on their taxable income (including capital gains). In general, the regular corporate tax rate in Israel for 2014 and 2015 was 26.5%, and for 2016 was 25%. According to the New Amendment, the regular corporate tax for 2017 will decrease to a rate of 24% and, as of 2018, there will be a further reduction to 23%.
Special Provisions Relating to Taxation under Inflationary Conditions
Until 2008, our taxable income was determined under the Income Tax (Inflationary Adjustment) Law 1985 (the "Inflationary Adjustments Law"), which attempts to overcome some of the problems presented to a traditional tax system by inflation.
In February 2008, the Israeli Parliament approved Amendment No. 20 to the Inflationary Adjustments Law ("the Amendment"). The Amendment repealed the Inflationary Adjustments Law as of January 1, 2008 and set certain transitionary rules.
Tax on Capital Gains of Shareholders
• General. Israeli law generally imposes a capital gains tax on the sale of capital assets by residents of Israel as defined for Israeli tax purposes, and on the sale of capital assets located in Israel or the sale of direct or indirect rights to assets located in Israel, including on the sale of our Shares by some of our shareholders (see discussion below). The Israeli Income Tax Ordinance distinguishes between "Real Capital Gain" and "Inflationary Surplus". Real Capital Gain is the excess of the total capital gain over Inflationary Surplus computed on the basis of the increase in the CPI between the date of purchase and the date of sale. In 2016, the real capital gain accrued on the sale of our Shares was generally taxed at a rate of 25% for corporations (26.5% for 2014 and 2015, and 24% for 2017) and a rate of up to 25% for individuals. Additionally, if such individual shareholder is considered a "Significant Shareholder" at any time during the 12-month period preceding such sale (i.e., if such individual shareholder holds directly or indirectly, along with others, at least 10% of any means of control in the company, including, among other things, the right to receive profits of the company, voting rights, the right to receive the company's liquidation proceeds and the right to appoint a director), the tax rate will be up to 30%.
However, the foregoing tax rates will not apply to (i) dealers in securities; and (ii) shareholders who have acquired their shares prior to an initial public offering (that may be subject to a different tax arrangement). Inflationary surplus that accrued after December 31, 1993, is exempt from tax.
Generally, a semi-annual detailed return, including a computation of the tax due should be submitted to the Israeli Tax Authorities and a tax advance amounting to the tax liability arising from the capital gain is payable. At the sale of traded securities, the aforementioned detailed return may not be submitted and the tax advance should not be paid, if all tax due was withheld at the source according to applicable provisions of the Israeli Tax Ordinance and regulations promulgated thereunder.
Capital gains are also reportable on annual income tax returns.
• Taxation of Israeli Residents
The following is a summary of the most significant Israeli capital gains tax implications arising with respect to the sale of our Shares by shareholders who are not engaged in the business of trading in securities.
147 Individuals
As of January 1, 2012, a shareholder will generally be subject to tax at up to 25% rate on realized real capital gain (if the shareholder is a Significant Shareholder, as defined above, the tax rate will be up to 30%). To the extent that the shareholder claims a deduction of financing expenses, the gain will be subject to tax at a rate of 30% (until otherwise stipulated in bylaws that may be published in the future).
Please note that an individual Israeli tax resident may be required to pay up to 48% on his yearly taxable income, subject to certain exceptions. In addition, as of January 1, 2013, an individual Israeli tax resident is required to pay an additional tax at the rate of 2% on his yearly taxable combined income from any source exceeding NIS 811,560 for 2014 and NIS 810,720 for 2015 and 2016. According to the New Amendment, from 2017 the additional tax rate will be 3% and the amount will be updated to NIS 640,000.
Corporations
Shareholders who are corporations will be generally subject to tax at the corporate tax rate on the realized capital gain as described in "General Corporate Tax Structure" in Item 10E above.
Different taxation rules may apply to shareholders who purchased the Shares prior to January 1, 2009, or prior to the listing on the Tel Aviv Stock Exchange or the Nasdaq Global Market. Such Shareholders should consult with their own tax advisors for the tax consequences upon sale.
In general, a partnership will be a transparent entity for Israeli tax purposes and its partners will be subject to tax with respect to their share in accordance with each of their applicable tax status and rates.
In general, under the Israel Tax Ordinance, public institutions are exempt from tax.
• Taxation of Non-Israeli Residents
As mentioned above, Israeli law generally imposes a capital gains tax on sales of capital assets, including securities and any other direct or indirect rights to capital assets located in Israel. This tax is also applicable to non-Israeli residents of Israel as follows:
Under Israeli law, the capital gain from the sale of shares by non-Israeli residents is tax exempt in Israel as long as our Shares are listed on the NASDAQ Global Select Market or any other stock exchange recognized by the Israeli Ministry of Finance (this condition shall not apply to shares purchased on or after January 1, 2009) and provided that certain other conditions are met, the most relevant of which are: (A) the capital gain is not attributed to the foreign resident's permanent establishment in Israel, (B) the shares were acquired by the foreign resident after the company's shares had been listed for trading on the foreign exchange, and (C) if the seller is a corporation, less than 25% of its means of control are held by Israeli residents. It should be noted that with respect to shares which are listed on the Israeli stock exchange market, a tax exemption may apply under certain different conditions.
In addition, the sale of shares may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty (for example, please refer to the discussion below with respect to the Convention Between the Government of the United States of America and the Government of the State of Israel with Respect to Taxes on Income).
Different taxation rules may apply to shareholders who purchased their shares prior to the listing on the Tel Aviv Stock Exchange. Such shareholders should consult with their tax advisors for the precise treatment upon sale.
• Taxation of Investors Engaged in a Business of Trading Securities
Individual and corporate dealers in securities in Israel are taxed at tax rates applicable to business income.
• Withholding at Source from Capital Gains from Traded Securities
The purchaser, the Israeli stockbrokers and any financial institution through which the sold securities are held, are obliged, subject to certain exemptions, to withhold tax on the amount of consideration paid with respect to such sale (or on the capital gain realized on the sale, if known) at the Israeli corporate tax rate as described in "General Corporate Tax Structure" in Item 10E above.
148 Where the seller is an individual, the applicable withholding tax rate would be 25%, or 30% where the seller is a significant shareholder.
Dividends
The following Israeli tax consequences shall apply in the event of actual payment of any dividends on the Shares.
As of January 1, 2012, dividends, other than bonus shares (stock dividends), paid to Israeli resident individuals who purchased our Shares will generally be subject to income tax at a rate of 25% for individuals, or 30% if the dividend recipient is a Significant Shareholder (as defined above) at any time during the 12-month period preceding such distribution. Dividends paid to Israeli resident companies will not be included in their tax liability computation.
Non-residents of Israel (both individuals and corporations) are subject to income tax on income accrued or derived from sources in Israel, including dividends from Israeli corporations. The distribution of dividend income, other than bonus shares (stock dividends), to non-residents of Israel will generally be subject to income tax at a rate of 25% (or 30% for a shareholder that is considered a Significant Shareholder (as defined above) at any time during the 12-month period preceding such distribution), unless a lower rate is stipulated by a double tax treaty between the State of Israel and the shareholder's country of residence.
In the event of actual payment of any dividends on our Shares the following withholding rates will be applied: (i) Israeli resident corporations – 0%, (ii) Israeli resident individuals – 25% (iii) non-Israeli residents – 25%, subject to a reduced tax rate under an applicable double tax treaty; (iv) Israeli resident individual who is a Significant Shareholder – 30%; and (v) non -Israeli resident who is a Significant Shareholder – 30%, subject to a reduced tax rate under an applicable double tax treaty. Nevertheless, if the Shares are held through a Nominee Company, as defined in the Israel Securities Act, the withholding tax rate for shareholders under (iv) and (v) above shall be 25% (subject to a reduced tax rate under an applicable double tax treaty for non-Israeli residents).
A non-resident of Israel that has received a dividend income derived from an Israeli corporation, from which tax was withheld at the source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided that such income was not connected to or derived from a trade or business conducted in Israel by such person.
Repatriation
Non-residents of Israel who acquire any of the Shares of the Company will be able to repatriate dividends, liquidation distributions and the proceeds from the sale of such shares in non- Israeli currencies at the rate of exchange prevailing at the time of repatriation provided that any applicable Israel income tax has been paid, or withheld, on such amounts. US holders should refer to the "United States Federal Income Considerations" section below with respect to the US federal income tax treatment of foreign currency gain or loss.
The foregoing discussion is intended only as a summary and does not purport to be a complete analysis or listing of all potential Israeli tax effects of holding of our shares. We recommend that shareholders consult their tax advisors concerning the Israeli and non-Israeli tax consequences to them of holding our shares.
Taxation of Residents of the United States under the US Treaty
Residents of the United States generally will be subject to withholding tax in Israel on dividends paid, if any, on Shares (including ADSs). Generally, under the Convention Between the Government of the United States of America and the Government of the State of Israel with Respect to Taxes on Income (the "US Treaty"), the maximum rate of withholding tax on dividends paid to a holder of Shares (including ADSs) who is a resident of the United States (as defined in the US Treaty) will be 25%. Under the US Treaty, the withholding tax rate on dividends will be reduced to 12.5% if (i) the shareholder is a U.S. resident corporation which holds during the portion of the taxable year which precedes the date of payment of the dividend, and during the whole of its prior taxable year, at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and (ii) not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year consists of certain types of interest or dividends.
149 The US Treaty exempts from taxation in Israel any capital gains realized on the sale, exchange or other disposition of Shares (including ADSs) provided that the following cumulative conditions are met: (a) the seller is a resident of the United States for purposes of the US Treaty; (b) the seller owns, directly or indirectly, less than 10% of our voting stock at all times during the 12-month period preceding such sale, exchange or other disposition; (c) the seller, being an individual, is present in Israel for a period or periods of less than 183 days during the taxable year; and (d) the capital gain from the sale was not generated through a permanent establishment of the seller in Israel.
Subject to the exemptions from capital gains prescribed in the Israeli Income Tax Ordinance (as described above), purchasers of Shares (including ADSs) who are residents of the United States and who hold 10% or more of the outstanding Shares at any time during such 12-month period will be subject to Israeli capital gains tax. However, under the US Treaty, residents of the United States (as defined in the US Treaty) generally would be permitted to claim a credit for this tax against US federal income tax imposed on the sale, exchange or other disposition, subject to the limitations in US laws applicable to the utilization of foreign tax credits generally.
The application of the US Treaty provisions to dividends and capital gains described above is conditioned upon the fact that such income is not effectively connected with a permanent establishment (as defined in the US Treaty) maintained by the non-Israeli resident in Israel.
United States Federal Income Tax Considerations
The following discussion is a summary of certain material US federal income tax considerations applicable to a US holder (as defined below) regarding the acquisition, ownership and disposition of Shares or ADSs. This summary is based on provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed US Treasury regulations, administrative pronouncements, rulings and judicial decisions as of the date of this annual report. All of these authorities are subject to change, possibly with retroactive effect, and to change or changes in interpretation. In addition, this summary does not discuss all aspects of US federal income taxation that may be applicable to investors in light of their particular circumstances or to investors who are subject to special treatment under US federal income tax law, including US expatriates, insurance companies, banks, regulated investment companies, securities broker-dealers, financial institutions, tax-exempt organizations, persons holding Shares or ADSs as part of a straddle, hedging or conversion transaction, persons subject to the foreign tax credit splitting events rules, persons subject to the alternative minimum tax, persons who acquired their Shares or ADSs pursuant to the exercise of employee stock options or otherwise as compensation, US holders having a functional currency other than the US dollar, persons owning (directly, indirectly or by attribution) 10% or more of our outstanding share capital or voting stock and persons not holding the Shares or ADSs as capital assets. This discussion also does not address the consequences of the Medicare tax on net investment income or any aspect of state, local or non-US tax law or any other aspect of US federal taxation other than income taxation.
As used herein, the term "US holder" means a beneficial owner of an ordinary share or an ADS who is eligible for benefits as a US resident under the limitation on benefits article of the US Treaty (as defined above in "–Taxation of Residents of the United States under the US Treaty"), and is:
• a citizen or individual resident of the United States for US federal income tax purposes;
• a corporation (or an entity taxable as a corporation for US federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
• an estate whose income is subject to US federal income taxation regardless of its source; or
• a trust if (A) a US court is able to exercise primary supervision over the trust's administration and (B) one or more US persons have the authority to control all of the trust's substantial decisions.
If a partnership, or other entity or arrangement treated as a partnership for US federal income tax purposes, holds Shares or ADSs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partnership or a partner in a partnership that holds Shares or ADSs is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of Shares or ADSs.
150 For US federal income tax purposes, US holders of ADRs will be treated as owners of the ADSs evidenced by the ADRs and the Shares represented by the ADSs. Furthermore, deposits or withdrawals by a US holder of Shares for ADSs, or of ADSs for Shares, will not be subject to US federal income tax. The statement of US federal income tax law set forth below assumes that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.
US holders should review the summary above under "Israeli Tax Considerations" and "Taxation of Residents of the United States under the US Treaty" for a discussion of the Israeli taxes which may be applicable to them.
Holders of Shares or ADSs should consult their own tax advisors concerning the specific Israeli, US federal, state and local tax consequences of the ownership and disposition of the Shares or ADSs in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction. In particular, US holders are urged to consult their own tax advisors concerning whether they will be eligible for benefits under the US Treaty.
Dividends
A US holder generally will be required to include in gross income as ordinary dividend income the amount of any distributions paid on the Shares and ADSs, including the amount of any Israeli taxes withheld in respect of such dividend. Dividends paid by us will not qualify for the dividends-received deduction applicable in certain cases to US corporations.
The amount of any distribution paid in NIS, including the amount of any Israeli withholding tax thereon, will be included in the gross income of a US holder of Shares in an amount equal to the US dollar value of the NIS calculated by reference to the spot rate of exchange in effect on the date the distribution is received by the US holder or, in the case of ADSs, by the Depositary. If a US holder converts dividends paid in NIS into US dollars on the day such dividends are received, the US holder generally should not be required to recognize foreign currency gain or loss with respect to such conversion. If the NIS received in the distribution are not converted into US dollars on the date of receipt, any foreign currency gain or loss recognized upon a subsequent conversion or other disposition of the NIS will be treated as US source ordinary income or loss. Special rules govern and special elections are available to accrual method taxpayers to determine the US dollar amount includible in income in the case of taxes withheld in a foreign currency. Accrual basis taxpayers are urged to consult their own tax advisors regarding the requirements and the elections applicable in this regard. Dividends paid with respect to Shares may be subject to rules applicable where US persons own 50% or more (by vote or value) of a foreign corporation, and such rules could adversely affect the US shareholders' ability to use US foreign tax credits.
Any dividends paid by us to a US holder on the Shares or ADSs will be treated as foreign source income and generally will be categorized as "passive income" for US foreign tax credit purposes. Subject to the limitations in the Code, as modified by the US Treaty, a US holder may elect to claim a foreign tax credit against its US federal income tax liability for Israeli income tax withheld from dividends received in respect of Shares or ADSs. US holders who do not elect to claim the foreign tax credit may instead claim a deduction for Israeli income tax withheld, but only for a year in which the US holder elects to do so with respect to all foreign income taxes. A deduction does not reduce US tax on a dollar-for-dollar basis like a tax credit. The deduction, however, is not subject to the limitations applicable to foreign tax credits. The rules relating to the determination of the foreign tax credit are complex. Accordingly, if you are a US holder of Shares or ADSs, you should consult your own tax advisor to determine whether and to what extent you would be entitled to the credit.
Certain US holders (including individuals) are eligible for reduced rates of US federal income tax in respect of "qualified dividend income". For this purpose, qualified dividend income generally includes dividends paid by a non-US corporation if, among other things, the US holders meet certain minimum holding period requirements and the non-US corporation satisfies certain requirements, including that either (i) the shares (or ADSs) with respect to which the dividend has been paid are readily tradable on an established securities market in the United States, or (ii) the non-US corporation is eligible for the benefits of a comprehensive US income tax treaty (such as the US Treaty) which provides for the exchange of information. We currently believe that dividends paid with respect to our Shares and ADSs should constitute qualified dividend income for US federal income tax purposes. We anticipate that our dividends will be reported as qualified dividends on Forms 1099-DIV delivered to US holders. In computing foreign tax credit limitations, non-corporate US Holders may take into account only a portion of a qualified dividend to reflect the reduced US tax rate applicable to such dividend. Individual US holders of Shares or ADSs are urged to consult their own tax advisors regarding the availability of the reduced dividend tax rate in light of their own particular situation and regarding the computations of their foreign tax credit limitation with respect to any qualified dividend income paid by us, as applicable.
151 Sale, Exchange or Other Taxable Disposition
Upon the sale, exchange or other taxable disposition of Shares or ADSs, a US holder generally will recognize capital gain or loss equal to the difference between the US dollar value of the amount realized on the sale, exchange or other taxable disposition and the US holder's adjusted tax basis, determined in US dollars, in the Shares or ADSs. Any gain or loss recognized upon the sale, exchange or other taxable disposition of the Shares or ADSs will be treated as long-term capital gain or loss if, at the time of the sale, exchange or other taxable disposition, the holding period of the Shares or ADSs exceeds one year. In the case of individual US holders, capital gains generally are subject to US federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses by a US holder is subject to significant limitations. US holders should consult their own tax advisors in this regard.
In general, gain or loss recognized by a US holder on the sale, exchange or other taxable disposition of Shares or ADSs will be US source income or loss for US foreign tax credit purposes. Pursuant to the US Treaty, however, gain from the sale or other taxable disposition of Shares or ADSs by a holder who is a US resident, for US Treaty purposes, and who sells the Shares or ADSs within Israel may be treated as foreign source income for US foreign tax credit purposes.
US holders who hold Shares or ADSs through an Israeli stockbroker or other Israeli intermediary may be subject to an Israeli withholding tax on any capital gains recognized if the US holder does not obtain approval of an exemption from the Israeli Tax Authorities. See "Israeli Tax Considerations" above. US holders are advised that any Israeli tax paid under circumstances in which an exemption from such tax was available will not give rise to a deduction or credit for foreign taxes paid for US federal income tax purposes. US holders are advised to consult their Israeli stockbroker or intermediary regarding the procedures for obtaining an exemption.
If a US holder receives NIS upon the sale of Shares, that US holder may recognize ordinary income or loss as a result of currency fluctuations between the date of the sale of the Shares and the date the sales proceeds are converted into US dollars.
Passive Foreign Investment Company Rules
A non-US corporation will be classified as a Passive Foreign Investment Company (a "PFIC") for any taxable year if (i) at least 75% of its gross income consists of passive income, (such as dividends, interest, rents, royalties (other than rents or royalties derived in the active conduct of a trade or business and received from an unrelated person) and gains on the disposition of certain minority interests or (ii) at least 50% of the average value of its assets consist of assets that produce, or are held for the production of, passive income. We currently believe that we were not a PFIC for the year ended December 31, 2016. However, this conclusion is a factual determination that must be made at the close of each year and is based on, among other things, a valuation of our Shares, ADSs and assets, which will likely change from time to time. If we were characterized as a PFIC for any taxable year, a US holder would suffer adverse tax consequences. These consequences may include having the gains that are realized on the disposition of Shares or ADSs treated as ordinary income rather than capital gains and being subject to punitive interest charges with respect to certain dividends and gains and on the sale or other disposition of the Shares or ADSs. Furthermore, dividends paid by a PFIC are not eligible to be treated as "qualified dividend income" (as discussed above). In addition, if a US holder holds Shares or ADSs in any year in which we are treated as a PFIC, such US holder will be subject to additional tax form filing and reporting requirements.
Application of the PFIC rules is complex. US holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership of our Shares or ADSs.
Information Reporting and Backup Withholding
Dividend payments with respect to Shares or ADSs and proceeds from the sale, exchange or other disposition of Shares or ADSs may be subject to information reporting to the Internal Revenue Service (the "IRS") and possible US backup withholding at a current rate of 28%. Backup withholding will not apply, however, to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification or who is otherwise exempt from backup withholding. US persons who are required to establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-US holders generally will not be subject to US information reporting or backup withholding. However, such holders may be required to provide certification of non-US status (generally on IRS Form W-8BEN or IRS W-8BEN-E) in connection with payments received in the United States or through certain US-related financial intermediaries.
152 Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder's US federal income tax liability, and a holder may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRS and furnishing any required information in a timely fashion.
In addition, certain US holders who are individuals that hold certain foreign financial assets as defined in the Code (which may include Shares or ADSs) are required to report information relating to such assets, subject to certain exceptions.
10F. Dividends and Paying Agents
Not applicable.
10G. Statement By Experts
Not applicable.
10H. Documents on Display
Reports and other information of Partner filed electronically with the US Securities and Exchange Commission may be found at www.sec.gov. They can also be inspected without charge and copied at prescribed rates at the public reference facilities maintained by the SEC in Room 1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549.
10I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
11A. General
We are exposed to market risk, including movements in foreign currency exchange and inflation-indexed interest rates. Since May 2013, we have not entered into any derivative transactions to hedge underlying exposure to foreign currencies. As a matter of policy, we do not enter into transactions of a speculative or trading nature. Interest rate and foreign exchange exposures are monitored by tracking actual and projected commitments and through the use of sensitivity analysis.
We have liabilities in NIS linked to the CPI and in foreign currencies. The following table provides information derived from the financial statements about these liabilities as of December 31, 2015 and 2016.
153 Non-Derivative Instruments
As of December 31, (NIS equivalent in millions, except percentages) 2016 2015 Fair Value Book Value Fair Value Book Value
NIS-denominated debt linked to the CPI (1)
Long-term fixed Notes payable series B due 2016 123 121
Weighted average interest rate payable 3.4%
Long-term fixed Notes payable series C due 2018 440 423 724 695
Weighted average interest rate payable 3.35% 3.35%
Long-term borrowing bearing fixed interest 199 197 210 198
Weighted average interest rate payable 3.42% 3.42%
Other payables (2) 1 1
NIS-denominated debt not linked to the CPI
Long-term variable interest Notes payable series D due 2021 548 543 548 543
Weighted average interest rate payable 1.30% 1.34%
Long-term fixed Notes payable series E due 2017 127 121 399 371
Weighted average interest rate payable 5.5% 5.5%
Long-term borrowing bearing variable interest (2) 152 152 152 152
Weighted average interest rate payable 1.6% 1.63%
Long-term borrowing bearing fixed interest 162 150 170 150
Weighted average interest rate payable 5.7% 5.7%
Long-term borrowing bearing fixed interest 195 200 200 200
Weighted average interest rate payable 3% 3%
Long-term borrowing bearing fixed interest 182 182 198 196
Weighted average interest rate payable 3% 3%
Long-term borrowing bearing fixed interest 76 76 75 75
Weighted average interest rate payable 3.71% 3.71%
Long-term borrowing bearing fixed interest 204 200 203 200
Weighted average interest rate payable 4.25% 4.25%
Long-term borrowing bearing fixed interest 201 200 200 200
Weighted average interest rate payable 3.884% 3.884% Long-term borrowing bearing fixed interest 260 250 Weighted average interest rate payable 4.95%
Trade payables and others (2) 630 630 630 630
Debt denominated in foreign currencies (2)
Trade payables denominated in USD 132 132 117 117
Trade payables denominated in other foreign currencies (mainly Euro) 19 19 46 46
Total 3,527 3,475 3,995 3,894
(1) Amounts due for payment of principal and interest are adjusted according to the CPI. See "Item 5B Liquidity and Capital Resources".
(2) Book value approximates fair value.
11B. Foreign Exchange and Inflation
Substantially all of our revenues and a majority of our operating expenses are denominated in NIS. However, in 2016, approximately one quarter of our operating expenses were linked or denominated to non-NIS currencies, mainly the US dollar. These expenses related mainly to the acquisition of handsets and other equipment where the price paid by us is based on various foreign currencies, mainly the US dollar. Since May 2013, we do not enter into derivative transactions and thus we are exposed to the aforementioned foreign currency fluctuations. We do not hold or issue derivative financial instruments for trading purposes. In addition, a substantial amount of our capital expenditures are incurred in, or linked to, non-NIS currencies, mainly the US dollar. See Note 6 to the consolidated financial statements for description of the market risks.
154 Our Note payable series C and our borrowings in a total principal amount of NIS 621 million as of December 31, 2016, are currently in NIS and are linked to the CPI. We may not be able to raise our tariffs pursuant to our license in a manner that would fully compensate for any increase in the CPI. Therefore, an increase in the rate of inflation may also have a material adverse impact upon us by increasing our finance expenses without an offsetting increase in revenue. In 2016, the CPI effective as of December 31, 2016, decreased 0.3%, compared to the CPI effective as of December 31, 2015, causing income of NIS 2 million in our finance costs, net, compared to a decrease of 0.9% in 2015, which caused income of NIS 9 million in finance costs, net. See Note 24 to the consolidated financial statements.
Sensitivity analysis
A change of the CPI as at December 31, 2016, would increase (decrease) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant.
Change Equity Profit New Israeli Shekels in millions
December 31, 2016
Increase in the CPI of 2% (9) (9)
Decrease in the CPI of (2)% 9 9
A change of the USD exchange rate as at December 31, 2016, would increase (decrease) equity and profit in 2016 by the amounts shown below as regards assets and liabilities as of December 31, 2016, and expected capital expenditure purchases in 2017. The analysis below does not take into account the effect of any change in USD with respect to possible future commitments and other future expected purchases in US dollars, since the Company believes that it will be able to adjust NIS prices for goods and services it sells in the Israeli market to reflect any significant increases in cost resulting from changes in the NIS-USD exchange rate. This analysis assumes that all other variables remain constant.
Change Equity Profit New Israeli Shekels in millions
December 31, 2016
Increase in the USD of 10% (8) (8)
Decrease in the USD of (10)% 8 8
11C. Interest rates
Since one of our notes payable and one of our non-current borrowings bear variable interest rate, changes in interest rates cause cash flow risks. As of December 31, 2016, our Notes payable series D in a principal amount of NIS 543 million, and our borrowing in a principal amount of NIS 152 million bear variable rates of interest.
Sensitivity analysis
An increase (decrease) of 1% interest rates during 2016 in respect of our notes payable and non-current borrowing bearing variable interest would have resulted in an annual increase (decrease) in interest expenses (income) of NIS 7 million. This analysis assumes that all other variables remain constant.
155 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Fees and charges payable by ADR holders
Citibank serves as the depositary (the "Depositary") for our American Depositary Receipt ("ADR") program. Pursuant to the deposit agreement between the Company, the Depositary and owners and holders of ADRs (the "Deposit Agreement"), ADR holders may be required to pay various fees to the Depositary. In particular, the Depositary, under the terms of the Deposit Agreement, may charge the following fees: (i) Issuance Fee: to any person depositing shares or to whom ADSs are issued upon the deposit of shares, a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) (excluding issuances as a result of distributions described in paragraph (iv) below); (ii) Cancellation Fee: to any person surrendering ADSs for cancellation and withdrawal of deposited securities or to any person to whom deposited securities are delivered, a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) surrendered;(iii) Cash Distribution Fee: to any holder of ADS(s), a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) held for the distribution of cash dividends or other cash distributions (i.e., sale of rights and other entitlements); (iv) Stock Distribution/Rights Exercise Fee: to any holder of ADS(s), a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) held for (a)stock dividends or other free stock distributions or (b)exercise of rights to purchase additional ADSs; (v) Other Distribution Fee: to any holder of ADS(s), a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) held for the distribution of securities other than ADSs or rights to purchase additional ADSs (i.e., spin-off shares); and (vi) Depositary Services Fee: to any holder of ADS(s), a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) held on the applicable record date(s) established by the Depositary. The parties agreed to allow Citibank to charge an additional $1.00 per 100 ADSs (a fee not in excess of $6.00 in aggregate) in the event that the Company does not pay cash or stock dividends.
Owners, beneficial owners, persons depositing shares and persons surrendering ADSs for cancellation and for the purpose of withdrawing deposited securities shall be responsible for the following charges: (a) taxes (including applicable interest and penalties) and other governmental charges; (b) such registration fees as may from time to time be in effect for the registration of shares or other deposited securities on the share register and applicable to transfers of shares or other deposited securities to or from the name of the custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively; (c) such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the person depositing or withdrawing shares or owners and beneficial owners of ADSs; (d) the expenses and charges incurred by the Depositary in the conversion of foreign currency; (e) such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Shares, deposited securities, ADSs and receipts; and (f) the fees and expenses incurred by the Depositary, the Custodian, or any nominee in connection with the delivery or servicing of deposited securities.
Amounts received from the Depository
During 2016, the Company received from Citibank payments in the amount of approximately $541,292.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. Our management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2016. Disclosure controls and procedures means controls and other procedures designed to ensure that information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
156 There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Nevertheless, our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures in place as of December 31, 2016, were effective.
(b) Management's Report on Internal Control over Financial Reporting. Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:
• pertain to the maintenance of our records that in reasonable detail accurately and fairly reflect our transactions during the year;
• provide reasonable assurance that our transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles;
• provide reasonable assurance that our receipts and expenditures are made only in accordance with authorizations of our management and Board of Directors (as appropriate); and
• provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on our financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016, based on the framework for Internal Control-Integrated Framework (2013) set forth by The Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2016.
Our internal control over financial reporting as of December 31, 2016, has been audited by Kesselman & Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited, as stated in their report which is included under Item 18.
(c) Attestation report of the registered public accounting firm. The attestation report of Kesselman & Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited, regarding the Company's internal control over financial reporting is included under Item 18.
(d) Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
157 ITEM 16.
16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors has determined that Dr. Michael Anghel, Mr. Barry Ben-Zeev and Mr. Arik Steinberg are "audit committee financial experts" as defined in Item 16A of Form 20-F. All the members of the audit committee are "independent directors" as defined in the SEC requirements applicable to us.
16B. CODE OF ETHICS
In 2016, we reviewed and updated our Code of Ethics. As previously, the revised Code of Ethics applies to our directors, officers and employees. The principal modifications to our Code of Ethics adopted in 2016 include: an updated statement setting forth the values underlying the Code of Ethics following the rebranding of our products and services and an updated detailed guide to appropriate behavior toward interested parties, including customers, suppliers, employees, directors, shareholders, franchisers and the community in which the Company operates.
A copy of our Code of Ethics is posted on our website at www.partner.co.il under "Investor Relations-Corporate Governance-Code of Ethics".
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Kesselman & Kesselman, our independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited ("PwC"), have served as our independent public accountants for each of the fiscal years in the three-year period ended December 31, 2016, for which audited financial statements appear in this annual report on Form 20-F.
The following table presents the aggregate fees for professional services rendered by PwC to Partner in 2015 and 2016.
2015 2016 (NIS (NIS thousands) thousands)
Audit Fees (1) 2,265 2,251
Audit-related Fees (2) 441 349
Tax Fees (3) 436 551
TOTAL 3,142 3,151
(1) Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably
provide, and include the group audit; statutory audits; comfort letters and consents; and assistance with and review of documents filed with the SEC.
(2) Audit-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements
and include consultations concerning financial accounting and reporting standards, as well as the purchase of an accounting data base.
(3) Tax Fees include fees billed for tax compliance services, including the preparation of tax returns and claims for tax refund; tax consultations, such as assistance and
representation in connection with tax audits and appeals, and requests for rulings or technical advice from taxing authority.
Audit Committee Pre-approval Policies and Procedures
Our audit committee's specific responsibilities in carrying out its oversight of the quality and integrity of the accounting, auditing and reporting practices of the Company include the approval of audit and non-audit services to be provided by the external auditor. The audit committee approves in advance the particular services or categories of services to be provided to the Company during the following yearly period and also sets forth a specific budget for such audit and non-audit services. Additional non-audit services may be pre-approved by the audit committee.
158 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES
Not applicable.
16F. CHANGE IN REGISTRANT'S CERTIFYING ACOUNTANT
Not applicable.
16G. CORPORATE GOVERNANCE
See "Item 6C.5 NASDAQ Corporate Governance Rules and Our Practices", and also "Item 10B Memorandum and Articles of Association".
ITEM 17. FINANCIAL STATEMENTS
The company has responded to "Item 18. Financial Statements" in lieu of responding to this item.
ITEM 18. FINANCIAL STATEMENTS
The following financial statements are filed as part of this annual report.
ITEM 19. EXHIBITS
Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed certain agreements as exhibits to this annual report on Form 20-F. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof and should not be relied upon.
Exhibit No. Description
1.1 Articles of Association last updated and approved on September 28, 2016 (incorporated by reference to Annex D from the Company's Report on Form 6-K filed on August 17, 2016) **1.2 Partner's Certificate of Incorporation **1.3 Partner's Memorandum of Association **2.(a).1 Form of Share Certificate ^^2.(a).2 [Reserved] ^^^^2.(a)3 Amended and Restated Deposit Agreement Between Partner and Citibank N.A. ^2.(b).1 Form of Indenture between Partner and the Trust Company of Union Bank Ltd. >>>>2.(b).2 Trust Deed >>>>2.(b).3 Amendment no. 1 to the Trust Deed of November 26, 2009 ^4.(a).1 Restatement of the Relationship Agreement dated April 20, 2005 >>>>4.(a).1.1 Letter of Undertaking by which Scailex entered into the Restated Relationship Agreement with the Company, October 28, 2009
159 +>>4.(a).1.2 Letter of Undertaking by which S.B. Israel Telecom entered into the Restated Relationship Agreement with the Company, January 29, 2013 4.(a).2 Integrated version of the General License for the Provision of Mobile Radio Telephone Services using the Cellular Method (MRT) in Israel issued by the Ministry of Communications on April 8, 1998. 4.(a).2.1 General Unified License of Partner Land-Line Communication Solutions Limited Partnership dated February 11, 2016 as amended through January 11, 2017. **4.(a).4 License Agreement for use of the Orange Brand in Israel dated September 14, 1998 #+>4.(a).4.1 Restated Amendment, dated as of January 31, 2012,to the Brand License Agreement dated 14 September 1998 #4.(a).4.2 Settlement Agreement with Orange dated June 26, 2015 **4.(a).5 Brand Support/Technology Transfer Agreement dated July 18, 1999 **4.(a).6 Agreement with Ericsson Radio Systems AB dated May 28, 1998 #++4.(a).7 Agreement with LM Ericsson Israel Ltd. dated November 25, 2002 **4.(a).9 Lease Agreement with Mivnei Taasia dated July 2, 1998 ^^^4.(a).13 Asset Purchase Agreement with Med-1 dated as of January 22, 2006 4.(a).14-60 [reserved] #+++4.(a).65 Purchase Agreement with Nortel Networks Israel (Sales and Marketing) Ltd. dated November 12, 2003. #>>4.(a).67 Swap Agreement with LM Ericsson Israel Ltd. dated December 20, 2007 #4.(a).68 [reserved] #>>>>4.(a).69 Facility Agreement dated November 24, 2009 4.(a).70 [reserved] 4.(a).71 [reserved] >>>>>4.(a) 72 012 Smile Share Purchase Agreement >>>>>4.(a) 73 English translation of the original Hebrew language 012 Smile Credit Facility, dated January 31, 2010 4.(a).74-97 [reserved] #>>>>4.(b).1 Addendum to Lease Agreements from November 1, 2002 and Lease Agreements in Beit Ofek >>>>4.(b).2 Registration Rights Agreement with Scailex +>>>4.(b).3 Registration Rights Agreement with S.B. Israel Telecom Ltd.
160
+>>6. See Note 2x to the consolidated financial statements for information explaining how earnings (loss) per share information was calculated. 8. List of Subsidiaries (see "Item 4C – Organizational Structure"). 10.1 Consent of Kesselman & Kesselman 10.2 Consent of Giza Singer Even Ltd. 10.3 Consent of BDO Ziv Haft Consulting &Management Ltd. 12.(a).1 Certification by CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002. 12.(a).2 Certification by CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002. 13.(a).1 Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +>>>>>15.(a).1 Amended and Restated 2004 Equity Incentive Plan as approved by the Board of Directors on March 13, 2016 15.(b).1 Compensation Policy adopted on September 28, 2016 (incorporated by reference to Annex G from the Company's Report on Form 6-K filed on August 17, 2016)
** Incorporated by reference to our registration statement on Form F-1 (No. 333-10992). ++ Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2002. +++ Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2003. ^ Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2004. ^^ Incorporated by reference to our registration statement on Form F-6 (No. 333-132680). ^^^ Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2005. ^^^^ Incorporated by reference to our registration statement on Form F-6 (No. 333-177621). > Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2006. >> Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2007. >>>> Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2009. >>>>> Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2010. +> Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2011. +>> Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2012. +>>> Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2013. +>>>> Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2014. +>>>>> Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2015. # Confidential treatment requested.
Confidential material has been redacted and has been separately filed with the Securities and Exchange
161 SIGNATURES
The Company hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Partner Communications Company Ltd.
By: /s/ Isaac Benbenisti Isaac Benbenisti Chief Executive Officer
March 30, 2017
By: /s/ Ziv Leitman Ziv Leitman Chief Financial Officer
March 30, 2017
162
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
2016 ANNUAL REPORT
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
2016 ANNUAL REPORT
TABLE OF CONTENTS
Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-3 CONSOLIDATED FINANCIAL STATEMENTS: Statements of Financial Position F-4 - F-5 Statements of Income F-6 Statements of Comprehensive Income F-7 Statements of Changes in Equity F-8 Statements of Cash Flows F-9 - F-10 Notes to financial statements F-11 - F-82
The amounts are stated in New Israeli Shekels (NIS) in millions.
F - 2
REPORT OF INDEPENDENT REGISTERD PUBLIC ACCOUNTING FIRM To the shareholders of PARTNER COMMUNICATIONS COMPANY LTD.
In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows present fairly, in all material respects, the financial position of Partner Communications Company Ltd and its subsidiaries at December 31, 2016 and 2015 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management and Board of Directors are responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting Appearing under item 15(b). Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and Board of Directors and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Tel-Aviv, Israel /s/ Kesselman & Kesselman March 29, 2017 Certified Public Accountants (Isr.) A member firm of PriceWaterhouseCoopers International Limited
F - 3
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Convenience translation into U.S. dollars New Israeli Shekels (note 2b3) December 31, 2015 2016 2016 Note In millions CURRENT ASSETS Cash and cash equivalents 926 716 186 Short-term deposits 452 118 Trade receivables 7 1,057 990 257 Income tax receivable 2 Other receivables and prepaid expenses 47 57 15 Deferred expenses – right of use 12 33 28 7 Inventories 8 120 96 25 2,185 2,339 608
NON CURRENT ASSETS Trade receivables 7 492 333 87 Prepaid expenses and other 3 2 1 Deferred expenses – right of use 12 20 75 20 Property and equipment 10 1,414 1,207 314 Licenses and other intangible assets 11 956 793 206 Goodwill 13 407 407 106 Deferred income tax asset 25 49 41 10 3,341 2,858 744
TOTAL ASSETS 5,526 5,197 1,352
The financial statements were authorized for issue by the board of directors on March 29, 2017.
Isaac Benbenishti Ziv Leitman Barry Ben-Zeev (Woolfson) Chief Executive Officer Chief Financial Officer Director
F - 4
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Convenience translation into U.S. dollars New Israeli Shekels (note 2b3) December 31, 2015 2016 2016 Note In millions CURRENT LIABILITIES Current maturities of notes payable and borrowings 6,15 554 498 130 Trade payables 715 681 177 Payables in respect of employees 77 101 26 Other payables (mainly institutions) 45 28 7 Income tax payable 52 45 12 Deferred income with respect to settlement agreement with Orange 18 217 108 28 Deferred revenues from HOT mobile 9 31 8 Other deferred revenues 28 38 10 Provisions 14 77 77 20 1,765 1,607 418
NON CURRENT LIABILITIES Notes payable 6,15 1,190 646 168 Borrowings from banks and others 6,15 1,357 1,550 403 Liability for employee rights upon retirement, net 16 34 39 10 Dismantling and restoring sites obligation 14 36 35 9 Deferred income with respect to settlement agreement with Orange 18 108 Deferred revenues from HOT mobile 9 195 51 Other non-current liabilities 16 14 4 2,741 2,479 645
TOTAL LIABILITIES 4,506 4,086 1,063
EQUITY 21 Share capital – ordinary shares of NIS 0.01 par value: authorized – December 31, 2015 and 2016 – 235,000,000 shares; issued and outstanding - 2 2 1 December 31, 2015 – *156,087,456 shares December 31, 2016 – *156,993,337 shares Capital surplus 1,102 1,034 269 Accumulated retained earnings 267 358 93 Treasury shares, at cost – December 31, 2015 – **4,461,975 shares December 31, 2016 – **3,603,578 shares (351) (283) (74) TOTAL EQUITY 1,020 1,111 289 TOTAL LIABILITIES AND EQUITY 5,526 5,197 1,352
* Net of treasury shares. ** Including shares held by trustee under the Company's Equity Incentive Plan, see note 21(a), such shares will become outstanding upon completion of vesting conditions, see note 21(b)
The accompanying notes are an integral part of the financial statements.
F - 5 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF INCOME
Convenience translation into U.S. dollars New Israeli Shekels (note 2b3) Year ended December 31 2014 2015 2016 2016 Note In millions (except earnings per share) Revenues, net 5 4,400 4,111 3,544 922 Cost of revenues 5, 22 3,419 3,472 2,924 760 Gross profit 981 639 620 162
Selling and marketing expenses 22 438 417 426 111 General and administrative expenses 22 193 223 263 68 Income with respect to settlement agreement with Orange 18 61 217 56 Other income, net 23 50 47 45 12 Operating profit 400 107 193 51 Finance income 24 3 13 13 3 Finance expenses 24 162 156 118 31 Finance costs, net 24 159 143 105 28 Profit (loss) before income tax 241 (36) 88 23 Income tax expenses 25 79 4 36 9 Profit (loss) for the year 162 (40) 52 14
Earnings (loss) per share Basic 27 1.04 (0.26) 0.33 0.09 Diluted 27 1.04 (0.26) 0.33 0.09
The accompanying notes are an integral part of the financial statements.
F - 6
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Convenience translation into U.S. dollars New Israeli Shekels (note 2b3) Year ended December 31 2014 2015 2016 2016 Note In millions Profit (loss) for the year 162 (40) 52 14 Other comprehensive income (loss), items that will not be reclassified to profit or loss Remeasurements of post-employment benefit obligations 16 (9) 5 (8) (2) Income taxes relating to remeasurements of post-employment benefit obligations 25 2 (1) 2 * Other comprehensive income (loss) for the year, net of income taxes (7) 4 (6) (2)
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR 155 (36) 46 12
* Representing an amount of less than 1 million.
The accompanying notes are an integral part of the financial statements.
F - 7 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share capital Number of Capital Accumulated Treasury Shares** Amount surplus earnings shares Total I n m i l l i o n s New Israeli Shekels: BALANCE AT JANUARY 1, 2014 155,687,002 2 1,100 123 (351) 874
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2014 Total comprehensive income for the year 155 155 Exercise of options granted to employees 385,943 * 2 2 Employee share-based compensation expenses 8 8
BALANCE AT DECEMBER 31, 2014 156,072,945 2 1,102 286 (351) 1,039
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2015 Total comprehensive loss for the year (36) (36) Exercise of options and vesting of restricted shares granted to employees 14,511 * * * * Employee share-based compensation expenses 17 17
BALANCE AT DECEMBER 31, 2015 156,087,456 2 1,102 267 (351) 1,020
CHANGES DURING THE YEAR ENDED DECEMBER 31, 2016 Total comprehensive income for the year 46 46 Exercise of options and vesting of restricted shares granted to employees 905,881 * (68) 68 * Employee share-based compensation expenses 45 45 BALANCE AT DECEMBER 31, 2016 156,993,337 2 1,034 358 (283) 1,111
Convenience translation into U.S. Dollars (note 2b3): BALANCE AT JANUARY 1, 2016 156,087,456 1 287 69 (92) 265 CHANGES DURING THE YEAR ENDED DECEMBER 31, 2016 Total comprehensive income for the year 12 12 Exercise of options and vesting of restricted shares granted to employees 905,881 * (18) 18 * Employee share-based compensation expenses 12 12 BALANCE AT DECEMBER 31, 2016 156,993,337 1 269 93 (74) 289
* Representing an amount of less than 1 million. ** Net of treasury shares.
The accompanying notes are an integral part of the financial statements.
F - 8 (Continued)– 1
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Convenience translation into U.S. dollars New Israeli Shekels (note 2b3) Year ended December 31 2014 2015 2016 2016 Note In millions CASH FLOWS FROM OPERATING ACTIVITIES: Cash generated from operations (Appendix) 1,017 955 975 253 Income tax paid 25 (66) (33) (30) (8) Net cash provided by operating activities 951 922 945 245
CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment 10 (287) (216) (127) (33) Acquisition of intangible assets 11 (145) (143) (69) (18) Short-term investment in deposits (452) (118) Interest received 24 4 3 2 1 Proceeds from sale of property and equipment 23 1 1 7 2 Investment in PHI 9 (1) Proceeds from (repayment of) derivative financial instruments, net 6 (4) * * * Net cash used in investing activities (431) (356) (639) (166)
CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options granted to employees 21 2 * * * Interest paid 24 (131) (137) (108) (28) Non-current borrowings received 6,15 200 675 250 65 Repayment of non-current borrowings 6,15 (100) (533) (15) (4) Repayment of notes payable 6,15 (309) (308) (643) (167) Net cash used in financing activities (338) (303) (516) (134)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 182 263 (210) (55)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 481 663 926 241
CASH AND CASH EQUIVALENTS AT END OF YEAR 663 926 716 186
* Representing an amount of less than 1 million.
The accompanying notes are an integral part of the financial statements.
F - 9 (Concluded) - 2
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
Appendix – Cash generated from operations and supplementary information
Convenience translation into U.S. dollars New Israeli Shekels (note 2b3) Year ended December 31, 2014 2015 2016 2016 Note In millions
Cash generated from operations: Profit (loss) for the year 162 (40) 52 14
Adjustments for: Depreciation and amortization (including impairment) 10, 11, 13 652 641 565 147 Amortization (including impairment) of deferred expenses - Right of use 12, 13 37 112 30 8 Amortization of employee share based compensation 21 8 17 45 12 Liability for employee rights upon retirement, net 16 (3) (12) (3) (1) Finance costs, net 24 4 (8) 1 * Change in fair value of derivative financial instruments 6 7 (2) * * Interest paid 24 131 137 108 28 Interest received 24 (4) (3) (2) (1) Deferred income taxes 25 4 (40) 10 3 Income tax paid 25 66 33 30 8 Capital (gain) loss from property and equipment (1) * * * Changes in operating assets and liabilities: Decrease (increase) in accounts receivable: Trade 7 (26) (183) 226 58 Other 8 (13) (9) (2) Increase (decrease) in accounts payable and accruals: Trade 44 (5) (38) (10) Other payables (4) (12) * * Provisions 14 (9) 19 * * Deferred income with respect to settlement agreement with Orange 18 325 (217) (56) Deferred revenues from HOT mobile 9 227 59 Other deferred revenues (2) (6) 10 3 Increase in deferred expenses - Right of use 12 (22) (34) (80) (22) Current income tax 25 10 11 (4) (1) Decrease (increase) in inventories 8 (45) 18 24 6 Cash generated from operations: 1,017 955 975 253
* Representing an amount of less than 1 million.
Supplementary information At December 31, 2014, 2015 and 2016, trade and other payables include NIS 214 million, NIS 126 million and NIS 134 million ($35 million), respectively, in respect of acquisition of intangible assets and property and equipment; payments in respect thereof are presented in cash flows from investing activities.
These balances are recognized in the cash flow statements upon payment.
The accompanying notes are an integral part of the financial statements.
F - 10 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
a. Reporting entity
Partner Communications Company Ltd. ("the Company", "Partner") is a leading Israeli provider of telecommunications services (cellular and fixed-line telecommunications services) under the orange™ brand until February 15, 2016, and under the Partner brand thereafter, and under the 012 Smile brand. The Company is incorporated and domiciled in Israel and its principal executive office’s address is 8 Amal Street, Afeq Industrial Park, Rosh-Ha'ayin 48103, Israel.
The Company's share capital consists of ordinary shares, which are traded on the Tel Aviv Stock Exchange Ltd. ("TASE") under the symbol "PTNR". American Depositary Shares ("ADSs"), each representing one of the Company’s ordinary shares, are quoted on the NASDAQ Global Select Market™, under the symbol "PTNR". See also note 21(a).
On January 29, 2013, S.B. Israel Telecom Ltd., an affiliate of Saban Capital Group Inc., became the Company's principal shareholder.
These consolidated financial statements of the Company as of December 31, 2016, are comprised of the Company and its subsidiaries and consolidated partnerships (the "Group"). See the list of subsidiaries and consolidated partnerships and principles of consolidation in note 2(c)(1), see also 2(c)(2) with respect to investment in PHI.
b. Operating segments
The operating segments were determined based on the reports reviewed by the Chief Executive Officer (CEO) who is responsible for allocating resources and assessing performance of the operating segments, and therefore is the Chief Operating Decision Maker ("CODM"), and supported by budget and business plans structure, different regulations and licenses (see (d) below), as well as managerial responsibilities. The CEO considers the business from two operating segments, as follows (see also note 5):
(1) Cellular segment:
The cellular segment includes cellular communication services such as airtime calls, international roaming services, text messaging, internet browsing, content services, roaming services, and services provided to other operators that use the Company's cellular network. Most of post-paid cellular tariff plans are bundles which include unlimited amounts of calls minutes and text messaging, as well as limited browsing packages. Value-added and content services offered include multimedia messaging and streaming broadcast content, data applications including ringtones, music, games, other informational content, and advanced business services.
International roaming services abroad for the Company’s customers include airtime calls, text messaging and browsing services on networks with which the Company has a commercial roaming relationship. Partner also provides inbound roaming services to the customers of foreign operators with which the Company has a commercial roaming relationship.
Optional services such as equipment extended warranty plans are also provided for monthly fees and are either sold separately or included in tariff plans and bundles.
F - 11 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL (continued)
b. Operating segments (continued)
(2) Fixed-line segment
The fixed-line segment includes: (1) Internet services under which the Group provides access to the internet (both network infrastructure services using Bezeq’s network as described in (c)(1) below, and access services ("ISP")) as well as home WiFi networks, including Value Added Services ("VAS") such as anti-virus and anti-spam filtering; and fixed-line voice communication services provided through Voice Over Broadband ("VOB"), SIP voice trunks and Network Termination Point Services ("NTP") – under which the Group supply, install operate and maintain all types of endpoint network equipment and solutions, including providing and installing equipment and cabling, within a subscriber's place of business or premises; (2) Transmission services, Primary Rate Interface ("PRI"); (3) International Long Distance call services ("ILD"): outgoing and incoming international telephony, hubbing, roaming and signaling and calling card services.
The cellular segment and the fixed-line segment also include sales and leasing of telecommunications, audio visual and related devices: mainly cellular handsets, tablets (handheld computers), laptops, landline phones, modems, datacards, domestic routers, servers, smartboxes and related equipment, and a variety of digital audio visual equipment including televisions, digital cameras, games consoles, audio accessories and related equipment.
Each segment is divided into services and equipment sales revenues, and the related cost of revenues. The operating segments include the following measures: revenues, cost of revenues, operating profit (loss), and segment Adjusted EBITDA (see note 5(2)). The CODM does not examine assets or liabilities for the segments separately for the purposes of allocating resources and assessing performance of the operating segments and they are not therefore presented in note 5 segment information.
c. Main recent regulatory developments
(1) In February 2015 a regulation came into effect according to which each of the infrastructure owners - Bezeq and Hot are required to allow use of their broadband fixed-line infrastructure by telecommunication providers that do not have a broadband fixed-line infrastructure. This regulation allows telecommunication providers that do not have a broadband fixed-line infrastructure, including the Company and its subsidiaries, to offer internet access in one transaction (without requiring the subscriber to engage with both an internet access provider and an infrastructure provider). As a result, the Group commenced selling offers including both network infrastructure services using Bezeq’s network and internet access service. As part of the Economic Program Law for the years 2017-2018, that was published at the end of December 2016 it was determined, among others: Bezeq and HOT Telecom will be required to allow other domestic operators including Partner, access to passive infrastructures; exemption from building permits – domestic operators are now allowed to deploy fixed-line infrastructure without requiring building permits (under certain conditions).
In January 2017, the Ministry of Communications published its decision with respect to various consumer issues, in which it decided to carry out, among others, amendments regarding the following issues: addition of details on the main page of the terms sent to subscribers; provision of alerts to subscribers regarding the volume of services consumed; limitation on the provision of internet services to subscribers; limitations on certain tariffs charged from subscribers; provision of alerts to subscribers regarding an upcoming change in tariffs; imposing increased obligations for the documentation and safekeeping of information and recording of telephone calls; provisions regarding temporary suspension of services; provisions regarding the format of the invoice sent to subscribers; provisions regarding engagement in a "remote sales" transaction; regulation regarding credit of overcharges; and determination of provisions regarding international roaming services.
(2) See information in respect of frequency fees in note 17(1).
(3) See information in respect of corporate tax rates in note 25.
F - 12 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL (continued)
d. Group licenses
The Group operates under the following licenses that were received from the Israeli Ministry of Communications ("MOC") and from the Israeli Civil Administration ("CA"):
Type of services Area of service License owner Granted by Valid through Guarantees made (1) Cellular Israel Partner Communications Company Ltd. MOC Feb, 2022 NIS 80 million (2) Cellular West Bank Partner Communications Company Ltd. CA Feb, 2022 NIS 4 million (3) ISP Israel Partner Communications Company Ltd. MOC Mar, 2018 (4) ISP West Bank Partner Communications Company Ltd. CA Mar, 2018 (5) ISP Israel 012 Smile Telecom Ltd. MOC Jun, 2020 (6) ISP West Bank 012 Smile Telecom Ltd. CA Jun, 2020 (7) ILD (*) Israel 012 Smile Telecom Ltd. MOC Dec, 2029 NIS 5 million (8) ILD (**) West Bank 012 Smile Telecom Ltd. CA Dec, 2029 NIS 0.25 million (9) Fixed(*) Israel 012 Telecom Ltd. MOC Dec, 2025 NIS 5 million (10) Fixed(**) West Bank 012 Telecom Ltd. CA Dec, 2025 NIS 0.25 million (11) Fixed(*) Israel Partner Land-line Communication Solutions - Limited MOC Jan, 2027 NIS 5 million Partnership (12) Fixed(**) West Bank Partner Land-line Communication Solutions - Limited CA Jan, 2027 NIS 0.25 million Partnership (13) NTP(***) Israel Partner Land-line Communication Solutions - Limited MOC Feb, 2017 Partnership (14) NTP Israel 012 Smile Telecom Ltd. MOC Dec, 2020
With respect to license (1), the Company is entitled to request an extension of the license for an additional period of six years and then renewal for one or more additional 6 year periods, at the discretion of the MOC. Should the license not be renewed, the new license-holder is obliged to purchase the communications network and all the rights and obligations of the subscribers for a fair price, as agreed between the parties or as determined by an arbitrator.
Other licenses may be extended for various periods, at the discretion of the MOC or CA, respectively.
The Group believes that it will be able to receive extensions to the licenses upon request.
See also note 17(6) as to additional guarantees made to third parties.
(*) In February 2016, these licenses were replaced by the MoC with a general-unified license. The term of the new license is similar to the term of the previous license.
(**) In July 2016, these licenses were replaced with a general-unified license. The general conditions of the general-unified license granted by the MoC, generally apply to these licenses, subject to certain modifications.
(***) The Company is permitted to provide NTP services under the general-unified license granted to Partner Land-Line Communication Solutions Limited Partnership in February 2016. Therefor the Company did not renew the license.
F - 13 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a. Basis of preparation of the financial statements
(1) Basis of preparation
The consolidated financial statements of the Company ("the financial statements") have been prepared in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB).
The principal accounting policies set out below have been consistently applied to all periods presented unless otherwise stated.
(2) Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates, and requires management to exercise its judgment in the process of applying the Group's accounting policies. Areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.
F - 14 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
b. Foreign currency translations
(1) Functional and presentation currency
The consolidated financial statements are measured and presented in New Israeli Shekels ("NIS"), which is the Group's functional and presentation currency as it is the currency of the primary economic environment in which the Group operates. The amounts presented in NIS millions are rounded to the nearest NIS million.
(2) Transactions and balances
Foreign currency transactions are translated into NIS using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement in finance costs, net.
(3) Convenience translation into U.S. Dollars (USD or $ or dollar)
The NIS figures at December 31, 2016 and for the period then ended have been translated into dollars using the representative exchange rate of the dollar at December 31, 2016 (USD 1 = NIS 3.845). 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.
c. Interests in other entities
(1) Subsidiaries
The consolidated financial statements include the accounts of the Company and entities controlled by the Company. Control exists when the Company has the power over the investee; has exposure, or rights, to variable returns from involvement in the investee; and has the ability to use its power over the investee to affect its returns. Subsidiaries and partnerships are fully consolidated from the date on which control is transferred to the Company.
Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated in preparing the consolidated financial statements.
List of wholly owned Subsidiaries and partnerships: 012 Smile Telecom Ltd. 012 Telecom Ltd. Partner Land-Line Communication Solutions - Limited Partnership Partner Future Communications 2000 Ltd. ("PFC") Partner Communication Products 2016 - Limited Partnership Partner Business Communications Solution - Limited Partnership – not active
F - 15 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
c. Interests in other entities (continued)
(2) Investment in PHI
In November 2013, the Company and Hot Mobile Ltd entered into a network sharing agreement ("NSA") and a right of use agreement. Pursuant to the NSA, the parties created a 50-50 limited partnership - P.H.I. Networks (2015) Limited Partnership ("PHI"), which operates and develops a radio access network shared by both parties, starting with a pooling of both parties' radio access network infrastructures creating a single shared pooled radio access network. PHI began its operations in July 2015, managing the networks. See also note 9.
As described in note 4(b)(3) the Company does not control PHI nor does it have joint control over it, and the Company accounts for its investment in PHI according to the equity method as PHI is considered an associate. An associate is an entity over which the group has significant influence but not control. Investment in associate is accounted for using the equity method of accounting. Under the equity method, the investment is initially recognized at cost, and adjusted thereafter to recognize the investor’s share of the post-establishment profits or losses of the investee in profit or loss, and the group’s share of movements in other comprehensive income of the investee in other comprehensive income.
Unrealized gains on transactions between the Group and the associate are eliminated to the extent of the Group’s interest in these entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
See also note 26(d) for information about transactions and balances with respect to the investment in PHI.
F - 16 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
d. Inventories
Inventories of equipment: cellular handsets and fixed telephones, tablets, laptops, datacards, servers, spare parts, ISP modems, related equipment, accessories and other inventories are stated at the lower of cost or net realizable value. Cost is determined on the "first-in, first-out" basis. The Group determines its allowance for inventory obsolescence and slow moving inventory based upon past experience, expected inventory turnover, inventory ageing and current and future expectations with respect to product offerings.
e. Property and equipment
Property and equipment are initially stated at cost.
Costs are included in the assets' carrying amounts or recognized as separate assets, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance that do not meet the above criteria are charged to the statement of income during the financial period in which they are incurred.
Costs include expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located.
Changes in the obligation to dismantle and remove assets on sites and to restore the sites, on which they are located, other than changes deriving from the passing of time, are added or deducted from the cost of the assets in the period in which they occur. The amount deducted from the cost of the asset shall not exceed the balance of the carrying amount on the date of change, and any balance is recognized immediately in profit or loss, See (m)(2) below.
Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
Property and equipment is presented less accumulated depreciation, and accumulated impairment losses. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see (i) below).
F - 17
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
e. Property and equipment (continued)
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, as follows:
years Communications network: Physical layer and infrastructure 10 - 25 (mainly 15, 10) Other Communication network 3 - 15 (mainly 5, 10, 15) Computers, software and hardware for information systems 3-10 (mainly 3-5) Office furniture and equipment 7-15 Optic fibers and related assets 7-25 (mainly 20) Property 25
Leasehold improvements are depreciated by the straight-line method over the term of the lease (including reasonably assured option periods), or the estimated useful life (5‑10 years) of the improvements, whichever is shorter.
See note 13(2) with respect of impairment charges in 2015.
f. Licenses and other intangible assets
(1) Licenses costs and amortization (see also note 1 (d)):
(a) The licenses to operate cellular communication services were recognized at cost. Borrowing costs which served to finance the license fee - incurred until the commencement of utilization of the license - were capitalized to cost of the license.
(b) Partner Land-line Communication solutions – limited partnership's license for providing fixed-line communication services is stated at cost.
(c) 012 Smile and its subsidiaries' licenses were recognized at fair value in a business combination as of the acquisition date of 012 Smile March 3, 2011.
The other licenses of the Group were received with no significant costs.
The licenses are amortized by the straight-line method over their useful lives (see note 1(d)) excluding any ungranted possible future extensions that are not under the Group's control. The amortization expenses are included in the cost of revenues.
F - 18 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
f. Licenses and other intangible assets (continued)
(2) Computer software:
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and to bring to use the specified software.
Development costs, including employee costs, that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the capitalization criteria under IAS 38 are met. Other development expenditures that do not meet the capitalization criteria, such as software maintenance, are recognized as an expenses as incurred.
Computer software costs are amortized over their estimated useful lives (3 to 10 years) using the straight-line method, see also note 11.
(3) Customer relationships:
The Company has recognized as intangible assets customer relationships that were acquired in a business combination and recognized at fair value as of the acquisition date. Customer relationships are amortized to selling and marketing expenses over their estimated useful economic lives (5 to 10 years) based on the straight line method. See note 13(2) with respect of impairment charges in 2015.
(4) 012 Smile trade name:
Trade name was acquired in a business combination. In 2015, the Group decided in 2015 to cease the usage of the "012 Smile" trade name in 2017.As a result the Group revised its expected useful life to end in 2017 as a change in accounting estimate. As a result the amortization expenses of the 012 Smile trade name increased in 2015 by NIS 1 million, in 2016 by NIS 16 million, and expected to increase in 2017 by NIS 6 million, see note 4(a)(3). See note 13(2) with respect of impairment charges to the 012 Smile trade name in 2015 in an amount of NIS 2 million.
F - 19 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
f. Licenses and other intangible assets (continued)
(5) Subscriber Acquisition and Retention Costs (SARC):
Costs to acquire or retain postpaid mobile telecommunication subscribers, less the subscriber's payments towards the handset, pursuant to a contract with a commitment period and early termination penalties, are capitalized to intangible assets, if (1) such assets are identifiable and controlled; (2) it is probable that future economic benefits will flow from the subscribers to the Group; and (3) such costs can be measured reliably. If costs do not meet the aforementioned criteria they are recognized immediately as expenses.
In the event that a customer churns off the network or the arrangement is cancelled within the period, any unamortized subscriber acquisition or retention costs are written off in the period in which the subscriber churns. The amortization expenses are included in the cost of revenues.
g. Right Of Use (ROU)
Right of use (ROU) of international fiber optic cables was acquired in a business combination, subsequent additions and right of use in PHI's assets are recognized at cost. The ROU with respect of fiber optic cables is presented as deferred expenses (current and non-current) and is amortized on a straight line basis over a period beginning each acquisition of additional ROU in this framework and until 2030 (including expected contractual extension periods). See also notes 12 and 17(4). Other costs of right to use PHI's assets are presented as deferred expenses and amortized on a straight line basis over the assets useful lives. See note 13(2) with respect of impairment charges to ROU in 2015 in an amount of NIS 76 million.
h. Goodwill
Goodwill acquired in a business combination represents the excess of the consideration transferred over the net fair value of the identifiable assets acquired, and identifiable liabilities and contingent liabilities assumed. The goodwill has an indefinite useful economic life and is not subject to amortization; rather is measured at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to a group of CGUs under the fixed line segment that is expected to benefit from the synergies of the combination. The group of CGUs represents the lowest level within the entity which the goodwill is monitored for internal management purposes.
F - 20 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
h. Goodwill (continued)
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. Any impairment loss would be recognized for the amount by which the carrying amount of goodwill exceeded its recoverable amount. The recoverable amount is the higher of value- in-use and the fair value less costs to sell. Value-in-use is determined by discounting expected future cash flows using a pre-tax discount rate. Any impairment is recognized immediately as an expense and is not subsequently reversed. See also note 13(1) in respect of impairment tests.
i. Impairment of non-financial assets with finite useful economic lives
Assets that are subject to depreciation and amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If such indications exist an impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs. The recoverable amount is the higher of an asset's fair value less costs to sell and value-in-use. Value-in-use is determined by discounting expected future cash flows using a pre-tax discount rate.
An impairment loss recognized in prior periods for an asset (or CGU) other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset's (or CGU's) recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset (or CGU) shall be increased to its recoverable amount. The increased carrying amount of an asset (or CGU) other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset (or CGU) in prior years. A reversal of an impairment loss is recognized immediately in the statement of income.
The Group recorded in 2015 impairment charges of intangible assets, deferred expenses – right of use, and fixed assets, see note 13(2) and note 4(a)(3)
j. Financial instruments
The Group classifies its financial instruments in the following categories: (1) at fair value through profit or loss, (2) loans and receivables, and (3) liabilities at amortized cost. See note 6(c) as to classification of financial instruments to the categories.
Financial assets are classified as current if they are expected to mature within 12 months after the end of the reporting period; otherwise they are classified as non-current. Financial liabilities are included in current liabilities, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current liabilities.
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when the Group has currently a legal enforceable right to offset the recognized amounts and has an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The legal enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.
F - 21 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
j. Financial instruments (continued)
(1) Financial instruments at fair value through profit or loss category:
Gains or losses arising from changes in the fair value of derivative financial instruments are presented in the income statement within "finance costs, net" in the period in which they arise. These financial instruments are classified into 2 levels based on their valuation method (see also note 6(c)):
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included within level 1 that are observable for the assets or liabilities, either directly (as prices) or indirectly (derived from prices).
(2) Loans and receivables category:
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are recognized initially at fair value and subsequently measured at amortized costs using the effective interest method, less any impairment loss.
Cash and cash equivalents are highly liquid investments, which include short-term bank deposits (up to 3 months from date of deposit) that are not restricted as to withdrawal or use.
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated cash flows discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated income statement. Trade receivables are presented net of allowance for doubtful accounts. Individual receivables which are known to be uncollectable are written off by reducing the carrying amount directly. The other receivables are assessed collectively. For these receivables the allowance is determined based on percentage of doubtful debts in collection, considering the likelihood of recoverability based on the age of the balances, the historical write-off experience net of recoveries, changes in the credit worthiness, and collection trends.
Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership of the assets. The Company factors trade receivables resulting from sales of equipment by credit cards. The factoring is on a non-recourse basis. The factoring of accounts receivable is recorded by the Company as a sales transaction. The results of the factoring transaction are charged to financial income and expenses on the settlement date.
(3) Financial liabilities and borrowings at amortized cost category:
Financial liabilities at amortized cost are non-derivative financial instruments with fixed or determinable payment, including trade payables. Financial liabilities at amortized cost are recognized initially at fair value, net of transaction costs, and subsequently measured at amortized costs using the effective interest method.
F - 22 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
k. Employee benefits
(i) Post-employment benefits
1. Defined contribution plan
According to Section 14 of the Israeli Severance Pay Law the Group's liability for some of the employee rights upon retirement is covered by regular contributions to various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered funds. These plans are defined contribution plans, since the Group pays fixed contributions into a separate and independent entity. The Group has no legal or constructive obligations to pay further contribution if the fund does not hold sufficient assets to pay all employees the benefit relating to employee service in the current or prior periods. The amounts funded as above are not reflected in the statement of financial position. Obligations for contributions to defined contribution pension plans are recognized as an expense in the statement of income when they are due.
2. Defined benefit plan
Labor laws, agreements and the practice of the Group, require paying retirement benefits to employees dismissed or retiring in certain other circumstances (except for those described in 1 above), measured by multiplying the years of employment by the last monthly salary of the employee (i.e. one monthly salary for each year of tenure), the obligation of the Group to pay retirement benefits is treated as a defined benefit plan.
The liability recognized in the statement of financial position in respect of the defined benefit plan is the present value of the defined benefit obligation at end of the reporting period less the fair values of plan assets.
The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. According to IAS 19 employee benefits, the present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of deep market for high-quality corporate bonds.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Interest costs in respect of the defined benefit plan are charged or credited to finance costs.
F - 23 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
k. Employee benefits (continued)
(ii) Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably legally or constructively committed either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
(iii) Short term employee benefits
1. Vacation and recreation benefits
The employees are legally entitled to vacation and recreation benefits, both computed on an annual basis. This entitlement is based on the term of employment. This obligation is treated as a short term benefit under IAS 19. The Group charges a liability and expense due to vacation and recreation pay, based on the benefits that have been accumulated for each employee, on an undiscounted basis.
2. Profit-sharing and bonus plans
The Group recognizes a liability and an expense for bonuses based on consideration of individual performance and the Group's overall performance. The Group recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation.
3. Other short term benefits
The Group recognized expenses for other short term benefits provided by the collective employment agreement (see note 28).
l. Share based payments
The Group operates an equity-settled share-based compensation plan, under which the Group receives services from employees as consideration for equity instruments of the Group. The fair value of the employee services received in exchange for the grant of the equity instruments is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the equity instruments granted, at the grant date. Non-market vesting conditions are included among the assumptions used to estimate the number of options expected to vest. The total expense is recognized during the vesting period, which is the period over which all of the specified vesting conditions of the share-based payment are to be satisfied. At the end of each reporting period, the Group revises its estimates of the number of equity instruments that are expected to vest based on the vesting conditions, and recognizes the impact of the revision of original estimates, if any, in the statement of income, with corresponding adjustment to accumulated earnings.
The proceeds received net of any directly attributable transactions costs are credited to share capital and capital surplus when the equity instruments are exercised.
F - 24 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
m. Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will require settling the obligation, and the amount has been reliably estimated. See also note 14.
(1) In the ordinary course of business, the Group is involved in a number of lawsuits and litigations. The costs that may result from these lawsuits are only accrued for when it is probable 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 that may require a reassessment of this risk, and where applicable discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The Group's assessment of risk is based both on the advice of legal counsel and on the Group's estimate of the probable settlements amount that are expected to be incurred, if any. See also note 20.
(2) The Company is required to incur certain costs in respect of a liability to dismantle and remove assets and to restore sites on which the assets were located. The dismantling costs are calculated according to best estimate of future expected payments discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognized as finance costs (unwinding of discount).
(3) Provisions for equipment warranties include obligations to customers in respect of equipment sold. Where there are a number of similar obligations, the likelihood that an outflow will be required in a settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any item included in the same class of obligations may be small.
F - 25 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
n. Revenues
The Group's revenues are measured at fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of business. Revenue is presented net of Value-Added-Tax, returns, rebates and discounts, and intercompany revenues. The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group's activities as described herein.
(1) Revenues from services:
Revenues from services, and from providing rights to use the Group's assets (see note 1(b)) are recognized when the services are rendered, and all other revenue recognition criteria are met.
Revenues from pre-paid calling cards sold to customers are recognized upon the earlier of customer's usage of the cards, or expiration.
The Group records payments received in advance for services and services to be provided under contractual agreements, such as transmission services, as deferred income until such related services are provided.
The Group determines whether it is acting as a principal or as an agent. The Group is acting as a principal if it has exposure to the significant risks and rewards associated with the rendering of services. Features that indicate that the Group is acting as a principal include: (a) the Group has the primary responsibility for providing the services to the customer or for fulfilling the order; (b) the Group has latitude in establishing prices, either directly or indirectly; and (c) the Group bears the customer's credit risk for the amount receivable from the customer. On the other hand, the Group is acting as an agent or an intermediary, if it does not have exposure to the significant risks and rewards associated with the rendering of services. One feature indicating that the Group is acting as an agent is that the amount the Group earns is predetermined, being either a fixed fee per transaction or a stated percentage of the amount billed to the customer. Based on the above considerations the Group determined that it is acting as an agent in respect of certain content services provided by third parties to customers, and therefore the revenues recognized from these services are presented on a net basis in the statement of income.
See also note 9 with respect to revenue recognition from proceeds from the network sharing agreement with Hot Mobile.
F - 26 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
n. Revenues (continued)
(2) Revenues from sales of equipment:
Revenue from sale of equipment includes revenue from sale of handsets, routers, phones, tablets, laptops, modems, data cards, servers, smartboxes, audio-visual devices, related accessories, integration projects, other devices and equipment. Revenue is recognized when the significant risks and reward of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement in regards to the goods, and the amount of revenue can be measured reliably.
Some sales of equipment with accompanying services constitute a revenue arrangement with multiple deliverables. Accordingly, consideration received is allocated to each deliverable based on the relative fair value of the individual element. The revenue from sales of equipment is recognized as equipment revenues upon the delivery of the equipment to the subscriber when all revenue recognition criteria are met.
The Company subsidizes, in some cases, the sale of the handset to end subscribers by selling it at a price below its cost to secure a fixed-term service contract for the purpose of acquiring new subscribers or retaining existing subscribers. The handset sale is then treated as a non-revenue-generating transaction and accordingly, no revenue is recognized from these types of handset sales. The subsidy, and direct selling expenses are capitalized as elements of subscriber acquisition and retention costs in accordance with accounting policy set out in note (f)(5) above. The subsidy represents the difference between the cost of the handset and the payment received from the subscriber for the handset.
(3) Revenues from non-current credit arrangements:
Revenues from non-current credit arrangements to customers in respect of sales of equipment are recognized on the basis of the present value of future cash flows, discounted at the prevailing rate for a similar instrument of an issuer with a similar credit rating. The difference between the original credit and its present value is recorded as other income over the credit period (see note 23 – unwinding of trade receivables and note 7(a)).
F - 27 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
o. Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from lessor) are charged to income statements on a straight-line basis over the lease term, including extending options which are reasonably certain.
p. Advertising expenses
Advertising expenses are charged to the statement of income as incurred.
q. Tax expenses
The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted as of the end of the reporting period. Management periodically evaluates positions taken with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognized on temporary differences arising between that tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognized if they arise from initial recognition of goodwill. Deferred income tax is determined using the tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax assets are presented as non-current, see also note 25.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity where there is an intention to settle the balances on a net basis.
F - 28 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
r. Share capital
Ordinary shares are classified as equity.
Company's shares acquired by the Company (treasury shares) are presented as a reduction of equity, at the consideration paid, including any incremental attributable costs, net of tax. Treasury shares do not have a right to receive dividends or to vote. See also note 21(a)
s. Earnings Per Share (EPS)
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year excluding ordinary shares purchased by the Company and held as treasury shares.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume exercise of all dilutive potential ordinary shares. The instruments that are potential dilutive ordinary shares are equity instruments granted to employees. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options (see note 27).
F - 29 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The following relevant new standards, amendments to standards or interpretations have been issued, but are not effective for the financial periods beginning January 1, 2016, and have not been early adopted:
(1) IFRS 15, Revenue from Contracts with Customers (IFRS 15). IFRS 15 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance. IFRS 15 is based on the principle that revenue is recognized when control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards. The new standard is effective retrospectively for annual reporting periods beginning on or after January 1, 2018, according to its transition provisions. Earlier application is permitted.
The Group plans to apply the standard according to the modified retrospective approach. Under this approach entities will recognize transitional adjustments in retained earnings on the date of initial application, i.e. without restating the comparative period; and applying the new rules to contracts that are not completed as of the date of initial application.
Management is currently assessing the impact of the standard and has identified the following areas that are likely to be affected: sales commissions for which the new guidance is likely to result in their identification as contract cost assets which would affect the timing of the recognition of those costs, in place of capitalizing subscriber acquisition and retention costs (see note 2(f)(5) and note 2(n)); and allocation of revenues to performance obligations, which may affect the timing of revenue recognition. The Group has begun to implement the required adjustments to its information systems to support the implementation of the standard. However, at this stage the Group cannot quantify the impact of the implementation of the standard.
Upon implementation of IFRS 15, disclosures in the financial statements will be expanded to include required information such as movement schedules for recognized contract assets and contract liabilities, information about performance obligations and information on key judgments and estimates applied in recognition and measurement of revenues.
(2) IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through OCI and fair value through P&L. It introduces a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Management is currently assessing the impact of the standard; except for the new credit loss model the Company has not yet quantified, the Company does not expect other material effects on the financial statements.
(3) IFRS16, Leases, which replaces the current guidance in IAS 17. The standard requires lessees, with certain exceptions, to recognize a lease liability reflecting future lease payments and a ‘right-of-use asset’ for lease contracts. The standard is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted if IFRS 15, Revenue from Contracts with Customers, is also applied. The Group is yet to assess IFRS 16’s full impact.
F - 30 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 –CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
a. Critical accounting estimates and assumptions
(1) Estimating service revenues earned but not yet billed:
The Company recognizes service revenues based upon minutes, seconds and packages used, net of credits and adjustments for service discounts. Because the Company's billing cycles use cut-off dates, which for the most part do not coincide with the Company's reporting periods, the Company is required to make estimates for service revenues earned but not yet billed at the end of each reporting period. These estimates are based primarily upon actual unbilled usage of the Company's network by the customers, and also on historical data and trends. Actual billing cycle results may differ from the results estimated at the end of each period depending on subscriber usage and rate plan mix.
(2) Assessing the useful lives of assets:
The useful economic lives of the Group's assets are an estimate determined by management. The Group defines useful economic life of its assets in terms of the assets' expected utility to the Group. This estimation is based on assumptions of future changes in technology or changes in the Group's intended use of these assets, and experience of the Group with similar assets, and legal or contract periods where relevant. The assets estimated economic useful lives are reviewed, and adjusted if appropriate, at least annually. See also note 2(e) and note 2(f). See also information with respect to the change in estimate of the useful life of the "012 Smile" trade name in (3) below.
F - 31 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 –CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
a. Critical accounting estimates and assumptions (continued)
(3) Assessing the recoverable amount for impairment tests of assets with finite useful lives:
The Group is required to determine at the end of each reporting period whether there is any indication that an asset may be impaired. If indicators for impairment are identified the Group estimates the assets' recoverable amount, which is the higher of an asset's fair value less costs to sell and value in use. The value-in-use calculations require management to make estimates of the projected future cash flows. Determining the estimates of the future cash flows is based on management past experience and best estimate for the economic conditions that will exist over the remaining useful economic life of the CGU. See also note 2(i).
No indicators for an impairment or reversal of impairment of assets with finite useful lives were identified in 2016.
In the fourth quarter of 2015, the Group decided to cease the usage of the "012 Smile" trade name in 2017, this change in business induced the Group to determine that an indicator of impairment exists for the fixed-line segment. See note 13(2).
An Impairment test in the fourth quarter of 2015 for the VOB/ISP CGU of the fixed line segment resulted in an impairment charge to certain assets in a total amount of NIS 98 million, based on the key assumptions described in note 13(2). The recoverable amount of the VOB/ISP CGU assets as of December 31, 2015 was assessed by management with the assistance of an external independent expert ("Giza Singer Even. Ltd") based on value-in-use calculations, which was NIS 250 million. The value in use calculations use pre-tax cash flow projections covering a five-year period and using extrapolation with specific adjustments expected until 2027, which was the economic life of the main asset of the CGU: the deferred expenses – Right of Use, and a pre-tax discount rate of 12.9%. The value-in-use calculations included all factors in real terms. The value-in-use of the assets of the CGU was estimated to exceed the fair value less costs to sale.
The impairment test in the fourth quarter of 2015 was based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors’ behavior in response to the economic environment may affect the estimate of recoverable amounts in future periods. See also note 2(i).
F - 32 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 –CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
a. Critical accounting estimates and assumptions (continued)
(3) Assessing the recoverable amount for impairment tests of assets with finite useful lives (continued):
As a result of the decision to cease the usage of the "012 Smile" trade name the Group revised in 2015 its expected useful life to end in 2017 as a change in accounting estimate. As a result the amortization expenses of the trade name increased in 2015 and 2016 by NIS 1 million, and NIS 16 million respectively, and are expected to increase in 2017 by approximately NIS 6 million.
Further increase in the level of competition that might continue to push downward prices may require the Group to perform further impairment tests of assets. Such impairment tests may lead to recording significant impairment charges, which could have a material negative impact on the Group's operating and net profit.
(4) Assessing the recoverable amount of goodwill for impairment tests:
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. The recoverable amount of the fixed line segment to which goodwill has been allocated to have been determined based on value-in-use calculations. For the purpose of the goodwill impairment tests as of December 31, 2014, 2015 and 2016 the recoverable amount was assessed by management with the assistance of an external independent expert (2014, 2015: "Giza Singer Even. Ltd", 2016: BDO Ziv Haft Consulting & Management Ltd.) based on value-in-use calculations. The value-in-use calculations use pre-tax cash flow projections covering a five-year period. Cash flows beyond the five-year period to be generated from continuing use are extrapolated using estimated growth rates. The growth rate represents the long-term average growth rate of the fixed-line communications services business.
The key assumptions used in the December 31, 2016 test were as follows:
Terminal growth rate 0.5% After-tax discount rate 9.8% Pre-tax discount rate 11.9%
The impairment test as of December 31, 2016 was based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors’ behavior in response to the economic environment may affect the estimate of recoverable amounts. See also note 13(1) and note 2(h). No impairment charges were recognized in with respect to goodwill in 2014, 2015 and 2016.
F - 33 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 –CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
a. Critical accounting estimates and assumptions (continued)
(4) Assessing the recoverable amount of goodwill for impairment tests (continued):
Sensitivity Analysis: The headroom of the fixed line segment recoverable amount over the carrying amount as of December 31, 2014, 2015 and 2016 was approximately 15%, 9% and 23% respectively. Sensitivity analysis was performed for the recoverable amount as of December 31, 2016 for a change of the after-tax discount rate within the range of ± 10% multiplied by the variable 9.8% (8.8% to 10.8%), assuming all other variables constant. Sensitivity analysis was also performed for a change of the terminal permanent growth rate within the range of ± 1% of the variable 0.5% (minus 0.5% to 1.5%), assuming all other variables constant. Results showed that no impairment charge is required for both analyses.
(5) Assessing allowance for doubtful accounts:
The allowance is established when there is objective evidence that the Group will not be able to collect amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, or delinquency or default in debtor payments are considered indicators that a trade receivable is impaired. Individual receivables which are known to be uncollectable are written off by reducing the carrying amount directly. The other receivables are assessed collectively. For these receivables the allowance is determined based on percentage of doubtful debts in collection, considering the likelihood of recoverability based on the age of the balances, the historical write-off experience net of recoveries, changes in the credit worthiness, and collection trends. The trade receivables are periodically reviewed for impairment.
(6) Considering uncertain tax positions:
The assessment of amounts of current and deferred taxes requires the Group's management to take into consideration uncertainties that its tax position will be accepted and of incurring any additional tax expenses. This assessment is based on estimates and assumptions based on interpretation of tax laws and regulations, and the Group's past experience. It is possible that new information will become known in future periods that will cause the final tax outcome to be different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. See also notes 2(q) and note 25.
F - 34 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
b. Critical judgments in applying the Group's accounting policies
(1) Considering the likelihood of contingent losses and quantifying possible settlements:
Provisions are recorded when a loss is considered probable and can be reasonably estimated. Judgment is necessary in assessing the likelihood that a pending claim or litigation against the Group will succeed, or a liability will arise, quantifying the possible range of final settlement. These judgments are made by management with the support of internal specialists, or with the support of outside consultants such as legal counsel. Because of the inherent uncertainties in this evaluation process, actual results may be different from these estimates.
(2) Considering sales with multiple deliverables:
The Group made judgments to determine that certain sales of equipment with accompanying services constitute an arrangement with multiple deliverables that are linked in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole, and accordingly, consideration received is allocated to each deliverable based on the relative fair value of the individual element. See also note 2(n)(2).
(3) Accounting treatment for the investment in PHI:
The board of directors of Net 4 P.H.I Ltd. Consists of 3 directors nominated by the Company, 3 directors nominated by Hot Mobile and one independent director who is acting as a chairman. Net 4 P.H.I Ltd controls PHI. This governance provides that the Company does not control PHI nor does it have joint control over it, and the Company accounts for its investment in PHI according to the equity method, see also note 2(c)(2) and note 9.
F - 35 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – SEGMENT INFORMATION
New Israeli Shekels Year ended December 31, 2016 In millions Cellular Fixed-line segment segment Elimination Consolidated Segment revenue - Services 2,080 672 2,752 Inter-segment revenue - Services 19 194 (213) Segment revenue - Equipment 729 63 792 Total revenues 2,828 929 (213) 3,544
Segment cost of revenues - Services 1,659 617 2,276 Inter-segment cost of revenues- Services 192 21 (213) Segment cost of revenues - Equipment 596 52 648 Cost of revenues 2,447 690 (213) 2,924 Gross profit 381 239 620
Operating expenses (3) 571 118 689 Income with respect to settlement agreement with Orange 217 217 Other income, net 41 4 45 Operating profit 68 125 193 Adjustments to presentation of segment Adjusted EBITDA –Depreciation and amortization 447 148 –Other (1) 47 (1) Segment Adjusted EBITDA (2) 562 272
New Israeli Shekels Year ended December 31, 2016 In millions Reconciliation of segments subtotal Adjusted EBITDA to profit for the year Segments subtotal Adjusted EBITDA (2) 834 Depreciation and amortization (595) Other (1) (46) Finance costs, net (105) Income tax expenses (36) Profit for the year 52
F - 36
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – SEGMENT INFORMATION (continued)
New Israeli Shekels Year ended December 31, 2015 In millions Cellular Fixed-line segment segment Elimination Consolidated Segment revenue - Services 2,275 717 2,992 Inter-segment revenue - Services 22 189 (211) Segment revenue - Equipment 1,051 68 1,119 Total revenues 3,348 974 (211) 4,111
Segment cost of revenues - Services 1,856 736(*) 2,592 Inter-segment cost of revenues- Services 187 24 (211) Segment cost of revenues - Equipment 832 48 880 Cost of revenues 2,875 808 (211) 3,472 Gross profit 473 166 639
Operating expenses (3) 506 134(*) 640 Income with respect to settlement agreement with Orange 61 61 Other income, net 44 3 47 Operating profit 72 35 107 Adjustments to presentation of segment Adjusted EBITDA –Depreciation and amortization (including impairment charges, see note 13) 510 243 –Other (1) 15 1 Segment Adjusted EBITDA (2) 597 279
New Israeli Shekels Year ended December 31, 2015 In millions Reconciliation of segments subtotal Adjusted EBITDA to loss for the year Segments subtotal Adjusted EBITDA (2) 876 Depreciation and amortization (including impairment charges, see note 13) (753) Other (1) (16) Finance costs, net (143) Income tax expenses (4) Loss for the year (40)
(*) Includes impairment charges in the fixed line segment, see note 13.
F - 37
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – SEGMENT INFORMATION (continued)
New Israeli Shekels Year ended December 31, 2014 In millions Cellular Fixed-line segment segment Elimination Consolidated Segment revenue - Services 2,592 816 3,408 Inter-segment revenue - Services 26 188 (214) Segment revenue - Equipment 938 54 992 Total revenues 3,556 1,058 (214) 4,400
Segment cost of revenues - Services 1,963 692 2,655 Inter-segment cost of revenues- Services 185 29 (214) Segment cost of revenues - Equipment 727 37 764 Cost of revenues 2,875 758 (214) 3,419 Gross profit 681 300 981
Operating expenses (3) 509 122 631 Other income, net 49 1 50 Operating profit 221 179 400 Adjustments to presentation of segment Adjusted EBITDA –Depreciation and amortization 534 155 –Other (1) 7 * Segment Adjusted EBITDA (2) 762 334
New Israeli Shekels Year ended December 31, 2014 In millions Reconciliation of segments subtotal Adjusted EBITDA to profit for the year Segments subtotal Adjusted EBITDA (2) 1,096 Depreciation and amortization (689) Other (1) (7) Finance costs, net (159) Income tax expenses (79) Profit for the year 162 * Representing an amount of less than 1 million.
(1) Mainly amortization of employee share based compensation.
(2) Adjusted EBITDA as reviewed by the CODM 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; it is fully comparable to EBITDA information which has been previously provided for prior periods.
(3) Operating expenses include selling and marketing expenses and general and administrative expenses.
F - 38 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
a. Financial risk factors
The Group is exposed to a variety of financial risks: credit, liquidity and market risks as part of its normal course of business. The Group's risk management objective is to monitor risks and minimize the possible influence that results from this exposure, according to its evaluations and expectations of the parameters that affect the risks.
1. Risk Management
Risk management is carried out by the treasury department under policies and/or directions resolved and approved by the audit committee and the board of directors.
2. Market risks
(a) Description of market risks
Cash flow risk due to interest rate changes and CPI changes
The Group is exposed to fluctuations in the Israeli Consumer Price index (CPI), as some of the Group's non-current borrowings and notes payable are linked to the CPI. The Group did not enter into CPI hedging transactions in 2014, 2015 and 2016.
Furthermore, the Group's notes payable and non-current borrowings bearing variable interest rate cause cash flow risks. Based on simulations performed, an increase (decrease) of 1% interest rates during 2016 in respect of the abovementioned financial instruments would have resulted in an annual increase (decrease) in interest expenses of NIS 7 million. The Group does not enter into interest rate hedging transactions.
Foreign exchange risk
The Group's operating income and cash flows are exposed to currency risk, mainly due to trade receivables and trade payables denominated in USD. The Group did not enter into free standing forward transactions in 2014, 2015 and 2016.
F - 39
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a. Financial risk factors (continued)
2. Market risks (continued)
(a) Description of market risks (continued)
Data regarding the US Dollar and Euro exchange rate and the Israeli CPI:
Exchange Exchange rate of one rate of one Israeli Dollar Euro CPI* At December 31: 2016 NIS 3.845 NIS 4.044 220.68 points 2015 NIS 3.902 NIS 4.247 221.13 points 2014 NIS 3.889 NIS 4.725 223.36 points Increase (decrease) during the year: 2016 (1.5)% (4.8)% (0.2)% 2015 0.3% (10.1)% (1.0)% 2014 12.0% (1.2)% (0.2)%
* Index for each reporting period's last month, on the basis of 1993 average = 100 points.
Sensitivity analysis: An increase (decrease) of 2% in the CPI as at December 31, 2014, 2015 and 2016 would have decreased (increased) equity and profit by NIS 34 million, NIS 20 million, and NIS 9 million, for the years ended December 31, 2014, 2015, 2016 respectively, assuming all other variables remain constant.
An increase (decrease) of 5% in the USD exchange rate as at December 31, 2014, 2015 and 2016 would have decreased (increased) equity and profit by NIS 8 million, NIS 5 million, and NIS 3 million, for the years ended December 31, 2014, 2015, 2016 respectively, assuming that all other variables remain constant.
F - 40 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a. Financial risk factors (continued)
2. Market risks (continued)
(b) Analysis of linkage terms of financial instruments balances
December 31, 2016 In or linked to other foreign currencies In or linked to USD (mainly EURO) NIS linked to CPI NIS unlinked Total New Israeli Shekels in millions Current assets Cash and cash equivalents 2 1 713 716 Short term deposits 452 452 Trade receivables* 58 35 897 990 Other receivables 39 39
Non- current assets Trade receivables 333 333 Total assets 60 36 2,434 2,530
Current liabilities Current maturities of notes payable and borrowings 212 287 499 Trade payables* 132 19 530 681 Payables in respect of employees 90 90 Other payables 10 10
Non- current liabilities Notes payable 212 437 649 Borrowings from banks and others 197 1,353 1,550 Total liabilities 132 19 621 2,707 3,479
In or linked to foreign currencies New Israeli Shekels in millions *Accounts that were set-off under enforceable netting arrangements Trade receivables gross amounts 267 Set-off (174) Trade receivables, net 93
Trade payables gross amounts 325 Set-off (174) Trade payables, net 151
F - 41
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a. Financial risk factors (continued)
2. Market risks (continued)
(b) Analysis of linkage terms of financial instruments balances (continued)
December 31, 2015 In or linked to other foreign currencies In or linked to USD (mainly EURO) NIS linked to CPI NIS unlinked Total New Israeli Shekels in millions Current assets Cash and cash equivalents 1 925 926 Trade receivables* 50 50 957 1,057 Other receivables 31 31
Non- current assets Trade receivables 492 492 Total assets 50 51 2,405 2,506
Current liabilities Current maturities of notes payable and borrowings 353 201 554 Trade payables* 117 46 552 715 Payables in respect of employees 68 68 Other payables 10 10
Non- current liabilities Notes payable 463 727 1,190 Borrowings from banks and others 198 1,159 1,357 Total liabilities 117 46 1,014 2,717 3,894
In or linked to foreign currencies New Israeli Shekels in millions * Accounts that were set-off under enforceable netting arrangements Trade receivables gross amounts 248 Set-off (148) Trade receivables, net 100
Trade payables gross amounts 311 Set-off (148) Trade payables, net 163
F - 42
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a. Financial risk factors (continued)
2. Market risks (continued)
(c) Details regarding the derivative financial instruments
The notional amounts of derivatives as of December 31, 2015 and 2016 are as follows, based on the amounts of currencies to be received, translated into NIS at the exchange rates prevailing at each of the reporting dates, respectively:
New Israeli Shekels December 31 2015 2016 In millions Embedded derivatives pay USD, receive NIS 35 11
F - 43
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a. Financial risk factors (continued)
3. Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's trade receivables, and also from cash and cash equivalents and other receivables. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group conducts credit evaluations on receivables of certain types over a certain amount, and requires collaterals against them. Accordingly, the financial statements include appropriate allowances for estimated irrecoverable amounts. See also note 2(j)(2).
The face amount of financial assets represents the maximum credit exposure, see note 6(c).
The cash and cash equivalents are held in leading Israeli commercial banks, rated by Standard & Poor's Maalot at between ilAA+/Stable to ilAAA/stable.
The trade receivables are significantly widespread, and include individuals and businesses, and therefore have no representing credit rating.
See also note 7 as to the assessment by aging of the trade receivables and related allowance for doubtful accounts.
F - 44 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a. Financial risk factors (continued)
4. Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Group's reputation. The Group's policy is to ensure that it has sufficient cash and cash equivalents to meet expected operational expenses and financial obligations.
Maturities of financial liabilities as of December 31, 2016:
2020 2022 Less offering to to Total expenses and Total 2017 2018 2019 2021 2023 undisco-unted discounts discounted New Israeli Shekels in millions Principal payments of long term indebtedness: Notes payable series C (*) 212 212 424 (1) 423 Notes payable series D 109 109 109 219 546 (3) 543 Notes payable series E 121 121 ** 121 Borrowing C 25 25 25 75 75 Borrowing D 25 25 25 75 75 Borrowing E 152 152 152 Borrowing F (*) 197 197 197 Borrowing G 20 20 40 20 100 100 Borrowing H 20 20 40 20 100 100 Borrowing I 30 40 50 120 120 Borrowing J 15 15 15 17 62 62 Borrowing K 23 30 23 76 76 Borrowing L 33 33 67 67 200 200 Borrowing M 17 33 33 67 50 200 200 Borrowing N 25 25 67 133 250 250 Expected interest payments of long term borrowings and notes payables (*) 88 69 48 38 5 248 Trade and other payables 681 681 1,268 639 814 744 162 3,627
(*) Linked to the CPI as of December 31, 2016 (**) Representing an amount of less than NIS 1 million
See note 15 in respect of borrowings and notes payable.
b. Capital risk management
Credit rating: According to Standard & Poor's Maalot ("S&P Maalot") credit rating, of July 26, 2016, the Company's ilA+/Stable credit rating was unchanged.
See note 15(5) regarding financial covenants.
F - 45 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
c. Fair values of financial instruments
As detailed in note 2(j) the financial instruments are categorized as following:
Fair Value Through Profit or Loss (FVTPL); Loans and Receivables (L&R); Amortized Cost (AC). The financial instruments that are categorized FVTPL are derivative financial instruments. Their fair values are calculated by discounting estimated future cash flows based on the terms and maturity of each contract and using forward rates for a similar instrument at the measurement date. All significant inputs in this technique are observable market data and rely as little as possible on entity specific estimates – this method matches the "Level 2" fair value measurement level hierarchy. There were no transfers between fair value levels during the year. Carrying amounts and fair values of financial assets and liabilities, and their categories:
December 31, 2015 December 31, 2016 Interest rate used Interest rate used Category Carrying amount Fair value (**) Carrying amount Fair value (**) New Israeli Shekels in millions Assets Cash and cash equivalents L&R 926 926 716 716 Short term deposits L&R 452 452 Trade receivables L&R 1,549 1,552 3.73% 1,323 1,318 4.72% Other receivables (*) L&R 6 6 9 9 Liabilities Notes payable series B AC 121 123 Market quote Notes payable series C AC 695 724 Market quote 423 440 Market quote Notes payable series D AC 543 548 Market quote 543 548 Market quote Notes payable series E AC 371 399 Market quote 121 127 Market quote Trade and other payables (*) AC 793 793 780 780 Borrowing C AC 75 85 2.66% 75 81 3.43% Borrowing D AC 75 85 2.66% 75 81 3.43% Borrowing E (*) AC 152 152 152 152 Borrowing F AC 198 210 1.79% 197 199 3.17% Borrowing G AC 100 100 3.08% 100 98 3.85% Borrowing H AC 100 100 2.93% 100 97 3.85% Borrowing I AC 120 121 3.17% 120 120 3.43% Borrowing J AC 76 77 2.75% 62 62 3.23% Borrowing K AC 75 75 3.71% 76 76 3.43% Borrowing L AC 200 203 4.25% 200 204 3.98% Borrowing M AC 200 200 3.884% 200 201 3.85% Borrowing N AC 250 260 3.67% Derivative financial FVTPL instruments Level 2 * * * *
(*) The fair value of these financial instruments equals their carrying amounts, as the impact of discounting is not significant. (**) The fair values of the notes payable quoted market prices at the end of the reporting period are within level 1 of the fair value hierarchy. The fair values of other instruments under AC categories were calculated based on observable weighted average of interest rates derived from quoted market prices of the Group's notes payable and bank quotes of rates of similar terms and nature, are within level 2 of the fair value hierarchy.
See also note 15 in respect of borrowings and notes payable.
F - 46
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – TRADE RECEIVABLES
(a) Composition:
New Israeli Shekels December 31 2015 2016 In millions Trade (current and non-current) 1,763 1,545 Deferred interest income (note 2(n)(3)) (45) (32) Allowance for doubtful accounts (169) (190) 1,549 1,323 Current 1,057 990 Non – current 492 333
Non-current trade receivables bear no interest. These balances are in respect of equipment sold in installments (13-36 monthly payments (mainly 36)). The amount is computed on the basis of the interest rate relevant at the date of the transaction (2015 – 3.73% - 4.21%) (2016 – 3.72% - 4.72%).
During 2015 and 2016 the Company factored some trade receivables resulting from sales of equipment through credit cards in an amount of NIS 165 million and NIS 72 million, respectively. The factoring was executed through a clearing company, on a non-recourse basis. The factoring of accounts receivable was recorded by the Company as a sale transaction under the provisions of IAS 39. The resulting costs were charged to "finance expenses" in the statement of income, as incurred. The Group does not have continuing involvement in the factored trade receivables.
(b) Allowance for doubtful accounts:
The changes in the allowance for the years ended December 31, 2014, 2015 and 2016 are as follows:
New Israeli Shekels Year ended 2014 2015 2016 In millions Balance at beginning of year 202 166 169 Receivables written-off during the year as uncollectible (74) (61) (61) Charge or expense during the year 38 64 82 Balance at end of year 166 169 190
Doubtful accounts expenses are recorded in the statement of income under General and administrative expenses. See note 6(a)(3) regarding trade receivables credit risk.
F - 47
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – TRADE RECEIVABLES (continued)
(b) Allowance for doubtful accounts (continued)
The aging of gross trade receivables and their respective allowance for doubtful accounts as of December 31, 2015 and 2016 is as follows:
New Israeli Shekels December 31 2015 2016 In millions Gross Allowance Gross Allowance Less than one year 1,679 108 1,420 101 More than one year 84 61 125 89 1,763 169 1,545 190
NOTE 8 – INVENTORY
New Israeli Shekels December 31 2015 2016 In millions Handsets and devices 82 60 Accessories and other 16 9 Spare parts 20 22 ISP modems, routers, servers and related equipment 2 5 120 96
Write-offs recorded 5 6 Cost of inventory recognized as expenses and included in cost of revenues for the year ended 898 673
F - 48
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – INVESTMENT IN PHI
Network sharing agreement and right of use
On November 8, 2013 the Company and Hot Mobile Ltd. ("Hot Mobile") entered into a 15-year network sharing agreement ("NSA"), which was approved by the Antitrust Commissioner as described below, and by the Ministry of Communications. Pursuant to the NSA, the parties created a 50-50 limited partnership - P.H.I. Networks (2015) Limited Partnership (hereinafter "PHI"), which operates and develops a radio access network shared by both parties, starting with a pooling of both parties' radio access network infrastructures creating a single shared pooled radio access network (the "Shared Network"). The parties also established a 50-50 company limited by shares under the name Net 4 P.H.I Ltd., to be the general partner of the limited partnership. In May 2014, the Antitrust Commissioner (the "Commissioner") approved the NSA, subject to conditions that include: (a) Prohibition on exchange of information that is not required for the activities of PHI; (b) Limitations with respect to the serving as an officer or employee in either of the companies concurrent with serving as an officer or employee in 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, that are currently serving as employees or officers in the companies (that is, employees will move to PHI and work for PHI only); (c) As of April 2021, the Commissioner will be allowed to notify the parties of the cancellation of his resolution, if at that time it will be of his opinion that the establishment of PHI, its existence or operations are liable to be substantively detrimental to 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 Antitrust Commissioner's notice to that effect.
In February 2016, HOT Mobile exercised its option under the NSA to advance the payment date of a onetime amount of NIS 250 million ("Lump Sum"), which was received by the Group in 2016. Therefore in accordance the NSA from April 2016 onward (i) each party bears half of the expenditures relating to the Shared Network, and (ii) the bearing of the operating costs of the Shared Network is 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 between the parties according to the relative volume of traffic consumption of each party in the Shared Network (the "Capex-Opex Mechanism").
The Lump Sum is treated by the Group as payments for rights of use of the Group's network and therefore recognized as deferred revenue which is amortized to revenues in the income statement over a period of eight years, which is determined to be the shorter of the expected period of the arrangement or the expected life of the related assets.
The NSA term will be automatically extended for consecutive terms of five years each, unless either party provided the other party with prior notice of at least two years prior to the commencement of the respective extended term. At any time after the eighth anniversary of the NSA's effective date (i.e. following April 2023), either party may provide the other party with two years termination notice, and terminate the NSA, without cause, effective as of the end of the said two-year period. On the expiry of the NSA, other than following a material breach, the parties shall divide the network between themselves according to a mechanism provided by the NSA, based on the parties then-respective interests in PHI, with priority that each party shall first receive its own assets.
On November 8, 2013, the Company and Hot Mobile entered into a separate Right of Use agreement which was valid until March 2016 ("ROU"), under which the Company provided services to Hot Mobile, in the form of access to use its cellular network. According to the ROU, Hot Mobile paid the Company fixed base payments together with additional variable payments which were based, among other things, on traffic exceeding a defined threshold. Hot Mobile ceased making payments under the ROU from April 2016. In 2015 and 2016, the Company recorded revenues relating to the ROU in amounts of approximately NIS 120 million and NIS 51 million, respectively.
See also note 26(d) with respect to transactions and balances with PHI.
F - 49
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – INVESTMENT IN PHI (continued)
The associates of the Group as at December 31, 2016, of which the Group holds 50% of ownership interests are: P.H.I. Networks (2015) Limited Partnership ("PHI"), and Net 4 P.H.I Ltd. (see also note 2(c)(2) and note 4(b)(3)). Both are incorporated and operate in Israel. Set out below is summarized financial information for the associates which are accounted for by the Group using the equity method.
As at December 31 2015 2016 NIS in millions NIS in millions Current assets 26 122 Non-current assets 8 115 Current liabilities 24 110 Non-current liabilities 8 125
Supplemental information relating to associates: Commitments for operating leases and operating expenses 7 364 Commitments to purchase fixed assets 4 3
Year ended December 31 2015 2016 NIS in millions NIS in millions
Summarized statement of income Revenue 94 432 Pre-tax Profit * * After-tax profit * * Total comprehensive income * *
Reconciliation to carrying amount: Opening net assets of PHI - 2 Profit for the period * * Partners contributions 2 Closing net assets of PHI 2 2 Carrying amount: Group's share (50%) 1 1
* Representing an amount of less than NIS 1 million.
See also note 26(d) with respect to transactions and balances with PHI.
F - 50
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – PROPERTY AND EQUIPMENT
Property, leasehold Computers and improvements, Communication information Optic fibers and furniture and network systems related assets equipment Total New Israeli Shekels in millions Cost Balance at January 1, 2014 2,504 332 450 244 3,530 Additions in 2014 237 23 19 15 294 Disposals in 2014 237 52 30 319 Balance at December 31, 2014 2,504 303 469 229 3,505
Additions in 2015 118 * 19 4 141 Disposals in 2015 423 39 2 30 494 Balance at December 31, 2015 2,199 264 486 203 3,152
Additions in 2016 66 17 22 11 116 Disposals in 2016 235 74 78 387 Balance at December 31, 2016 2,030 207 508 136 2,881
Accumulated depreciation Balance at January 1, 2014 1,310 179 120 130 1,739 Depreciation in 2014 305 51 31 37 424 Disposals in 2014 236 52 31 319 Balance at December 31, 2014 1,379 178 151 136 1,844
Depreciation in 2015 271 45 34 26 376 Impairment charges (**) 5 7 12 Disposals in 2015 423 39 2 30 494 Balance at December 31, 2015 1,232 191 183 132 1,738
Depreciation in 2016 229 29 35 23 316 Disposals in 2016 230 74 76 380 Balance at December 31, 2016 1,231 146 218 79 1,674
Carrying amounts, net
At December 31, 2014 1,125 125 318 93 1,661 At December 31, 2015 967 73 303 71 1,414 At December 31, 2016 799 61 290 57 1,207
(*) Representing an amount of less than 1 million. (**) See note 13(2)
Cost as at December 31, 2016 includes assets leased to customers under operating lease in an amount of NIS 25 million (mainly routers).
New Israeli Shekels Year ended December 31 2014 2015 2016 In millions Depreciation expenses and impairment charged to the income statement: Cost of revenues 396 363 291 Selling and marketing expenses 17 16 16 General and administrative expenses 11 9 9 424 388 316 Communication network cost additions include capitalization of salary and employee related expenses 41 30 29
F - 51 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 –INTANGIBLE ASSETS
Intangible assets with finite economic useful lives:
Subscriber Trade Customer acquisition and Computer Licenses name relationships retention costs software(*) Total New Israeli Shekels in millions Cost Balance at January 1, 2014 2,088 73 276 12 573 3,022 Additions in 2014 5 135 140 Disposals in 2014 4 62 66 Balance at December 31, 2014 2,088 73 276 13 646 3,096 Additions in 2015 35 6 89 130 Disposals in 2015 6 73 79 Balance at December 31, 2015 2,123 73 276 13 662 3,147 Additions in 2016 4 82 86 Disposals in 2016 4 110 114 Balance at December 31, 2016 2,123 73 276 13 634 3,119
Accumulated amortization Balance at January 1, 2014 1,418 28 164 9 236 1,855 Amortization in 2014 84 5 24 4 111 228 Disposals in 2014 4 62 66 Balance at December 31, 2014 1,502 33 188 9 285 2,017 Amortization in 2015(**) 86 6 23 7 121 243 Impairment charges (***) 2 8 10 Disposals in 2015 6 73 79 Balance at December 31, 2015 1,588 41 219 10 333 2,191 Amortization in 2016 88 21 18 5 117 249 Disposals in 2016 4 110 114 Balance at December 31, 2016 1,676 62 237 11 340 2,326
Carrying amounts, net At December 31, 2014 586 40 88 4 361 1,079 At December 31, 2015 535 32 57 3 329 956 At December 31, 2016 447 11 39 2 294 793
New Israeli Shekels Year ended December 31 2014 2015 2016 In millions Amortization expenses and impairments charged to the income statement: Cost of revenues 200 214 210 Selling and marketing expenses 28 39 39 228 253 249
(*) Cost additions include capitalization of salary and employee related expenses 44 35 36
(**) See information with respect to change in estimate of economic life of the trade name in 2015 in note 2(f)(4)
(***) See note 13(2).
F - 52 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – DEFERRED EXPENSES – RIGHT OF USE
New Israeli Shekels in millions Cost Balance at January 1, 2014 380 Additional payments in 2014 22 Balance at December 31, 2014 402 Additional payments in 2015 34 Balance at December 31, 2015 436 Additional payments in 2016 80 Balance at December 31, 2016 516
Accumulated amortization and impairment Balance at January 1, 2014 234 Amortization in 2014 37 Balance at December 31, 2014 271 Amortization in 2015 36 Impairment recorded in 2015 76 Balance at December 31, 2015 383 Amortization in 2016 30 Balance at December 31, 2016 413
Carrying amount, net at December 31, 2014 131
Carrying amount, net at December 31, 2015 53 Current 33 Non-current 20
Carrying amount, net at December 31, 2016 103 Current 28 Non-current 75
See also notes 17(4) and note 2(g).
The amortization and impairment charges are charged to cost of revenues in the statement of income. See also note 13(2) with respect of impairment charges in 2015.
F - 53 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – IMPAIRMENT TESTS
(1) Goodwill impairment tests
Goodwill is allocated to a single group of CGUs which constitute all the operations of the fixed-line segment, in an amount of NIS 407 million.
For the purpose of the goodwill impairment tests as of December 31, 2014, 2015 and 2016 the recoverable amount was assessed by management with the assistance of an external independent expert (2014, 2015: "Giza Singer Even. Ltd", 2016: BDO Ziv Haft Consulting & Management Ltd.) based on value-in-use calculations. The value-in-use calculations use pre-tax cash flow projections covering a five-year period. Cash flows beyond the five-year period to be generated from continuing use are extrapolated using estimated growth rates. The growth rate represents the long-term average growth rate of the fixed-line communications services business. The key assumptions used are as follows:
As of December 31, 2014 2015 2016 Terminal growth rate (negative 0.2%) (negative 0.09%) 0.5% After-tax discount rate 10.5% 10.3% 9.8% Pre-tax discount rate 14.3% 13.4% 11.9%
The impairment tests as of December 31, 2014, 2015 and 2016 were based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors’ behavior in response to the economic environment may affect the estimate of recoverable amounts. As a result of the impairment tests, the Group determined that no goodwill impairment existed as of December 31, 2014, 2015 and 2016. See also note 4(a)(4) and note 2(h).
(2) Impairment tests of assets with finite useful lives
No indicators for impairment or reversal of impairment of assets with finite useful lives were identified in 2016.
In 2015, the Group decided to cease the usage of the "012 Smile" trade name in 2017, this change in business induced the Group to determine that an indicator of impairment exist for the fixed-line segment. See also information with respect to change in estimate of useful life of the intangible asset trade name in note 4(a)(3) and 4(a)(2).
For the purpose of the impairment test, the assets were grouped to the lowest level for which there are separately identifiable cash flows (CGU).
(i) The Group reviewed the recoverability of the VOB/ISP CGU assets. As a result, an impairment charge in a total amount of NIS 98 million was recognized in 2015. The impairment charge was allocated to the assets of the CGU pro rata, on the basis of the carrying amount of each asset, provided that the impairment did not reduce the carrying amount of an asset below the highest of its fair value less costs to sell and its value-in-use, and zero. Accordingly, the following impairment charges were recorded in 2015 in the assets of the above CGU:
(a) Right of use by NIS 76 million, recorded in cost of revenues (see note 12). (b) Customer relationships by NIS 8 million, recorded in selling and marketing expenses. (c) Computers and information systems by NIS 7 million, recorded in cost of revenues. (d) Communication network by NIS 5 million, recorded in cost of revenues.
F - 54 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – IMPAIRMENT TESTS (continued)
(2) Impairment tests of assets with finite useful lives (continued)
(e) Trade name by NIS 2 million, recorded in selling and marketing expenses.
The recoverable amount of the VOB/ISP CGU assets as of December 31, 2015 was assessed by management with the assistance of an external independent expert ("Giza Singer Even. Ltd") based on value-in-use calculations, which was NIS 250 million. The value in use calculations use pre-tax cash flow projections covering a five-year period and using extrapolation with specific adjustments expected until 2027, which was the economic life of the main asset of the CGU: the deferred expenses – Right of Use, and a pre-tax discount rate of 12.9%. The value-in-use calculations included all factors in real terms. This impairment test was based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors’ behavior in response to the economic environment may affect the estimate of recoverable amounts in future periods. See also note 2(i) and note 4(a)(3).
(ii) The Group reviewed the recoverability of the ILD CGU of the fixed line segment and determined that no impairment existed as of December 31, 2015.
NOTE 14 – PROVISIONS
Dismantling and restoring sites Equipment obligation Legal claims** warranty New Israeli Shekels in millions Balance as at January 1, 2016 36 75 2 Additions during the year * 19 4 Reductions during the year (2) (18) (5) Unwind of discount 1 Balance as at December 31, 2016 35 76 1 Non-current 35 Current 76 1
Balance as at December 31, 2015 36 75 2 Non-current 36 Current 75 2
* Representing an amount of less than 1 million. ** See also note 20.
F - 55
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 –BORROWINGS AND NOTES PAYABLE
(1) Borrowings and Notes Payable
The Group has received borrowings from leading Israeli commercial banks and institutions. The Group may, at its discretion prepay the borrowings, subject to certain conditions, including that the Group shall reimburse the lender for losses sustained by it as a result of the prepayment. The reimbursement is mainly based on the difference between the interest rate that the Group would otherwise pay and the current market interest rate on the prepayment date.
The notes payable are unsecured, non-convertible and listed for trade on the TASE.
The notes payable have been rated ilA+, on a local scale, by Standard & Poor’s Maalot.
Composition as of December 31, 2016:
Linkage terms (principal and interest) Annual interest rate Notes payable series C CPI 3.35% CPI adj. Notes payable series D 'Makam'(*) plus 1.2% Notes payable series E 5.5% fixed Borrowing C 5.7% fixed Borrowing D 5.7% fixed Borrowing E Prime(**) minus 0.025% Borrowing F CPI 3.42% CPI adj. Borrowing G (received in 2014) 3.08% fixed Borrowing H (received in 2014) 2.93% fixed Borrowing I (received in 2015) 3.17% fixed Borrowing J (received in 2015) 2.75% fixed Borrowing K (received in 2015) 3.71% fixed Borrowing L (received in 2015) 4.25% fixed Borrowing M (received in 2015) 3.884% fixed Borrowing N (see note 15(3)) 4.95% fixed
(*) 'Makam' is a variable interest that is based on the yield of 12 month government bonds issued by the government of Israel. The interest is updated on a quarterly basis. The interest rates paid (in annual terms, and including the additional interest of 1.2%) for the period from October 1, 2016 to December 30, 2016 was 1.287%.
(**) The Israeli Prime interest rate is determined by the Bank of Israel and updated on a monthly basis. The Israeli Prime interest rate as of December 31, 2015 and 2016 was 1.60% per year.
See note 6(a)(4) as to the balances and maturities of the borrowings and the notes payable.
See note 6(c) as to the fair value of the borrowings and the notes payable.
F - 56 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 –BORROWINGS AND NOTES PAYABLE (continued)
(2) Notes payable buy back
Following the Board of Directors' resolution in October 2015, to approve a notes buy-back plan of the Company's series B, C and E notes, which are traded on the Tel Aviv Stock Exchange, the repurchases of the following notes were executed (these notes are considered legally extinguished):
Notes payable Series B
In March 2016, the Company repurchased approximately NIS 43 million par value of notes payable series B, at an average transaction price of approximately 1.104 NIS par value. The total amount paid was approximately NIS 48 million.
Notes payable Series E
In March 2016, the Company repurchased approximately NIS 131 million par value of notes payable series E, at an average transaction price of approximately 1.073 NIS par value. The total amount paid was approximately NIS 141 million.
Notes payable Series C
In April 2016, the Company repurchased approximately NIS 54 million par value of notes payable series C, at an average transaction price of approximately 1.136 NIS par value. The total amount paid was approximately NIS 61.5 million.
The buy-back costs of the aforementioned repurchases were recorded in finance expenses in an amount of NIS 12 million.
(3) New borrowings received
Borrowing N: On December 28, 2016, the Company received a long-term loan from a group of institutional corporations in the principal amount of NIS 250 million. The Loan will bear unlinked interest at the rate of 4.95% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2017.
(4) Loan Commitments
On November 27, 2014, the Company engaged in a loan agreement with a group of institutional corporations ("Lenders"), according to which on December 26, 2017 the Lenders will provide the Company a loan in the principal amount of NIS 100 million. The Loan will bear unlinked interest at the rate of 4.44% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2018.
On November 30, 2014, the Company engaged in a loan agreement with a group of institutional corporations ("Lenders"), according to which on December 26, 2017 the Lenders will provide the Company a loan in the principal amount of NIS 100 million. The Loan will bear unlinked interest at the rate of 4.34% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2018.
F - 57
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 –BORROWINGS AND NOTES PAYABLE (continued)
(4) Loan Commitments (continued)
All the loan commitments include provisions which allow the lenders to not provide the loans should any of the events of default defined for the Company's existing loans occur prior to the date for providing the deferred loans. These events of default include non-compliance with the financial covenants set forth below, as well as other customary terms.
(5) Financial covenants
The terms of loans require the Group to comply with financial covenants on a consolidated basis. Their main provisions are two ratios:
(1) The ratio of (a) the amount of all financial obligations of the Company including bank guarantees that the Company has undertaken ("Total Debt") to (b) EBITDA less Capital Expenditures shall not exceed 6.5 (the ratio as of December 31, 2015 and 2016 was 5.5 and 4.5, respectively); and (2) The ratio of (a) Total Debt to (b) the EBITDA of the Company shall not exceed 4 (the ratio as of December 31, 2015 and 2016 was 3.8 and 3.4, respectively).
EBITDA is defined as the sum of (a) the net income before extraordinary items, (b) the amount of tax expenses set against the net profits including, without double counting, any provisions for tax expenses, (c) and depreciation and amortization expenses, and (d) any finance costs, net.
Capital Expenditures are defined as any expenditure classified as fixed and intangible asset in the financial statements.
The Group was in compliance with all covenants stipulated for the years 2015 and 2016. The covenants are measured every six months (on June 30, and December 31) on an annualized basis of twelve months and are based on the financial results for the preceding period of twelve months.
The existing loans agreements allow the lenders to demand an immediate repayment of the loans 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.
(6) Negative pledge
The Company provided the lenders with a negative pledge undertaking (i.e., not to pledge any of its assets to a third party), except for a number of exceptions that were agreed upon, including pledge (other than by way of floating charge) in favor of a third party over specific assets or rights of the Company, securing obligations no greater than NIS 100 million in aggregate. See note 6 regarding the Company's exposure to market risks and liquidity risk.
F - 58 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
Israeli labor laws and agreements require payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. See also note 2(k).
(1) Defined contribution plan
The Group had contributed NIS 17 million, NIS 15 million, NIS 14 million for the years 2014, 2015 and 2016 respectively, in accordance with Section 14 of the Israeli Severance Pay Law. See also note 2(k)(i)(1).
(2) Defined benefit plan
Liability for employee rights upon retirement, net is presented as non-current liability.
The amounts recognized in the statement of financial position, in respect of a defined benefit plan (see note 2(k)(i)(2)) and changes during the year in the obligation recognized for post-employment defined benefit plans were as follows:
New Israeli Shekels in millions Present value of Fair value of obligation plan assets Total At January 1, 2015 204 (153) 51 Current service cost 17 17 Interest expense (income) 4 (4) * Employer contributions (15) (15) Benefits paid (86) 72 (14) Remeasurements: Experience loss (gain) (4) 1 (3) Loss from change in financial assumptions (2) * (2) Return on plan assets * * At December 31, 2015 133 (99) 34 Current service cost 17 17 Interest expense (income) 5 (3) 2 Employer contributions (12) (12) Benefits paid (19) 9 (10) Remeasurements: Experience loss (gain) 9 9 Loss from change in demographic assumptions (4) (4) Loss (gain) from change in financial assumptions 1 1 Return on plan assets 2 2 At December 31, 2016 142 (103) 39
(*) Representing an amount of less than NIS 1 million
Remeasurements are recognized in the statement of comprehensive income.
The expected contribution to the defined benefit plan during the year ending December 31, 2017 is approximately NIS 12 million.
F - 59
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT (continued)
(2) Defined benefit plan (continued)
The principal actuarial assumptions used were as follows:
December 31 2015 2016 Interest rate weighted average 3.47% 2.95% Inflation rate weighted average 1.20% 1.04% Expected turnover rate 10% - 49% 9%-56% Future salary increases 1% - 26% 1%-6%
The sensitivity of the defined benefit obligation to changes in the principal assumptions is:
December 31, 2016 NIS in millions Increase Decrease of 10% of 10% of the of the assumption assumption Interest rate (0.7) 0.7 Expected turnover rate 0.3 (0.3) Future salary increases 0.4 (0.4)
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognized within the statement of financial position. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.
The defined benefit plan exposes the Group to a number of risks, the most significant are asset volatility, and a risk that salary increases will be higher than expected in the actuarial calculations. The assets are invested in provident funds, managed by managing companies and are subject to laws and regulations, and supervision (including investment portfolio) of the Capital Markets, Insurance and Saving Division of the Israeli Ministry of Finance.
Expected maturity analysis of undiscounted defined benefits as at December 31, 2016:
NIS in millions 2017 27 2018 15 2019 13 2020 and 2021 21 2022 and thereafter 91 167
F - 60 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – COMMITMENTS
(1) Under the Telegraph Regulations the Company is committed to pay an annual fixed fee for each frequency used. For the years 2014, 2015 and 2016 the Company recorded expenses in a total amount of approximately NIS 60 million, NIS 65 million and NIS 64 million, respectively. Under the above Regulations should the Company choose to return a frequency, such payment is no longer due. Commencing August 2016, the total amount of frequency fees of both the Company and Hot Mobile under the regulations is split between the Company and Hot Mobile, through PHI ,according to the OPEX-CAPEX mechanism (see also note 9).
(2) At December 31, 2016, the Group is committed to acquire property and equipment and software elements for approximately NIS 20 million.
(3) At December 31, 2016, the Group is committed to acquire inventory in an amount of approximately NIS 1,128 million.
(4) Right of Use (ROU)
The Group signed long-term agreements with service providers to receive indefeasible Rights of Use (ROU) of international capacities through submarine infrastructures (see note 12), most extendable until 2030. As of December 31, 2016, the Group is committed to pay for capacities over the following years an amount of NIS 273 million (excluding maintenance fees) as follows:
New Israeli Shekels in millions 2017 46 2018 46 2019 46 2020 45 2021 and thereafter 90 273
In addition, under the terms of the ROU agreements, the Group is committed to pay annual maintenance fees during the usage period. The total aggregated expected maintenance fee for the years 2017-2023 is approximately NIS 69 million. All payments under the ROU agreements are linked to the USD.
F - 61 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – COMMITMENTS (continued)
(5) In April 2012 - the Company entered into a five-year agreement with Bezeq - The Israel Telecommunication Corp., Ltd. ("Bezeq"), effective from January 1, 2012 to December 31, 2016, for the supply of transmission services for use in Partner's mobile network. Commencing April 2015, Hot Mobile undertakes its share in these expenses through PHI according to the OPEX-CAPEX mechanism, see note 9.
(6) Liens and guarantees
As of December 31, 2016, the Group has provided bank guarantees in respect of licenses (see note 1(d)) in an amount of NIS 100 million, in addition to bank guarantees in favor of other parties in an aggregate amount of approximately NIS 71 million. The total bank guarantees provided by the Group as of December 31, 2016 is NIS 171 million.
(7) Covenants and negative pledge – see note 15(5), (6).
(8) See note 15(4) with respect of loan commitments.
(9) Operating leases – see note 19.
(10) See note 9 with respect to network sharing and PHI's commitments.
NOTE 18 – DEFERRED INCOME WITH RESPECT TO SETTLEMENT AGREEMENT WITH ORANGE
In June 2015, the Company announced that it had entered into a settlement agreement with Orange Brand Services Ltd ("Orange") which created a new framework for their relationship and provided both Partner and Orange the right to terminate the brand license agreement which had been in force since 1998. In accordance with the terms of the settlement agreement, the Company received advance payments in a total of €90 million during 2015; €40 million of which was received between the signing of the agreement and the completion of a market study to assess the Company’s position within the dynamics of the Israeli telecommunications services market; and €50 million of which was received in the fourth quarter of 2015, following the Company’s notice to Orange of its decision to terminate the brand license agreement.
As set forth in the settlement agreement, the advance payments are to be recognized and reconciled evenly on a quarterly basis over a period until the second quarter of 2017, against contingent marketing, sales, customer services and other expenses to be incurred over this period. The income is recorded in the Company’s income statement under “Income with respect to settlement agreement with Orange". For 2015 and 2016, the Company recognized income with respect to the settlement agreement in an amount of NIS 61 and NIS 217 million, respectively. Based on a legal opinion obtained by the Company, the advance payments are considered compensation payments and are therefore not subject to VAT charges.
F - 62
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 – OPERATING LEASES
The Group has entered into operating lease agreements as follows:
(1) The Group leases it's headquarter facilities in Rosh Ha-ayin, Israel, with a total of approximately 51,177 gross square meters (including parking lots). The lease term is until the end of 2024. The rental payments are linked to the Israeli CPI.
(2) The Group also leases call centers and retail stores. The leases for each site have different lengths and specific terms. Lease agreements for service centers and retail stores for a period of two to ten years. The Group has options to extend some lease contract periods for up to twenty years (including the original lease periods). Some of the rental payments are linked to the dollar or to the Israeli CPI. Some of the extension options include an increase of the lease payment in a range of 2%-15%.
(3) Lease agreements in respect of cell sites and switching stations throughout Israel are for periods of two to ten years. The Company has an option to extend some of the lease contract periods for up to ten years (including the original lease periods). Some of the rental payments fees are linked to the dollar or linked to the Israeli CPI. Some of the extension options include an increase of the lease payment mostly in a range of 2%-10%.
(4) As of December 31, 2016 operating lease agreements in respect of vehicles are for periods of up to three years. The rental payments are linked to the Israeli CPI.
(5) Non-cancelable minimum operating lease rentals in respect of all the above leases are payable including option periods which are reasonably certain are as follows:
New Israeli Shekels December 31, 2016 In millions 2017 137 2018 107 2019 86 2020 71 2021-2022 116 2023-2024 83 2025-2026 14 2027 and thereafter 16 630
(6) The rental expenses for the years ended December 31, 2014, 2015 and 2016 were approximately NIS 259 million, NIS 260 million, and NIS 213 million, respectively.
F - 63 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – LAWSUITS AND LITIGATIONS
A. Claims
Total provision recorded in the financial statements in respect of all lawsuits against the Group amounted to NIS 76 million at December 31, 2016.
Described below are the main litigation and claims against the Group:
1. Consumer claims
a. Alleged illegal collection of charges, claims or breach of the Consumer Protection Law and Customer agreement claims
This category includes lawsuits and motions for the recognition of these lawsuits as class actions with respect to alleged unlawful collection of charges from customers or alleged breach of the Consumer Protection Law.
Described hereunder are the outstanding consumer purported class actions with respect to lawsuits with a total claim amount of NIS 1,996 million or which have not been quantified, broken down by the amount claimed, as of the date of approval of these financial statements:
Total claims Number of amount (NIS Claim amount claims million) Up to NIS 100 million 7 227 NIS 100-400 million 6 1,364 NIS 400 million - NIS 1 billion 1 405 Over NIS 1 billion - - Unquantified claims 4 - Total 18 1,996
With respect to 3 of the claims mentioned in the table above, the court approved these claims as class actions:
1. On April 13, 2011, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner sent a message to its customers that their internet package was fully utilized before it was fully utilized. The amount claimed in the lawsuit was estimated by the plaintiffs to be approximately NIS 4.6 million. In June 2013, the Court approved the motion and recognized the lawsuit as a class action. In August 2013, Partner filed a request to appeal to the Supreme Court. In February 2014, the Supreme Court dismissed Partner's request, and a hearing has been set. In January 2015, the parties filed a request to approve a settlement agreement. In July 2015, the parties filed an amended request to approve the settlement agreement. In June 2016 the Court approved the request and Partner is currently implementing the approved settlement agreement. The damages that Partner is required to pay are immaterial.
F - 64
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – LAWSUITS AND LITIGATIONS (continued)
2. On May 12, 2011, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner misled certain subscribers with respect to terms and conditions of a content back up service for cellular handsets. The total amount claimed from Partner is estimated by the plaintiffs to be approximately NIS 35 million. In August 2013, the Court approved the motion and recognized the lawsuit as a class action. In June 2016, the parties filed a request to approve a settlement agreement. In December 2016 the Court approved the request and Partner is currently implementing the approved settlement agreement. The damages that Partner is required to pay are immaterial.
3. On September 9, 2010, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner unlawfully charged its customers for services of various content providers which are sent through text messages (SMS). The total amount claimed from Partner is estimated by the plaintiffs to be approximately NIS 405 million. The claim was certified as a class action in December 2016. In February 2017, the plaintiffs filed an appeal to the Supreme Court, regarding the definition of the group of customers. Partner estimates that even if the claim will be decided in favor of the relevant customers, the damages that Partner will be required to pay for, will be immaterial.
With respect to 3 claims mentioned in the table above, with a total amount of NIS 493 million (other than the 3 claims mentioned above), the parties filed requests to approve settlement agreements and with respect to 1 additional claim in the amount of NIS 187 million (other than the 3 claims mentioned above), the court approved a settlement agreement.
In addition to the claims mentioned in the table above, the court approved these claims as a class action and the settlement agreements were fully executed:
1) During 2008, several claims and motions to certify the claims as class actions were filed against several international telephony companies including 012 Smile. The plaintiffs allege that with respect to prepaid calling card services, the defendants misled the consumers regarding certain issues, charged consumers in excess, and formed a cartel that arranged and raised the prices of calling cards. The total amount of damages claimed by the plaintiffs against 012 Smile is approximately NIS 128 million. In November 2010, the court granted the plaintiffs' request and certified the lawsuit as a class action against all of the defendants. In May 2012, the parties signed a settlement agreement regarding the amended request and regarding an additional lawsuit in an amount of NIS 2.7 billion, dealing with similar issues. The parties submitted a revised settlement agreement in December 2014 that was approved by the Court in January 2015. In January 2016, the Court declared that in accordance with the documents filed with the court, the execution of the settlement agreement was completed. The damages that Partner was required to pay were immaterial.
F - 65
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – LAWSUITS AND LITIGATIONS (continued)
2) On November 4, 2013, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner unlawfully reduced the account balance of Pre-Paid subscribers. The amount claimed in the lawsuit was estimated by the plaintiffs to be approximately NIS 35 million. In October 2015, the parties filed a joint request to approve the claim as a class action. In May, 2016, the Court approved the request and in October 2016 Partner completed its obligations in accordance with the claim. The damages that Partner was required to pay were immaterial.
b. Alleged breach of license, Telecom law
This category includes lawsuits and motions for the recognition of these lawsuits as class actions with respect to alleged breaches of licenses or the Communications Law (Telecommunications and Broadcasting).
Described hereunder are the outstanding consumer purported class actions with respect to lawsuits with a total claim amount of NIS 745 million or which have not been quantified, broken down by the amount claimed, as of the date of approval of these financial statements:
Total claims Number of amount (NIS Claim amount claims million) Up to NIS 100 million 13 329 NIS 100-400 million 2 416 Unquantified claims 7 - Total 22 745
With respect to the claims in the above table, the court approved 1 claim as a class action:
On April 3, 2012, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner breached its license conditions in connection with benefits provided to customers that purchased handsets from third parties. The amount claimed in the lawsuit was estimated by the plaintiffs to be approximately NIS 22 million. In September 2014, The Court approved the motion and recognized the lawsuit as a class action. Partner estimates that even if the claim will be decided in favor of the relevant customers, the damages that Partner will be required to pay for will be immaterial.
With respect to 3 claims mentioned in the table above, with a total amount of NIS 63 million (other than the 1 claim mentioned above), the parties filed requests to approve settlement agreements.
F - 66 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – LAWSUITS AND LITIGATIONS (continued)
In addition to the claims mentioned in the table above, the court approved 2 claims as class actions and the settlement agreements were fully executed:
1) On September 26, 2011, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner unlawfully charged payments from customers who requested to port-in their phone number from another cellular operator for services which were given to them prior to the completion of the port-in. The amount claimed in the lawsuit was estimated by the plaintiffs to be approximately NIS 25 million. In March 2013, the Tel-Aviv District Court approved the motion and recognized the lawsuit as a class action. In February 2016, the parties filed a request to approve a settlement agreement. In May 2016, the Court approved the request and in December 2016 Partner completed its obligations in accordance with the settlement agreement. The damages that Partner was required to pay were immaterial.
2) On May 6, 2010, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner unlawfully charged its customers for opening handsets that were locked for use on other cellular networks (SIM lock). The amount claimed in the lawsuit was estimated by the plaintiffs to be approximately NIS 20 million. In August 2013, the Court approved the motion and recognized the lawsuit as a class action. In October 2013, Partner filed a request to appeal to the Supreme Court. In June 2014, the Supreme Court determined a credit mechanism for the relevant group of customers which the parties are implementing. In November 2016, the plaintiffs filed a request to the Court to approve that the verdict regarding the refund to the customers was fully executed. In January 2017 Partner completed its obligations in accordance with the claim. The damages that Partner was required to pay were immaterial.
2. Employees and suppliers claims
This category includes 2 claims with respect to employees and suppliers issues: a claim and a motion for the recognition of this claim as a class action in the amount of NIS 100 million (in September 2016, the parties filed a request to approve a settlement agreement regarding this claim) and a civil lawsuit in the amount of NIS 40 million.
3. Other claims
In addition to all the above mentioned claims the Group is a party to various claims arising in the ordinary course of its operations.
F - 67
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – LAWSUITS AND LITIGATIONS (continued)
B. Contingencies in respect of building and planning procedures
(1) Under the Telegraph Regulations the Company is committed to pay an annual fixed fee for each frequency used. Under the above Regulations should the Company choose to return a frequency, such payment is no longer due.
(2) Section 197 of the Building and Planning Law states that a property owner has the right to be compensated by a local planning committee for reductions in property value as a result of a new building plan.
In January 2006, the Non-ionizing Radiation Law was published, amending the Planning and Building Law so that local Planning and Building committees must require indemnification letters against reduction in property value from the cellular operators requesting building permits.
Accordingly, on January 3, 2006, the National Council for Planning and Building published an interim decision conditioning the issuance of building permits for cell site permits by local planning and building councils upon provision of a 100% indemnification undertaking by the cellular operators. This decision shall remain in effect until it is replaced with an amendment to the National Zoning Plan 36. Between January 3, 2006 and December 31, 2016 the Company provided the local authorities with 511 indemnification letters as a pre-condition for obtaining building permits.
In case the Company shall be required to make substantial payments under the indemnity letters, it could have an adverse effect on the Company's financial results.
According to the company’s management estimation and based on its legal counsel, a provision in the financial statement was not included.
The Company assumes that the requirement to provide indemnification letters might require it to change locations of sites to different, less suitable locations and to dismantle some of its sites. These changes in the deployment of the sites might have an adverse effect on the extent, quality and capacity of the network coverage.
F - 68 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 – EQUITY AND SHARE BASED PAYMENTS
a. Share capital:
The Company's share capital consists of ordinary shares, which are traded on the Tel Aviv Stock Exchange Ltd. under the symbol "PTNR", and are quoted on the NASDAQ Global Select Market™, in the form of American Depositary Shares ("ADSs"), each representing one of the Company’s ordinary shares, under the symbol "PTNR", according to the dual listing regulations. The ADSs are evidenced by American Depositary Receipts ("ADRs"). Since November 2011, Citibank, N.A. serves as the Company's depository for ADSs. The holders of ordinary shares are entitled vote in the general meetings of shareholders and to receive dividends as declared.
Under the provisions of the Company's licenses (note 1(d)), restrictions are placed on transfer of the Company's shares and placing liens thereon. The restrictions include the requirement of advance written consent of the Minister of Communications be received prior to transfer of 10% or more of the Company's shares to a third party. The restrictions require that the "founding shareholders or their approved substitutes", as defined in the cellular license, hold at least 26% of the means of control in the Company, including 5% which must be held by Israeli shareholders (Israeli citizens and residents), who were approved as such by the Minister of Communications.
Through December 31, 2008 the Company purchased its own 4,467,990 shares at the cost of NIS 351 million ("treasury shares"). In accordance with the Israeli Companies Law, the treasury shares are considered dormant shares as long as they are held by the Company, and as such they do not bear any rights (including the right to vote in general meetings of shareholders and to receive dividends) until they are transferred to a third party. Of which 3,603,578 remained as of December 31, 2016. Of which 2,061,201 were allocated as of December 31, 2016 to a trustee on behalf of the Company's employees under the Company's Equity Incentive Plan (see (b) below). These shares are under the control of the Company until vested under the plan and therefore are not presented in the financial statements as outstanding shares until vested (restricted shares ("RSAs")).
b. Share based compensation to employees
(1) Description of the Equity Incentive Plan
Share options and restricted shares were granted to employees in accordance with the 2004 Amended and Restated Equity Incentive Plan (formerly known as the 2004 Equity Incentive Plan or as 2004 Share Option Plan (the "Plan")). On June 18, 2014, the Company's Board of Directors approved certain amendments to the Company's Equity Incentive Plan (the "Plan"). The main amendments to the Plan include: (a) the extension of the Plan for an additional ten years from July 2014 until July 2024; and (b) the addition of the ability to allocate restricted shares ("RSAs") to the Company's employees and officers and necessary related amendments to the Plan (in particular, regarding the right to vote at the general meetings of shareholders and the right to receive dividends distributed with respect to the restricted shares). The committee may set performance targets as a vesting criterion (independently or in combination with other criteria). The plan was further amended in 2015 to the increase of the number of shares which may be granted under the Plan up to a total of 22,917,000 shares. On March, 2016, the Board of Directors approved certain amendments to the Plan.
F - 69 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - EQUITY AND SHARE BASED PAYMENTS (continued)
b. Share based compensation to employees (continued)
(1) Description of the Equity Incentive Plan (continued)
The amendments to the Plan include: (a) amendment to the cashless exercise formula; (b) the ability to allocate restricted share units to the Company’s employees and office holders; (c) automatic extension of the exercise period due to black-out periods; (d) adjustments to the grantee’s rights under any granted securities due to the occurrence of certain events, including a rights offering; (e) a provision allowing the Company's management bodies to decide to pay a grantee the financial benefit embedded in his equity compensation in cash compensation instead of equity compensation, in certain events in which the Company is unable to issue shares resulting from exercise of options or RSUs or to release any restricted share to a grantee; (f) extension of the exercise period as a result of a change of control event; (g) a provision that allows the Company to limit a grantee from making transactions in the granted securities in connection with any underwritten public offering of the Company and (h) certain exercise restrictions in accordance with the Tel Aviv stock exchange rules. These amendments are subject to the approval of the Israeli Tax Authority and the Israeli Securities Authority. The total number of Company's shares reserved for issuance upon exercise of all options or upon the earning of the restricted shares granted under the Plan is 22,917,000, of which 2,699,943 remained ungranted as of December 31, 2016. The vesting of the options and the earning of the restricted shares are subject to vesting/restriction periods. The vesting of the options and the earning of the restricted shares granted after June 2014 are also subject to performance conditions set by the Company's organs. The Company expects that the performance conditions will be met. The Plan's principal terms of the options include:
- Exercise price adjustment: The exercise price of options shall be reduced in the following events: (1) dividend distribution other than in the ordinary course: by the gross dividend amount so distributed per share, and (2) dividend distribution in the ordinary course: the exercise price shall be reduced by the amount of a dividend in excess of 40% of the Company’s net income for the relevant period per share, or by the gross dividend amount so distributed per share ("Full Dividend Mechanism"), depending on the date of granting of the options.
- Cashless exercise: Most of the options may be exercised only through a cashless exercise procedure, while holders of other options may choose between cashless exercise and the regular option exercise procedure. In accordance with such cashless exercise, the option holder would receive from the Company, without payment of the exercise price, only the number of shares whose aggregate market value equals the economic gain which the option holder would have realized by selling all the shares purchased at their market price, net of the option exercise price.
(2) Information in respect of options and restricted shares granted under the Plan:
Through December 31, 2016 Number of Number of options RSAs Granted 30,102,849 3,791,622 Shares issued upon exercises and vesting (6,111,330) (864,412) Cancelled upon net exercises, expiration and forfeitures (12,705,618) (971,796) Outstanding 11,285,901 1,955,414 Of which: Exercisable 5,912,904 Vest in 2017 2,535,575 916,070 Vest in 2018 2,481,751 890,588 Vest in 2019 355,671 148,756
As of December 31, 2016 the Company expects to record a total amount of compensation expenses of approximately NIS 31 million during the next three years with respect to options and restricted shares.
F - 70 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - EQUITY AND SHARE BASED PAYMENTS (continued)
b. Share based compensation to employees (continued)
(3) Options and RSAs status summary as of December 31, 2014, 2015 and 2016 and the changes therein during the years ended on those dates:
Year ended December 31 2014 2015 2016 Weighted Weighted Weighted average average average Number exercise price Number exercise price Number exercise price Share Options: NIS NIS NIS Outstanding at the beginning of the year 6,928,382 43.46 8,962,116 32.08 12,686,317 29.52 Granted during the year 3,897,270 26.25 5,519,031 17.41 998,433 18.14 Exercised during the year (828,950) 16.30 (32,880) 13.12 (284,251) 15.74 Forfeited during the year (334,570) 32.83 (1,459,215) 28.7 (1,219,648) 20.58 Expired during the year (700,016) 57.72 (302,735) 58.61 (894,950) 38.16 Outstanding at the end of the year 8,962,116 32.08 12,686,317 29.52 11,285,901 29.14 Exercisable at the end of the year 4,902,943 47.25 4,615,076 45.97 5,912,904 37.77 Shares issued during the year due exercises 385,943 14,511 47,484
RSAs: Outstanding at the beginning of the year 1,589,990 2,900,626 Granted during the year 1,594,850 1,779,596 417,176 Vested during the year (6,015) (858,397) Forfeited during the year (4,860) (462,945) (503,991) Outstanding at the end of the year 1,589,990 2,900,626 1,955,414
Options granted Options granted Options granted in 2014 in 2015 in 2016 Weighted average fair value of options granted using the Black & Scholes option-pricing model – per option (NIS) 6.92 5.37 5.02 The above fair value is estimated on the grant date based on the following weighted average assumptions: Expected volatility 31.66% 39.28% 39.5% Risk-free interest rate 1.00% 0.54% 0.54% Expected life (years) 4 3 3 Dividend yield * * *
* Due to the Full Dividend Mechanism the expected dividend yield used in the fair value determination of such options was 0% for the purpose of using the Black & Scholes option-pricing model.
The expected volatility is based on a historical volatility, by statistical analysis of the daily share price for periods corresponding the option's expected life. The expected life is expected length of time until expected date of exercising the options, based on historical data on employees' exercise behavior and anticipated future condition. The fair value of RSAs was evaluated based on the stock price on grant date.
F - 71 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - EQUITY AND SHARE BASED PAYMENTS (continued)
b. Share based compensation to employees (continued)
(4) Information about outstanding options by expiry dates
Share options outstanding as of December 31, 2016 have the following expiry dates and exercise prices:
Weighted Number of average exercise Expire in options price in NIS 2017 748,729 42.07 2018 50,000 23.61 2019 1,218,271 49.82 2020 2,915,328 37.14 2021 5,175,460 19.99 2022 1,178,113 20.14 11,285,901 29.14
F - 72 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 – EXPENSES
(a) Cost of revenues New Israeli Shekels Year ended December 31, 2014 2015 2016 In millions Transmission, communication and content providers 981 888 814 Cost of equipment and accessories 738 852 625 Wages, employee benefits expenses and car maintenance 366 320 270 Depreciation and amortization (including impairment) 596 577 501 Costs of handling, replacing or repairing equipment 88 88 93 Operating lease, rent and overhead expenses 332 315 258 Network and cable maintenance 120 145 150 Internet infrastructure and service providers 29 49 68 Car kit installation, IT support, and other operating expenses 86 72 62 Amortization of rights of use (including impairment) 37 112 30 Other 46 54 53 Total cost of revenues 3,419 3,472 2,924
(b) Selling and marketing expenses New Israeli Shekels Year ended December 31, 2014 2015 2016 In millions Wages, employee benefits expenses and car maintenance 205 206 177 Advertising and marketing 49 30 68 Selling commissions, net 83 77 82 Depreciation and amortization (including impairment) 45 55 55 Operating lease, rent and overhead expenses 25 27 29 Other 31 22 15 Total selling and marketing expenses 438 417 426
(c) General and administrative expenses New Israeli Shekels Year ended December 31, 2014 2015 2016 In millions Wages, employee benefits expenses and car maintenance 71 84 101 Bad debts and allowance for doubtful accounts 39 63 82 Professional fees 27 31 32 Credit card and other commissions 18 16 14 Depreciation 11 9 9 Other 27 20 25 Total general and administrative expenses 193 223 263
F - 73 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 – EXPENSES (continued)
(d) Employee benefit expense New Israeli Shekels Year ended December 31, 2014 2015 2016 In millions Wages and salaries including social benefits, social security costs, pension costs and car maintenance before capitalization 683 622 537 Less: expenses capitalized (notes 10, 11) (85) (65) (65) Service costs: defined benefit plan (note 16) 19 21 17 Service costs: defined contribution plan (note 16) 17 15 14 Amortization of share based compensation (note 21(b)) 8 17 45 642 610 548
See also note 28 with respect of collective employment agreement.
NOTE 23 – OTHER INCOME, NET
New Israeli Shekels Year ended December 31, 2014 2015 2016 In millions Unwinding of trade receivables 47 46 41 Other income, net 2 * 4 Capital gain from property and equipment 1 1 * 50 47 45
* Representing an amount of less than 1 million
F - 74
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 – FINANCE COSTS, NET
New Israeli Shekels Year ended December 31, 2014 2015 2016 In millions Net foreign exchange rate gains 7 Fair value gain from derivative financial instruments, net 2 * CPI linkage income 9 2 Interest income from cash equivalents 3 1 1 Other * 1 3 Finance income 3 13 13
Interest expenses 123 136 105 CPI linkage expenses 3 Fair value loss from derivative financial instruments, net 7 Net foreign exchange rate losses 18 9 Other finance costs 11 11 13 Finance expenses 162 156 118 159 143 105
* Representing an amount of less than 1 million
F - 75
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25 – INCOME TAX EXPENSES
a. Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985
Under this law, results for tax purposes through tax-year 2007 were measured in real terms, having regard to the changes in the Israeli CPI. Commencing the tax-year 2008 and thereafter the Company and its subsidiaries are measured for tax purposes in nominal values, except for certain transition provisions: certain losses carryforward for tax purposes, and certain tax deductible depreciation expenses are adjusted to the changes in the CPI until the end of 2007.
b. Corporate income tax rates applicable to the Group
The Group is taxed according to the regular corporate income tax in Israel.
On August 5, 2013, the Law for Change of National Priorities (Legislative Amendments for Achieving the Budgetary Goals for 2013-2014), 2013 was published, enacts, among other things, the raising of the corporate tax rate beginning in 2014 and thereafter to 26.5% (instead of 25%).
In January 2016, the Law for the Amendment of the Income Tax Ordinance (No. 216) was published, enacting a reduction of corporate tax rate in 2016 and thereafter, from 26.5% to 25%.
In December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Year), 2016 was published, enacting that the corporate tax rate will be 24% in 2017 and 23% in 2018 and thereafter.
The above reductions (in January and December 2016) of the corporate tax rate resulted in a reduction of NIS 7 million in the Group's deferred tax assets in 2016, which was recognized as an expense in the income statement.
F - 76
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25 - INCOME TAX EXPENSES (continued)
c. Deferred income taxes
Balances of deferred tax asset (liability) in NIS millions are attributable to the following items:
Charged to Charged to other other Charged to Effect of Balance of deferred As at Charged to comprehen- As at Charged to comprehen- As at Charged to other change in As at tax asset (liability) in January 1, the income sive December the income sive December the income comprehensive corporate December respect of 2014 statement income 31, 2014 statement income 31, 2015 statement income tax rate 31, 2016 Allowance for doubtful accounts 54 (10) 44 1 45 6 (6) 45 Provisions for employee rights 18 (1) 2 19 (4) (1) 14 * 2 (2) 14 Depreciable fixed assets and software (92) 22 (70) 17 (53) 13 5 (35) Intangibles, deferred expenses and carry forward losses 23 (16) 7 15 22 (8) (5) 9 Options granted to employees 1 * 1 2 3 4 (1) 6 Other 8 1 9 9 18 (18) 2 2 Total 12 (4) 2 10 40 (1) 49 (3) 2 (7) 41
* Representing an amount of less than NIS 1 million.
F - 77 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25 - INCOME TAX EXPENSES (continued)
c. Deferred income taxes (continued)
New Israeli Shekels December 31, 2015 2016 In millions Deferred tax assets Deferred tax assets to be recovered after more than 12 months 92 87 Deferred tax assets to be recovered within 12 months 50 37 142 124 Deferred tax liabilities Deferred tax liabilities to be recovered after more than 12 months 85 72 Deferred tax liabilities to be recovered within 12 months 8 11 93 83 Deferred tax assets, net 49 41
d. Following is a reconciliation of the theoretical tax expense, assuming all income is taxed at the regular tax rates applicable to companies in Israel (see (b) above), and the actual tax expense:
New Israeli Shekels Year ended December 31 2014 2015 2016 In millions Profit (loss) before taxes on income, as reported in the income statements 241 (36) 88 Theoretical tax expense 64 (9) 22 Increase in tax resulting from disallowable deductions 15 7 11 Taxes on income in respect of previous years 7 (4) Change in corporate tax rate, see (b) above 7 Other * (1) * Income tax expenses 79 4 36
* Representing an amount of less than NIS 1 million.
F - 78 PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25- INCOME TAX EXPENSES (continued)
e. Taxes on income included in the income statements:
New Israeli Shekels Year ended December 31 2014 2015 2016 In millions For the reported year: Current 72 37 31 Deferred, see (c) above 4 (40) 2 Effect of change in corporate tax rate on deferred taxes 7 In respect of previous year: Current 3 7 (4) 79 4 36
f. Tax assessments:
1) The Company has received final corporate tax assessments through the year ended December 31, 2013.
2) A subsidiary has received final corporate tax assessments through the year ended December 31, 2013.
3) As general rule, tax self-assessments filed by another two subsidiaries through the year ended December 31, 2012 are, by law, now regarded as final.
F - 79
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES
a. Key management compensation
Key management personnel are the senior management of the Company and the members of the Company's Board of Directors.
New Israeli Shekels Year ended December 31 2014 2015 2016 Key management compensation expenses comprised In millions Salaries and short-term employee benefits 20 23 22 Long term employment benefits 3 4 3 Employee share-based compensation expenses 2 4 17 25 31 42
New Israeli Shekels December 31, 2015 2016 Statement of financial position items - key management In millions Current liabilities: 7 10 Non-current liabilities: 14 12
b. In the ordinary course of business, key management or their relatives may have engaged with the Company with immaterial transactions that are under normal market conditions.
c. Principal shareholder: On January 29, 2013, S.B. Israel Telecom Ltd. completed the acquisition of 48,050,000 ordinary shares of the Company and became the Company's principal shareholder. See also note 1(a).
F - 80
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (continued)
d. Associates – investment in PHI
Balances and transactions with PHI (see also note 9):
New Israeli Shekels Year ended December 31 2015 2016 In millions Cost of revenues (7) (2)
New Israeli Shekels December 31, 2015 2016 In millions Deferred expenses - Right of use 4 41 Current assets (liabilities) 25 (5)
NOTE 27 –EARNINGS (LOSS) PER SHARE
Following are data relating to the net income (loss) and the weighted average number of shares that were taken into account in computing the basic and diluted EPS:
Year ended December 31 2014 2015 2016 Profit (loss) used for the computation of basic and diluted EPS (NIS in millions) 162 (40) 52
Weighted average number of shares used in computation of basic EPS (in thousands) 155,802 156,081 156,268
Add - net additional shares from assumed exercise of employee stock options and restricted shared (in thousands) 598 0 1,828
Weighted average number of shares used in computation of diluted EPS (in thousands) 156,400 156,081 158,096
Number of options and restricted shares not taken into account in computation of diluted earnings per share, because of their anti-dilutive effect (in thousands) 8,101 15,587 8,906
F - 81
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 28 – COLLECTIVE EMPLOYMENT AGREEMENT
The Company, the employees' representatives and the Histadrut New General Labor Organization, have reached understandings regarding a retirement plan that includes, among others, an increased retirement payment and range of benefits. This plan is a continuation of the necessary efficiency measures that the Company has initiated over the last few years. As a result, the Company recorded a onetime expense of approximately NIS 35 million in the third quarter of 2015.
The Company signed in 2016 a collective employment agreement with the employees' representatives and the Histadrut New General Labor Organization. The agreement includes an organizational chapter that is for a period of three years (2016-2018) and an economic chapter that is valid for the years 2017 and 2018.
The cost of the 2017 economic chapter is estimated at approximately NIS 7 million in addition to the implementation of all of the sections of the 2016 economic chapter (which is estimated at approximately NIS 10 million). The total estimated amount of the expense in 2017, for the collective employment agreement, is therefore expected to be higher than 2016 by approximately NIS 17 million.
The cost of the 2018 economic chapter is estimated at approximately NIS 23 million, in addition to the estimated expense for the Company for 2017 for the collective employment agreement.
The collective employment agreement also refers to the participation of employees in the Company's profits and regulates the eligibility conditions for receipt of these awards for the years 2017 and 2018.
F - 82
Exhibit 4.(a).2.1
State of Israel Ministry of Communications
Unified General License to Partner Land-Line Communications Solutions Limited Partnership for the Provision of Telecommunications Services
Integrated version correct to 5 Tevet 5777 [January 3, 2017]
This integrated version was drawn up on the basis of the following documents
Original license of* 15.01.07 Amendment no. 0 of 11.02.16 Amendment no. 1 of 02.05.16 Amendment no. 2 of 28.06.16 Amendment no. 3 of 06.10.16 Amendment no. 4 of 12.12.16
This integrated version was prepared for the reader’s convenience; in any instance of an inconsistency between this version and the Original License and amendments thereto, the prevailing version is the Original License and amendments thereto. This version does not include appendices that are not published for public perusal.
Ministry of Communications, Engineering and Licensing Division Telephone: 03-5198230/264 9 Ehad Ha’am Street, Shalom Tower, Tel-Aviv Fax: 03-5198244
* Special General License ** Replacement of Special General License with a Unified License Unified General License to Partner Fixed-Line Communications Solutions Limited Partnership for the Provision of Telecommunications Services Integrated version correct to January 3, 2017
State of Israel Ministry of Communications
License Amendment – Unified General License
By virtue of the authority of the Minister of Communications pursuant to section 4(e) of the Communications Law (Telecommunications and Broadcasting), 5742 – 1982, which has been delegated to me, and by virtue of all other authorities pursuant to any law, and after Partner Land-Line Communications Solutions Limited Partnership (hereinafter: "the Licensee") was given an opportunity to voice its arguments, I hereby amend the Licensee's General License with the following version.
The attached version of the License cancels and supersedes the version of the General License for the Provision of Domestic Fixed-Line Service granted to the Licensee on January 15, 2007 (hereinafter: the License Grant Date”) and all amendments made thereto up until the date of this amendment.
The amendment of This License was drawn up in the format of a version of a unified general license;
The License is valid for a period of twenty (20) years, as of the License Grant Date.
This version of the License shall be marked as the original and, as of the date of this amendment, this version shall be the binding version.
License amendments to this version shall be marked as of amendment no. 1.
______2 Adar Alef 5776 Shlomo Filber (11 February 2016) The Director-General
State of Israel Ministry of Communications
Unified General License to Partner Land-Line Communications Solutions LP for the Provision of Telecommunications Services
State of Israel Ministry of Communications
Unified General License to Partner Land-Line Communications Solutions LP for the Provision of Telecommunications Services
Granting of a License
By virtue of my authority pursuant to the Communications Law (Telecommunications and Broadcasting), 5742 – 1982, the Wireless Telegraph Ordinance [New Version], 5732 – 1972, and by virtue of all my other authorities pursuant to any law, I grant a License to Partner Land-Line Communications Solutions Limited Partnership for the provision of telecommunications services to the public in Israel through a system as specified in This License.
This License supersedes any previous version of a General License for the Provision of International Telecommunications Service (“ILD Operator”), a Special General License for the Provision of Domestic Fixed-line Telecommunications Service (“Fixed-line Domestic Operator”), a License for Mobile Radio Telephone on Another Network for the Provision of Mobile Domestic Telecommunications Service (“Mobile Domestic Operator”).
The License is issued for the period specified in the License and is subject to the following conditions:
The version of This License was replaced by a Uniform General License on 23 Adar Alef 5776 (3 March 2016).
TABLE OF CONTENTS
GRANTING OF A LICENSE I CHAPTER A - GENERAL 1 Section A - Definitions and Interpretation 1 1. Definitions 1 2. Interpretation 11 3. Cancelled 12 4. The “Blue Pencil” Principle 12 Section B - Legal and Administrative Provisions 13 5. Observation of Laws and Provisions 13 Section C – Scope and Validity of the License 14 6. The Scope of the License 14 7. Validity and Term of the License 14 8. Extending the Period of the License 15 9. The Minister’s Announcement of the Extension of the Period of the License 17 10. Termination of the Period of the License 17 Section D – Amending, Enforcing and Revoking of the License 18 11. Amending the Conditions of the License 18 12. Revoking of the License 18 CHAPTER B – STRUCTURAL SEPARATION, OWNERSHIP, ASSETS AND MEANS OF CONTROL 20 Section A – Structural Separation 20 13. Structural Separation 20 14. Prohibition of Giving Preference 20 Section B: Restrictions in Relation to the Transfer of the License’s Assets 22 15. Definitions 22 16. Restrictions on a Transfer of the License’s Assets 22 Section C: Means of Control – Changes and Restrictions 23 17. Details of the Licensee 23 18. Transfer of a Means of Control 23 19. Irregular Holdings 24 20. Pledge of a Means of Control 25 CHAPTER C – ESTABLISHMENT, DEVELOPMENT, MAINTENANCE AND OPERATION OF THE NETWORK 26 Section A – Establishment and Development of the Network 26 21. General 26 22. Establishment and Development of the Network 26 23. Network Development or Upgrade Plan 26 24. Implementation Stages and Timetable 27 25. Change in Plans during the Establishment and Development 27 26. Report on Establishment and Development Works 28 27. Backup in Conjunction with another Licensee 28 28. Supervision of Establishment and Development Works 28 29. Repair of Deficiencies and Defects 29 Section B – Interconnection and Use 30 30. Interconnectivity Obligation 30 31. Rules regarding the Implementation of Interconnection 30 32. Payment for Traffic Completion and Interconnection 32 33. Prohibition of Delaying Interconnection 33 34. Prohibition of Interconnection to the Palestinian Authority 33 35. Provision of Possibility of Use 33 36. Infrastructure Service to an Interested Company 34 Section C – Operation of the Network 35 37. Operation Start Date 35 38. Authorization to Operate 35 39. Operation in the Territory of the Judea and Samaria Civil Administration 36 40. Preparations to Ensure Functional Continuity during Emergencies 36
II
Section D: Tests and Maintenance 37 41. Definitions 37 42. Maintenance and the Performance of Tests 37 43. Test, Malfunction and Maintenance Log 38 44. Repair of Deficiencies and Defects 38 Section E: Equipment Tests and Installation Approvals 39 45. End Devices 39 46. Maintenance Obligation 43 Section F – Use of Frequencies in Wireless Segments 44 47. Definitions 44 48. Allotment and Use of Frequencies 44 49. Conditions for Use of Frequencies 45 50. Safety during the Use of Frequencies and Prevention of Interference 45 Section G – Numbering 47 51. Operation According to the Numbering Plan 47 52. Telephone Numbers and Ranges of Numbers 47 Section H – Security-related Arrangements 49 53. The Provision of Services to the Security Forces 49 54. The Security Provisions 49 CHAPTER D – PROVISION OF SERVICES TO SUBSCRIBERS 51 Section A – Engagement with Subscribers 51 55. The Engagement Agreement 51 56. Remote Sale Transaction 59 57. Amendment to the Engagement Agreement 63 58. Cancelled. 64 59. The Obligation to Connect Applicants and the Prohibition of Stipulations 64 Section B – Conflicts of Interest and Harm to Competition 65 60. Prohibition of Conflicts of Interests 65 61. Prohibition of Harm to Competition 65 Section C – Standards of Service to Subscribers 66 62. Obligation to Maintain the Service 66 63. Call Center 69 64. Ombudsman 69 64A. Dispute Settlement 71 65. Protection of Subscriber Privacy 71 66. Prevention of Fraud 72 67. Subscribers’ Bills 72 68. Public Emergency Services 77 69. Blocking Service to Harassing Subscribers 77 69A. Personal Message Service 79 70. Information Service for Clarifying Telephone Numbers 81 71. Service File 83 71A. Erotic Service 85 71B. Premium Service 85 72. International Roaming Service through the Network of an MRT Operator in a Neighboring Country 85 73. Offensive sites and content 86 Section D - Suspension or Disconnection of Service and Termination of an Engagement 88 74. Definitions 88 75. Termination of Service 88 76. Prohibition of Suspension or Disconnection of Service 89 77. Suspension of Service at a Subscriber’s Request 89 78. Disconnection of Service at a Subscriber’s Request 90 78A. Termination of an Engagement at a Subscriber’s Request 90 78B. Saving the Telephone Number upon Termination of an Engagement 91 78C. Suspension or Disconnection of Service or Termination of an Engagement – General Provisions 91 79. Suspension or Disconnection of Service Due to Breach of Agreement 93 80. Disconnection of Service due to Maintenance Operations 94 81. Blocking of End Devices and MRT Services Due to Theft or Loss 96 82. Disconnection of Service to Dormant Subscribers 100
III
Section E – Provision of Service Through Another Entity 103 83. Engagement with Another Entity 103 83A. Joint Service Bundle 103 CHAPTER E - PAYMENT FOR SERVICES 108 Section A - General 108 84. Definitions 108 85. Types of Payments 108 85A. Connection fee 111 85B. SIM card fee 111 86. Collection of a Subscriber Fee in Installments 112 Section B – Setting and Advertising of Tariffs 113 87. Setting of the Tariffs and their Rates 113 88. Payment for Completion of a Call in Another Public Telecommunications Network 119 89. Completion of a Short Message Service (SMS) in a Network of Another Public Telecommunications Network 119 Section B1 – Service Package in Israel 120 90. Notice of Utilization of Services in Israel 120 Section B2 – International Roaming Service Package 124 90A. Charges for International Roaming Service 124 91. Publication of Tariffs 133 Section C – Amendments to Tariffs 134 92. Change in Tariffs 134 93. Inception of a Change in a Tariff 136 94. Late Payments 136 Section D – Miscellaneous 137 95. Overcharging 137 CHAPTER F - PAYMENTS FROM THE LICENSEE, LIABILITY, INSURANCE AND GUARANTEE 139 Section A - Liability and Insurance 139 96. Definition 139 97. Liability of the Licensee 139 98. Drawing Up of an Insurance Contract 139 99. Conditions in the Insurance Contract 140 100. Remedy for Breach of Insurance Conditions 141 Section B - Guarantee for Fulfilling the License Conditions 142 101. Rate of the Guarantee and the Date of its Issue 142 102. The Guarantee and its Objective 142 103. Confiscation of the Guarantee 142 104. Mode of Confiscation of the Guarantee 143 105. The Period of Validity of the Guarantee 143 106. Reservation of Remedies 144 CHAPTER G - SUPERVISION AND REPORTING 145 Section A - Supervision of the Licensee’s Operations 145 107. Authority to Oversee 145 108. Safeguarding of Confidentiality 145 109. Entry into Premises and Perusal of Documents 145 110. Cooperation 146 Section B - Reporting and Rectification of Deficiencies 147 111. Obligation to Submit Reports 147 112. Types of Report and their Submission Dates 147 113. Notice of Deficiency 149 113A. Retention of documents and recordings 149 CHAPTER H - MISCELLANEOUS 150 114. The License as an Exhaustive Document 150 115. Perusal of the License Documents 150 116. Time Deferments 151 117. Reservation of Liability 151 118. Mode of Sending Notice 151 119. Cancelled. 151
IV Chapter A - General Section A - Definitions and Interpretation
1. Definitions
1.1 In This License:
“Type Approval” - Type Approval given by virtue of the Law or by virtue of the Ordinance for a model of an End Device for the purpose of connecting it to a network; “The Treaty” - constitution and treaty of the International Telecommunications Union (ITU) and the relevant administrative regulations for radio and telephone, as instituted from time to time; “Means of Control” - as defined in the Law; “The Licensee” - Partner Land-Line Communications Solutions LP; “Licensee” - entity who received a General License, a Special License or a General Permit for the Performance of Telecommunications Operations and for the Provision of Telecommunications Services; “Board of Directors” - including a corresponding body in another corporation; “Technical and Quality of Service Requirements” - standards of availability and quality of service, standards for telecommunications installations and for telecommunications services and instructions for installation, operation, updating and maintenance, all in accordance with This License, and as the Director shall order from time to time in relation to the Licensee’s services; “Holding” - as this term is defined in the Law; “Engagement Agreement” - contract that serves as an engagement between the Licensee and a Subscriber, for the provision of all or a portion of the Licensee's Services;
“Transfer” - for the purposes of Means of Control, whether directly or indirectly, whether for a consideration or for no consideration, whether indefinitely or for a defined period, whether simultaneously or in portions; “Company” - including another corporation; “Parent Company” - company with significant influence over another Company. “Interested Company” - Parent Company, Subsidiary, Sister Company, Company that is an Interested Party, Affiliated Company, Related Company, Allied Company and a Partner Company; “Subsidiary” - company over which another company exerts significant influence; “Affiliated Company” - company in which another company is an Interested Party; “Related Company” - company, whose investments in another company are at a ratio of at least twenty-five percent (25%) of its equity, whether in shares or in some other manner, excluding a loan provided during the ordinary course of business; “Sister Companies” - companies, when an entity having significant influence over one of them also has significant influence over the other; “Allied Companies” - companies, when an entity having significant influence over one of them also is influential in the other; “Partner Companies” - each of these: (1) companies, when they both have significant influence over a third company; (2) companies, when they are both Related Companies of a third company; (3) companies, when one of them is a Related Company to a third company, while the other has significant influence over it;
2 “The Bezeq Corporation”1 - Bezeq, Israel Telecommunications Corporation Ltd.; “Bill” or2 “Telephone Bill”3 - bill that the Licensee submits to a Subscriber for services that it itself provided to the Subscriber or for Goods that it sold or leased to him4 or for services that were provided to the Subscriber by another Licensee or by a service-provider; “The Law” - The Communications (Telecommunications and Broadcasting) Law, 5742 – 1982; 5“Goods” - As defined in section 3 of the Interpretation Law, 5741 – 1981; “The Security Forces” - as defined in section 13 of the Law; “Applicant” - whoever asks to engage in an Engagement Agreement or a purchase agreement with the Licensee;6 “Telecommunications Installation” - as defined in the Law; “The Director” - The Director-General of the Ministry of Communications or his delegate for the purposes of This License, generally or for a particular matter;
1 Amendment no. 1 [Inception: this amendment shall come into effect by no later than July 1, 2016]. 2 Amendment no. 5. 3 Amendment no. 1 [Inception: this amendment shall come into effect by no later than July 1, 2016]. 4 Amendment no. 5. 5 Amendment no. 5. 6 Amendment no. 5.
3
“Subscriber” - whoever engages in an Engagement Agreement with the Licensee for the purpose of receiving its services as an end-user. “Prepaid Subscriber” - Subscriber who pays in advance to receive a service from the Licensee; “Business Subscriber” - Subscriber that is one of the following: (a) corporation, as defined in the Interpretations Law, 5741 – 1981; (b) government ministries and other quasi-governmental bodies; (c) a licensed dealer, except for an exempt dealer; (d) a body that was incorporated in a law or by-law. 7“Split Business Subscriber” - a user of the End Device, when his Telephone Bill is split between himself and a Business Subscriber or when he is charged for the entire Telephone Bill; “Non-Business Subscriber” - Subscriber other than a Business Subscriber and other than a Split Business Subscriber;8 “Dormant Subscriber” - Subscriber to Telephony Service, that fulfills all of the following conditions: (a) has not received and has not made use of a Telephony Service of the Licensee for at least one year; (b) is not paying any fixed payment to the Licensee for a Telephony Service; (c) is not engaged with the Licensee in a plan that includes a commitment period for a Telephony Service. “International Telecommunications System” - system of Telecommunications Facilities installed in Israel, which is used or is designated to be used for the transfer of telecommunications messages originating in Israel, but whose destination is in another country or vice-versa, or for the transfer of telecommunications messages between destinations located in different countries; and excluding End Devices;
7 Amendment No. 5. 8 Amendment No. 5
4
“MRT System (Mobile Radio Telephone)” - system of wireless installations built according to the cellular method and other installations through which Mobile Radio Telephone Services are provided to the public; “Domestic Operator” - a fixed-line domestic operator and a mobile domestic operator; “Mobile Domestic Operator” - MRT Operator and an MRT Operator on another network; “Fixed-line Domestic Operator” - holder of a General License that provides a fixed-line domestic service; “MRT Operator” - holder of a General License for the Provision of Mobile Radio Telephone Services, excluding an MRT Operator on Another Network; “MRT Operator on Another Network” - Holder of a General License, who provides MRT Services through the use of all or a portion of an MRT System of another entity, and at least of the Access Network of the said MRT System; “The Ministry” - The Ministry of Communications; “Switch” - Telecommunications Installation that contains and operates means of switching and transmission that enable the creation of a connection between various End Devices that are connected or linked to it and enable the provision of various telecommunications services to Subscribers of the Licensee or to Subscribers of other Licensee; “Officer” - as defined in the Regulations; “NTP (Network Termination Point)” - interface to which a Public Telecommunications Network is connected at one end, and End Devices, a private network, or another Public Telecommunications Network, as the case may be, is connected at the other end;
5
“Bundle of Services” - a number of services being marketed to a Subscriber as a single package; “One-time Transaction”9 - transaction that is not an Ongoing Transaction; “Ongoing Transaction”10 - Engagement Agreement for the purchase of the Licensee’s Services continuously and on an ongoing basis, including any amendment or addendum to the agreement that does not constitute a new transaction, and all, whether the Engagement Agreement is for a defined period or for an indefinite period; “The Ordinance” - The Wireless Telegraph Ordinance [New Version], 5732 – 1972; “End Devices” - Fixed-line End Devices or MRT End Devices; “Fixed-line End Devices” - telecommunications equipment for a Subscriber’s use, which connects or is intended to be connected from the Subscriber’s premises or from any other location to a Public Telecommunications Network, through a designated interface; “MRT End Devices” - telecommunications equipment for a Subscriber’s use, which connects or is intended to be connected to a Public Telecommunications Network through a designated interface, for wireless communications; “Interconnection” - as defined in section 5 of the Law; “Relative” - spouse, including common-law spouse, parent, a parent’s parent, offspring and the offspring’s offspring, sibling and the spouse of each of these;
9 Amendment no. 1 [Inception: this amendment shall come into effect by no later than July 1, 2016]. 10 Amendment no. 1 [Inception: this amendment shall come into effect by no later than July 1, 2016].
6 “The License” - This License and all appendices thereto, as shall be updated from time to time, as well as any other document or condition that the License defines as constituting an integral part of the License or of its conditions; “The Network” - the Public Telecommunications Network of the Licensee, through which the Licensee’s Services are being provided; “The Host Network” - all or a portion of an MRT System of an MRT Operator when the provision of the Licensee’s Services involves the use thereof; “Public Telecommunications Network” - as defined in the Law;
“Access Network” - as defined in the Law; “Private Network” - Telecommunications Network that is used or is intended to be used by a particular person or a group of particular people with a common interest, which connects or is intended to connect to a Public Telecommunications Network by means of an NTP, including switching equipment, connection devices, cables, Transmission equipment and any other Telecommunications Facility, provided that the common interest is not merely the very existence of the Network; “Use” - as defined in section 5 of the Law; 11“Telecommunications Service” - as defined in the law;
11 Amendment no. 5.
7
“International Telecommunications Service” - as defined in the Regulations; “Internet Access Service” - service that enables connection of a Subscriber to the internet, including connection of a content supplier or an application to the internet; “Basic Telephone Service” - switched or routed full duplex transfer, including via modem, of voice or of pseudo-voice telecommunications messages, such as facsimile signals; “Telephone Service Over Broadband – VoB (Voice over - Basic Telephone Service that is provided during use of a broadband access network of another domestic Broadband)” operator; “Telephony Service” - Basic Telephone Service and Ancillary Services to this service; “International Roaming Service” - Mobile Domestic Service provided overseas and in the territories under the Civil Administration of the Palestinian Council via the MRT system of a foreign MRT operator (hereinafter: “Foreign Operator”), whereby the Subscriber pays the Licensee for the service; and similarly – a Mobile Domestic Service provided in Israel via the Network, whereby the Licensee provides a service to a Foreign Operator for the Subscribers of that operator; for this purpose, the “Palestinian Council” – as defined in the Implementation of the Interim Agreement regarding the West Bank and Gaza Strip Law (Jurisdictional Powers and Other Provisions) (Legislative Amendments), 5756 – 1998; “Mobile Domestic Service” - Telecommunications Service being provided to the public by a Mobile Domestic Operator, through an MRT System of its own or of another entity; “Fixed-line Domestic Service” - infrastructure, transmission, data communications service and fixed-line telephony, being provided to the public by a Fixed-Line Domestic Operator;
8
“Infrastructure Service” - allowing another Licensee or a Broadcasting Licensee to use the Network for the purpose of conducting telecommunications operations, including broadcasting, and for the purpose of their provision of Telecommunications Services; “The Licensee’s Services” - the services that the Licensee is permitted to provide pursuant to the License; “Control” - as defined in the Law; “The Minister” - the Minister of Communications, including a person to whom the Minister has delegated all or a portion of his authorities for the purposes of the License; “The Engineering Plan” - the Engineering Plan submitted by the Licensee pursuant to the Regulations, including amendments and supplements made thereto subsequent to the granting of the License; “The Numbering Plan” - plan prescribed by the Director, for the allocation and assignment of telephone numbers, for mandating dialing rules and Number Portability, or any part of the foregoing12, as amended from time to time; “Transmission” - the transfer of electromagnetic signals, including optic signals or a sequence of bits between Telecommunications Facilities of a Licensee, including a Broadcasting Licensee, excluding End Devices; “Billing Period” - A cyclical period of a defined duration, at the end of which a bill is submitted to the Subscriber for payment for the Licensee's Services and for services of a service-provider that were provided to the Subscriber during that period;
12 The plan, which has been formulated, is contained in the document entitled “Numbering Plan for Telephony Services and Value Added Services in Israel,” which can be found on the Ministry of Communications website at http://www.moc.gov.il and in administrative directives issued by the Director from time to time.
9 “The Regulations” - Communications Regulations (Telecommunications and Broadcasting) (Proceedings and Conditions for Receiving a Unified General License, 5770 – 2010; or the MRT on Another Network Regulations, the ILD Operator Regulations and the Unique Domestic Operator Regulations, as the case may be; “Supervision Regulations” - The Communication Regulations (Supervision Over the Operations of a Licensee), 5746 – 1986. “ILD Operator Regulations” - Communications Regulations (Telecommunications and Broadcasting) (Proceedings and Conditions for Receiving a General License for the Provision of International Telecommunications Services, 5764 – 2004; “Unique Domestic Operator Regulations” Communications Regulations (Telecommunications and Broadcasting) (Proceedings and Conditions for Receiving a Unique General License for the Provision of Domestic Fixed-Line Telecommunications Services), 5764 – 2004; “MRT on Another Network Regulations” - Communications Regulations (Telecommunications and Broadcasting) (Proceedings and Conditions for Receiving an MRT License on Another Network), 5770 – 2010; “Data Communications” - the transfer of information and software, excluding voice, between units of End Devices, including computers; in this regard: “information” – data, signals, terms or instructions, excluding software, which are expressed in a computer- readable format and stored in a computer or another storage medium; “computer” – device that operates by means of software in order to perform arithmetic or logical processing of data, and its peripheral equipment, including systems of computers; “software” – set of instructions expressed in a computer-readable format, which is capable of causing a computer to function or to perform an action; “Postpaid”13 - payment for services that is collected from the Subscriber after the Billing Period; “Prepaid”14 - payment for services that is collected from the Subscriber before or at the beginning of the provision of the services;
13 Amendment no. 1 [Inception: this amendment shall come into effect by no later than July 1, 2016]. 14 Amendment no. 1 [Inception: this amendment shall come into effect by no later than July 1, 2016].
10
1.2 Words and expressions in the License that are not defined in clause 1.1, or elsewhere in the License, shall have the definitions as prescribed in the Law, the Ordinance and in the Regulations instituted in accordance with them, or in the Law of Interpretations, 5741 – 1981 (hereinafter – “the Interpretation Law”), unless a different meaning is implicit in the text or in its context.
2. Interpretation
2.1 The clause headings in the License have been provided solely for reading convenience, and are not to be used for purposes of construction or elucidation of the content of any of the terms of the License.
2.2 In any instance of a disagreement about the interpretation of a provision of the License, including a prima facie contradiction between different provisions of the License, or between a provision of the License and another administrative instruction issued by the Law or the Ordinance, the Minister shall decide the interpretation of the provision or decide about the resolution of such contradiction, after having given the Licensee an adequate opportunity to voice its arguments.
2.3 The provisions of the Interpretation Law shall apply to the interpretation of This License, mutatis mutandis.
11 3. Cancelled
4. The “Blue Pencil” Principle
4.1 Revocation or a decision on the matter of the nullification of a condition of This License or a part thereof shall only apply to that condition or part thereof, as the case may be, and they themselves shall not prejudice the binding validity of the License or any other condition contained therein, unless the revocation or nullification dictates another significance.
12 Section B - Legal and Administrative Provisions
5. Observation of Laws and Provisions
5.1 In all matters pertaining to the establishment of the Network, its execution, operation and maintenance and for the execution of telecommunications operations and for the provision of telecommunications services through it, the Licensee shall act in accordance with the License provisions and in accordance with the following:
(a) the provisions of the Law and the Ordinance and secondary legislation pursuant thereto;
(b) administrative instructions issued pursuant to the Law, the Ordinance or secondary legislation pursuant thereto;
(c) international conventions to which Israel is a signatory, on the matter of telecommunications and radio;
5.2 Any law or administrative instruction, as stated in clause 5.1, shall apply to the Licensee as they are in effect from time to time, including the remedies for breaching them, and they shall be deemed an integral part of the Terms of the License.
13 Section C – Scope and Validity of the License
6. The Scope of the License
6.1 Subject to the provisions and conditions of the License, the Licensee may do the following for the purpose of providing the Licensee’s Services:
(a) to establish, maintain, develop and operate a Telecommunications Facility pursuant to the Engineering Plan and to make use thereof;
(b) to connect to the Network, to the another Public Telecommunications Network in Israel;
(c) to use a Public Telecommunications Network of another Licensee.
6.2 The Licensee shall not perform any Telecommunications Operation and shall not provide a Telecommunications Service that requires licensing, unless it is permitted to do so within the scope of the License or pursuant thereto, or within the scope of another License pursuant to the Law or the Ordinance.
6.3 This License cancels and replaces the following licenses:
(a) General License to Partner Landed-Line Communications Solutions LP for the Provision of Fixed-Line Domestic Telecommunications Service that was granted to the Licensee on January 15, 2007 (hereinafter: "the License Grant Date"), and all amendments made therein;
(b) Cancelled;
(c) Cancelled.
7. Validity and Term of the License
7.1 The validity of This License is for a period of twenty (20) years, as of the License Grant Date and, insofar as This License is being issued within the scope of a license replacement, for a period of twenty (20) years as of the grant date of the license that replaced This License, and if This License replaced more than one license, whichever is earlier (hereinafter: “the Period of the License”).
7.2 The Minister may extend the validity of the License for additional periods of ten (10) years each, in accordance with that stated in clause 8 (hereinafter: “the Additional Period”); the initial period and the additional periods shall be called hereinafter – the Period of the License.
14 7.3 Without derogating from that stated above in clause 7.1, the validity of the following provisions shall be as follows:
(a) With regard to the provision of a Fixed-line Domestic Operator Service or an International Service, the inception date of the validity of the consumer provisions shall be on the date to be announced by the Director;
(b) With regard to the provision of an Internet Access Service, the inception date of the validity of the consumer provisions and the provisions of Appendix B.3 – Internet Access Service shall be no later than the date when the Licensee shall have 20,000 Subscribers.
In this clause – “consumer provisions” – the provisions of clauses 55.4-55.7 (Engagement Agreement), 56 (Remote Sale Transaction), 62.7(b), 62.7(c) and 67.8 (obligation to maintain a service), 67.5-67.8 regarding bills to a Business Subscriber, 78.3-78.4 (setting of tariffs and their rates), 90 (notice of utilization of a cellular data package in Israel), 95 (billing of Subscribers), 119 (documents and recordings) and Appendix C.4 – Ordering a Service on the Website of the Licensee and a Service-Provider.
8. Extending the Period of the License
8.1 The Minister may, at the Licensee’s request, extend the Period of the License for an additional period and after considering the considerations specified in section 4(B) of the Law, including all of the following:
(a) The Licensee has complied with the provisions of the Law, the Ordinance, the Regulations pursuant thereto and the provisions of the License;
(b) The Licensee has taken action to constantly improve the services it is providing, their scope, availability and quality, and there was no act or omission in the Licensee’s activity that could harm or restrict competition in the communications sector;
(c) The Licensee is able to continue providing its services at a high standard and is able to implement the necessary investments for the purpose of improving the scope of the Licensee’s Services, their availability and quality.
15 8.2 The Licensee shall submit its application to extend the Period of the License during the forty-five (45) days prior to the period of the eighteen (18) months prior to the expiration of the Period of the License.
8.3 For the purpose of examining the Licensee’s application to extend the Period of the License, the Minister may require the Licensee to furnish any information and document within the timeframe and in the manner that the Minister shall prescribe and, without derogating from the general purport of that stated, the Minister may:
(a) require the Licensee to furnish a summary report that includes the following:
(1) a report summarizing all of the annual reports submitted by the Licensee pursuant to This License between the inception date of the License and the filing date of its application;
(2) a comparison of the data specified in the report in relation to each year with the data of the preceding year, as well as explanations of exceptional variations in the data;
(3) a review of the means, actions and investments taken or implemented by the Licensee to improve the quality, scope and availability of the Licensee’s Services.
(b) require the Licensee to attach any document to the summary report for the purpose of verifying the data detailed in it, supplementing the report or providing any additional datum that is not included therein;
(c) summon the Licensee to appear before him on a reasonable date and answer questions or present documents in its possession or under its control that are related to the data in the summary report;
(d) require the Licensee to submit an updated Engineering Plan to him that describes, inter alia, its plans for the technological updating of the Network and for advancing its services during the first five (5) years of the Additional Period.
8.4 If the Licensee was summoned to appear before the Minister, it shall appear on the date of its summons.
16 9. The Minister’s Announcement of the Extension of the Period of the License
9.1 The Minister shall inform the Licensee in writing of his decision on the matter of its application for an extension of the Period of the License by no later than one year before the expiration of the Period of the License.
9.2 If, after having given the Licensee a fair opportunity to present its arguments to him, the Minister shall decide to reject the application, he shall so notify the Licensee in writing, including his rationale for rejecting its application.
10. Termination of the Period of the License
10.1 If the License was terminated pursuant to clause 12, the Period of the License expired or the License was not extended or renewed, then the Minister may:
(a) instruct the Licensee to continue operating the Network and providing its services that are the subject of this License for a period that shall be defined (hereinafter: “the Service Termination Period”) until a License is awarded to another entity for the provision of the services that are the subject of This License (hereinafter: “the Alternative Licensee”), and until the proceedings have been completed for the transfer of the rights in the Network; the Service Termination Period shall not exceed, in any case, two years after the expiration date of the License;
(b) if the Licensee did not comply with the Minister’s instructions pursuant to subclause (a), the Minister may appoint a trustee for the purpose of continuing the provision of the Licensee’s Services until a License is issued to an Alternative Licensee.
10.2 If the Alternative Licensee submits an offer to purchase its rights in the Network and the Subscribers’ obligations during the Service Termination Period, and to subrogate for the Licensee in relation to the Subscribers’ rights (hereinafter: “Acquisition of the Business”), then the Licensee and the Alternative Licensee shall conduct negotiations for the Acquisition of the Business at its economic worth and as a going concern; should the said Licensees not reach complete agreement within six (6) months of the expiration of the Period of the License, and the parties did not appoint an agreed arbitrator, the Minister is allowed to order that the terms of the Acquisition of the Business shall be determined according to the said principles by an arbitrator to be appointed by the Chairman of the Chartered Accountants Association, according to a request of the said Licensees or either thereof.
10.3 The arbitrator shall issue his decision after having heard the relevant Licensees and having given them an opportunity to present their arguments to him; the arbitrator’s decision shall be issued by no later than three (3) months after his appointment.
17 Section D – Amending, Enforcing and Revoking of the License
11. Amending the Conditions of the License
11.1 The Minister may amend the conditions of the License, add to them or detract from them, in accordance with the provisions of section 4 of the Law and, inter alia, if he finds that one of the following has transpired:
(a) a change has occurred in the extent of the Licensee’s suitability to implement the actions and services that are the subject of the License;
(b) an amendment to the License is required in order to ensure effective and fair competition in the telecommunications sector;
(c) an amendment to the License is required in order to ensure the standards of the services being provided pursuant thereto;
(d) changes that occurred in the telecommunications technology justify amending the License;
(e) changes have occurred in the electromagnetic spectrum needs that justify, in the Minister’s opinion, amendments to the License;
(f) considerations of the public interest justify amending the License;
(g) a change in the government’s policy in the telecommunications sector justifies amending the License;
12. Revoking of the License
12.1 The Minister may revoke the License before its expiration if one or more of the causes specified in section 6 of the Law has transpired, including in any one of the following circumstances:
(a) the Licensee failed to disclose requisite information in its application or disclosed incorrect information therein;
(b) the Licensee was required and refused to provide information to the Minister or to any party on his behalf that is in its possession, and which it had been obligated to disclose by virtue of the provisions of This License or by law, or if the Licensee gave false information to the Minister or to any party on his behalf;
18 (c) the Licensee failed to comply with the provisions of the Law, the Ordinance or the Regulations instituted pursuant thereto;
(f) [sic] a Means of Control over the Licensee, or the Control over it, were transferred in violation of that stated in clause 18;
(h) [sic] the activities of the Licensee included an act or omission that adversely affected or restricted the competition in the communications market.
12.2 If a cause materialized as stated, and the Minister becomes convinced that, under the circumstances, it does not necessitate revoking the License, the Minister shall give the Licensee a fair opportunity to rectify the act or omission that constituted cause for revoking the License.
12.3 If the Minister decided to consider revoking the License, he shall notify the Licensee of this in writing, while explaining the grounds for this, and shall enable the Licensee, within the timeframe that he shall specify in his notification, to present its arguments in relation to the grounds for the revocation; the Minister shall inform the Licensee of his decision in writing while specifying his rationale.
12.4 In his notification of the revoking of the License, the Minister shall specify the date on which the License revocation shall take effect, and he may instruct the Licensee to continue providing the services in accordance with This License until a License is awarded to another entity, or until the appointment of a trustee, or until a receiver is duly appointed for the purposes of managing and operating the Network, as the case may be.
12.5 The Licensee shall continue providing the services up until the date stipulated by the Minister in his notification and shall comply with the provisions of This License and every instruction issued to it by the Minister in this regard.
12.6 The proceedings specified in relation to revoking of the License shall apply, mutatis mutandis, to a restriction or suspension of the License.
19 Chapter B – Structural Separation, Ownership, Assets and Means of Control Section A – Structural Separation
13. Structural Separation
13.1 The Minister shall be allowed to prescribe restrictions and conditions in the License regarding the relations between the Licensee and companies linked to it, including with regard to the manning of roles and the appointment of officers, the transfer of information, the maintaining of separate corporations or a separate accounting system between operations, and this, considering, inter alia, the identity of the Licensee, for reasons of promoting the competition and the public benefit.
13.2 Without derogating from that stated in clause 13.1, the Licensee shall maintain a mechanism for complete accounting separation, through a system for separate accounting reporting for each of the following services: Mobile Domestic Service; Fixed-line Domestic Service; International Telecommunications Service; NTP Service and Internet Access Service. This accounting reporting system shall enable the isolation of income and expenses in respect of the various services, so that it shall be possible to examine each activity during the provision of a service as stated separately from all of the Licensee’s other business activities.
14. Prohibition of Giving Preference
14.1 The Licensee shall refrain from giving preference to a Licensee that is an Interested Company over any other Licensee, in the provision a service to that Licensee, including in relation to payment for the service, the service conditions, the availability of the service, the provision of information concerning the service and in any other way. In this clause: “Licensee” – including a broadcasting licensee.
14.2 The Licensee shall not transfer commercial information to an Interested Company that competes against another Licensee and shall not receive information as stated from it; for this purpose, the Licensee shall prescribe procedures that address, inter alia, the matter of maintaining confidentiality, restrictions on the dissemination of the information within the Licensee and the access to it by employees who are not supposed to handle commercial information within the scope of their roles.
20 For the purposes of this clause:
“Commercial information” – data about a competitor that are not in the public domain that pertain to any one of the following:
(1) recipients of service;
(2) the structure of the Network, the deployment thereof, the technology used to operate it;
(3) plans for expanding a system of Telecommunications Installations, for changes in it and for operating new services through it;
(4) the volume of telecommunications messages transmitted in the Network, the types thereof and their destinations;
(5) marketing or other technological plans or activities of a competitor, when information as aforesaid was furnished to the Licensee or to the general partner, or other business activity when the information about it has been classified by a competitor as Confidential Information.
“Other Licensee” – including a Broadcasting Licensee.
21 Section B: Restrictions in Relation to the Transfer of the License’s Assets
15. Definitions
15.1 For the purposes of this section:
“The License’s Assets” - the assets required to assure the provision of the Licensee’s Services; “Banking Corporation” - as defined in the Banking Law (Licensing), 5741 – 1981, and apart from a “foreign corporation,” as defined in that same law.
16. Restrictions on a Transfer of the License’s Assets
16.1 The Licensee is not allowed to sell, lease or mortgage any of the License’s Assets unless the Minister’s prior written consent has been issued and in accordance with the conditions stipulated by the Minister.
16.2 Without derogating from the general purport of that stated in clause 16.1, the Minister shall give his approval to give title to rights in the License’s Assets to a third party, if he is satisfied that the Licensee has ensured that, in any event, the realization of the rights by the third party shall not cause any damage to the provision of services according to This License, as long as the Licensee is obligated to provide these services according to the provisions of This License.
16.3 Notwithstanding that stated in clause 16.1, the Licensee may pledge any of the License’s Assets in favor of a banking corporation that is legally operating in Israel, for the purpose of obtaining bank credit, provided that it issued advance notice of the intended pledge to the Director, and the pledge agreement contains a clause that ensures that an exercise of the rights by the banking corporation shall not cause any adverse impact on the provisionof services in accordance with This License;
22 Section C: Means of Control – Changes and Restrictions
17. Details of the Licensee
17.1 Details regarding the legal entity of the Licensee, its incorporation, its controlling shareholders, those who have significant influence over it, interested parties in it, and Officers therein, are listed in Appendix A to the License; the Licensee shall provide the Director annually at the beginning of March, with an updated Appendix A.
17.2 The Licensee shall report to the Director in writing about any change in the information included in Appendix A, including any transfer and acquisition of Control or of five percent (5%) or more of a Means of Control over the company owning the Licensee, or a change in the appointment of a Director or a General Manager; this, within fourteen (14) days of the date of the change.
18. Transfer of a Means of Control
18.1 A direct or indirect Holding of any Means of Control over the Licensee, at a ratio of ten percent (10%) or more of the same Means of Control shall not be transferred, whether all at once or in parts, unless the Minister has issued his prior written consent.
18.2 No Means of Control over the Licensee shall be transferred in any way, or a portion of a Means of Control as stated, if, as a result of the transfer, Control over the Licensee shall be transferred from one person to another, unless the Minister has issued his prior written consent.
18.3 No direct or indirect Control over the Licensee shall be acquired, and no person, whether by himself or together with his Relative or with another party, who are acting with him on a regular basis, shall acquire ten percent (10%) or more of any Means of Control over the Licensee, whether all at once or in parts, unless the Minister has issued his prior written consent.
18.4 Notwithstanding that stated in clauses 18.1 and 18.3 above, if a Tradable Means of Control over the Licensee are transferred or acquired at a ratio requiring approval pursuant to clauses 18.1 or 18.3 (other than a transfer or acquisition that results in a transfer of Control), without the Minister’s consent having been sought, the Licensee shall report this to the Minister in writing, and shall file an application to the Minister to approve the transfer or acquisition of the Means of Control over the Licensee as stated, within 21 days of the date on which the Licensee became aware of this.
23 In this clause 18, “Tradable Means of Control” – Means of Control, including Global or American Depository Shares (GDR’s or ADR’s), or similar certificates, registered for trading on a stock exchange in Israel or overseas, or that were offered to the public pursuant to a prospectus and held by the public in Israel or overseas.
18.5 An engagement in an underwriting agreement relating to an issue or sale of securities to the public, a listing for trading on a stock exchange in Israel or overseas, or a deposit or listing of securities with a nominee company or with a depository agent or a custodian for the purpose of listing GDRs or ADRs or similar certificates relating to an issue or sale of securities to the public – shall not be deemed, per se, as a transfer of a Means of Control over the Licensee.
19. Irregular Holdings
19.1 Irregular Holdings shall be recorded in the Licensee’s members’ register (the register of shareholders) stating the fact that they are irregular, immediately upon the Licensee becoming aware of this, and a notice of the entry shall be given by the Licensee to the Holder of such Irregular Holdings and to the Minister.
19.2 Irregular Holdings, recorded as aforesaid in clause 19.1, shall not vest the Holder any rights, and shall constitute “Dormant Shares,” as defined in section 308 of the Companies Law, 5759 – 1999, except in relation to the receipt of a dividend or other distribution to shareholders (including the right to participate in a rights issue that is calculated on the basis of Holdings of a Means of Control over the Licensee, although Holdings to be added as aforesaid shall also be considered Irregular Holdings), and therefore, no action or claim of the exercise of a right by virtue of the Irregular Holdings shall have any validity, except in relation to the receipt of a dividend or any other distribution as aforesaid.
Without derogating from the general purport of that stated above:
(a) A shareholder who participates in a vote during a meeting of shareholders shall inform the Licensee prior to the vote, or, if the voting is by ballot paper, on the ballot paper, whether or not his Holdings in the Licensee or his voting require approval pursuant to clause 18; if a shareholder does not so advise, he may not vote and his vote shall not be counted.
24 (b) No director of the Licensee shall be appointed, elected or removed from office by virtue of Irregular Holdings; if a director shall be appointed, elected or removed from office as aforesaid, the said appointment, election or removal, as the case may be, shall not be valid.
(c) Irregular Holdings shall not vest voting rights in the general meeting.
19.3 The provisions of clause 19 shall be included in the articles of association of the Licensee.
For the purposes of this clause: “Irregular Holdings” – the Holding of a Tradable Means of Control without the Minister’s consent as required under clause 18, and all Holdings of a shareholder of a Tradable Means of Control who acted contrary to the provisions of clause 60; this, as long as the Minister’s consent under clause 18 was requested, but was not issued, or circumstances of a breach of the provisions of clause 60 have transpired.
20. Pledge of a Means of Control
20.1 A shareholder of the company that holds the License, or a shareholder in an Interested Party therein, is not allowed to pledge his shares in a manner so that the exercise of the pledge would cause a change in the ownership by ten percent (10%) or more of any Means of Control over the Licensee, unless the pledge agreement includes a stipulation whereby the pledge cannot be exercised without the Minister’s prior written consent.
25 Chapter C – Establishment, Development, Maintenance and Operation of the Network Section A – Establishment and Development of the Network
21. General
21.1 The Licensee shall establish, develop, maintain, enhance and operate the Network all year round and 24 hours a day, both in peace time and during emergencies, pursuant to the Technical and Quality of Service Requirements, and in a manner enabling the proper and orderly provision of the Licensee’s Services in conformity with This License.
21.2 The Director may prescribe Technical and Quality of Service Requirements from time to time, including with regard to the upgrading and updating of the Network and to the integration of modern technological capabilities.
22. Establishment and Development of the Network
22.1 In relation to all matters pertaining to the establishment of the Network, the connection thereof to another Public Telecommunications Network and the development thereof, including its technical quality and the technical quality of its various components, the Licensee shall comply with the provisions of the License and shall comply with that stated in the Engineering Plan – Appendix D.
22.2 The Licensee shall comply with all standards and technical specifications prescribed by the Ministry, and shall comply, to the extent possible, with the standards and customary recommendations prescribed by standardization organizations in Israel and abroad (such as the Standards Institute, the ITU and the ETSI), or by de facto standardization forums in the industry (such as WiFi, DSL, ATM), both in the field of telecommunications and wireless communications and in any other field relating to the establishment and development of the Network.
23. Network Development or Upgrade Plan
23.1 Insofar as the Licensee intends to expand, develop or upgrade the Network (hereinafter: “Development Plan”), it shall submit the Development Plan to the Director, which shall include, at the very least, the following:
26 (a) an updated Engineering Plan, including a detailed explanation of the changes and additions in the Network;
(b) a timetable for execution of the Development Plan;
(c) details of the frequencies needed, insofar as relevant;
(d) details of the numbering needs, insofar as relevant;
(e) the expected impact on the quality of the service and the availability of the service in the Network during the implementation period of the Development Plan.
23.2 The Licensee shall submit the Development Plan as stated at least 60 days before the implementation start date.
23.3 The Director may stipulate conditions to the implementation of a Development Plan, including in relation to the timetable.
24. Implementation Stages and Timetable
24.1 The timetable for establishing or developing the Network, the milestones for its establishment and the start date of the provision of the service through it shall be in accordance with the timetable specified in the License.
24.2 The Licensee shall send written updates to the Director about any deviation from the timetable as stated (hereinafter in this clause: “notice”) immediately after the Licensee becomes aware that difficulties have arisen that prevent it from complying with the original timetable. The Licensee shall explain in the notice the reasons for the deviation in the timetable, and shall specify the new timetable and any other information that the Director requested in this regard (in this clause: “supplementary information”). If 45 days have elapsed since the notice date or since the submission date of the supplementary information and the Director has not notified the Licensee of his objection to the deviation from the timetable, then the Licensee may deviate from the timetable as stated in the notice.
25. Change in Plans during the Establishment and Development
25.1 The Licensee may not deviate from the Engineering Plan unless permitted to do so by the Director according to the provisions of this clause.
27 25.2 Should the Licensee realize, during the establishment or development of the Network, that there is a need to deviate from the Engineering Plan, the Licensee shall send a written application to the Director in order to receive his approval for the change; in its application, the Licensee shall specify the essence and nature of the requested change and the reasons for it; the Licensee shall attach the proposed revised plan to its application.
25.3 The Director may reject the application or approve it, wholly or partly. The Director also may make his approval contingent upon conditions, insofar as such conditions are necessary in order to maintain the quality of the system, the level of its performance and the Technical and Quality of Service Requirements. The Director shall reach his decision about the application and notify the Licensee of his decision, all within a reasonable timeframe.
26. Report on Establishment and Development Works
26.1 The Licensee shall submit reports to the Director, upon his request, in which it shall specify the Network establishment and development works. The Director may issue instructions to the Licensee with regard to the report submission format and the periods to which the reports shall relate.
27. Backup in Conjunction with another Licensee
27.1 The Licensee may engage in backup agreements with another Licensee for the purpose of ensuring the continuity of the service, in relation to any matter pertaining to an operation or service that is identical to an operation or service that the Licensee performs. The Licensee shall notify the Director of the existence of any backup agreement as stated shortly after signing it.
28. Supervision of Establishment and Development Works
28.1 The Director may supervise personally, or through another person acting on his behalf, the actions taken by the Licensee to carry out the establishment and development works. For the purposes of carrying out the supervision, the Director may enter the Licensee’s work sites and premises at any reasonable time in order to perform measurements and tests and to examine any plan or document pertaining to the implementation of the establishment and development works.
28 28.2 The Licensee shall cooperate with the Director in everything that pertains to the conducting of supervision of the establishment works and, without derogating from the general purport of that stated, shall allow him to enter the worksite and its facilities, allow examination of any document, plan and specifications and provide him with any necessary information that the Director shall request.
29. Repair of Deficiencies and Defects
29.1 The Director may give written notice to the Licensee of deficiencies, defects and deviations that he found in the Network establishment or development activities, on the basis of reports submitted by the Licensee, documents and information that it provided to the Director, or on the basis of measurement and tests that he conducted.
29.2 If the Licensee receives notice as stated in clause 29.1, it shall notify the Director, within fourteen (14) days of the notice receipt date of its response to that stated therein and the actions that it has taken or is about to take in order to rectify the deficiencies, defects or deviations.
29 Section B – Interconnection and Use
30. Interconnectivity Obligation
30.1 The Licensee shall take action to implement the Interconnection of the Network with any other Public Telecommunications Network; the Interconnection shall be implemented in a manner that enables the following:
(a) transfer of telecommunications messages between End Devices connected to the Network and End Devices connected to the Network or to the other Public Telecommunications Network;
(b) the proper and orderly provision of services by the Licensee to the Subscribers of the other Licensee, and the provision of services by the other Licensee to the Licensee’s Subscribers.
30.2 Interconnection may be effected directly or indirectly through a Public Telecommunications Network of another general Licensee, provided that it enables that stated in clause 30.1.
31. Rules regarding the Implementation of Interconnection
31.1 The Licensee shall take action to implement Interconnection according to all of the following:
(a) Insofar as the Interconnection is implemented directly through the Network, the Licensee shall ensure that the technical and operational standards of the Network comply with the requirements for connection to the Public Telecommunications Network of another Licensee (hereinafter: “Other Operator”), and shall ensure that the operations of the Network shall properly integrate with the operations of the Public Telecommunications Network of the Other Operator and that the Interconnection shall not harm the proper operation of this Network or proper service to its Subscribers or to the Other Operator’s Subscribers;
30 (b) The Licensee shall implement the Interconnection on equal terms vis-à-vis every Other Operator and shall refrain from discriminating when implementing the interconnection, including in relation to the following:
(1) the provision of infrastructure installations and Network connection services;
(2) the availability of the connection facilities;
(3) method, quality and survivability of the connection;
(4) switching alterations and adjustments in installations, protocols and at Network Interface Points;
(5) payments for Interconnection;
(6) billing and collection arrangements and transfers of information to Subscribers;
(7) commercial terms for implementing the Interconnection;
(8) provision of information regarding the Network and changes therein that relate to Interconnection;
Notwithstanding that stated, the Minister may, upon a written application from the Licensee, in special circumstances and when he is convinced that it is justified, permit the Licensee to deviate from the provisions of this subclause;
(c) The Licensee shall make available to the Other Operator all essential information that the Other Operator requires in order to provide its services through the Licensee’s facilities; such information shall be provided subject to any law regarding protection of privacy or commercial confidentiality; if the parties do not reach an agreement as to the nature and scope of the essential information, the Minister shall rule on the matter;
(d) The Licensee shall provide information to the Other Operator about planned changes to its Network, which might affect Interconnection with the Public Telecommunications Network of the Other Operator, or about Interconnection between the Public Telecommunications Networks of the Other Operators; the Licensee shall provide the said information in a manner that shall enable the Other Operator to be reasonably prepared for the implementation of the said changes;
(e) For the purposes of subclauses (c) and (d), the Licensee may make the provision of information to the Other Operator conditional upon the signing of a reasonable confidentiality agreement, intended to protect the rights of the Licensee under any law, including commercial secrets, intellectual property rights and the like, relevant to the information regarding the change in the Network that is to be delivered to the Other Operator;
31 (f) The conditions for Interconnection between the Network and the Public Telecommunications Network of an Other Operator shall be regulated in an agreement between the Licensee and the Other Operator; if the parties fail to reach an agreement, the Minister shall rule on the matter;
(g) (1) The Licensee shall allow its Subscribers to receive all of the services offered to them by an Other Operator, and may allow Subscribers of an Other Operator to receive services from it, provided that receipt of such services is technically and legally possible.
(2) The Director may order the Licensee to allow Subscribers of an Other Operator to receive services being provided by it, provided that the receipt of such services is technically and legally possible.
(3) Notwithstanding that stated in subclause (1), the Director may, at the written request of the Licensee, exempt the Licensee from the obligation to allow its Subscribers to receive services from an Other Operator, due to technical or economic reasons or for other justified reasons.
(h) The Licensee shall forward to the Director, at his request, a signed copy of any agreement between the Licensee and an Other Operator regarding Interconnection;
(i) The Licensee shall forward to the Director, at his request, any information provided to an Other Operator pursuant to subclauses (c) and (d), and a copy of any confidentiality agreement pursuant to subclause (e);
(j) The Licensee shall act in accordance with any additional instructions that the Minister might prescribe.
32. Payment for Traffic Completion and Interconnection
32.1 If regulations have not been instituted regarding payment for Interconnection or payment deriving from use of Interconnection, and if no agreement has been reached between the Licensee and an other Licensee in this regard, the Minister shall decide on the payment as stated, according to his authority pursuant to section 5 of the Law; any sum that is not being disputed shall be paid in a timely matter, even before the Minister reaches a decision in that regard. If the Minister did not decide the payment for Interconnection or the payment deriving from Interconnection, the Licensee may charge a reasonable and non-discriminatory sum for these.
32 33. Prohibition of Delaying Interconnection
33.1 The Minister shall give the Licensee a reasonable opportunity to voice its position regarding the Minister’s intention to instruct the Licensee regarding the mode of implementation of the Interconnection and the scope thereof, regarding operations, services and related arrangements for implementing Interconnection, and regarding the payments for Interconnection; if the Minister instructs the Licensee in relation to such matters, the Licensee shall not delay Interconnection to the Network in any manner, and shall fulfill its obligations in accordance with the instructions of the Minister, in good faith and properly, on the date prescribed for such and in full cooperation.
34. Prohibition of Interconnection to the Palestinian Authority
34.1 The Licensee shall not implement direct Interconnection to a network of a communications operator in the territories of the Palestinian Authority, unless it receives the Director’s prior written authorization.
35. Provision of Possibility of Use
35.1 The Minister may instruct the Licensee regarding the provision of the possibility of use of its Network, in accordance with his authority pursuant to section 5 of the Law.
35.2 The Licensee shall allow another Licensee, in accordance with the instructions of the Minister, to provide service via the Network; the Licensee shall ensure reasonable and equitable conditions for any other Licensee, in relation to all matters pertaining to the provision of services by it to the Licensee’s Subscribers, including in relation to the matters specified in clause 31, mutatis mutandis.
35.3 For the purposes of the provision of the possibility of Use, the provisions of clauses 31, 32 and 33 shall apply, mutatis mutandis.
33 36. Infrastructure Service to an Interested Company
36.1 The Licensee shall refrain from giving preference to a Licensee that is an Interested Company over any other Licensee, in the provision of an Infrastructure Service, whether in terms of payment for the service or in terms of the conditions or availability of the service, or in any other manner.
36.2 (a) At the written request of the Licensee, the Director may permit the Licensee exceptions to the provisions of clause 36.1, in respect of another Licensee or Broadcasting Licensee that is an Interested Company, provided that the following conditions have been fulfilled:
(1) the other Licensee is not a material operator;
(2) the Director is of the opinion that issuing the approval shall not substantially harm competition in the telecommunications sector.
(b) Exceptions as stated in subclause (a) might permit the Licensee to provide an Interested Company with Use of its Network under preferred conditions, and they may be limited in time or by any other condition.
36.3 In this clause, “Interested Company,” and “Material Operator” – as defined in the Telecommunications Regulations (Proceedings and Conditions for Receiving a General License for the Provision of Fixed-line Domestic Telecommunications Services), 5760 – 2000.
34 Section C – Operation of the Network
37. Operation Start Date
37.1 The Licensee shall begin providing all or a portion of services by no later than one year after the issue of the License. Notwithstanding that stated, if the Licensee is seeking to provide only Mobile Domestic Service, and applied to the Minister during the year since receiving the License to exercise his authority pursuant to section 4(A2)(4) of the Law, then it shall begin providing services on the date set by the Minister.
38. Authorization to Operate
38.1 The Licensee shall begin providing its services through the Network subject to the receipt of written authorization from the Director to operate the Network and to begin providing service through it (hereinafter: “Authorization to Operate”).
38.2 The Licensee shall apply in writing to the Director to obtain an Authorization to Operate, by no later than thirty days prior to the planned start date of the provision of the services.
38.3 In its application, the Licensee shall report the status of the preparations to provide its services pursuant to the License, including reference to the following subjects:
(a) the planned start date for providing the services;
(b) the establishment of the Network in conformity with the Regulations, including in relation to Interconnection to the Public Telecommunications Network of an Other Operator;
(c) the forwarding of a list of the Officers of the company, attaching the requisite documents in relation to the Officers, pursuant to the Regulations and in the format specified in Appendix A;
(d) the maintaining of an insurance contract and a copy of an opinion as required pursuant to clause 98 of the License;
(e) details of the employee responsible for handling public complaints as stated in clause 64 of the License;
(f) details of the call center, as stated in clause 63 of the License;
35 (g) the existence of an Engagement Agreement with Subscribers, as stated in clause 55 of the License;
(h) publication of the service tariffs, as stated in clause 91 of the License;
(i) the existence of a system to prevent fraud, pursuant to that stated in clause 66 of the License;
(j) the existence of a system for documenting documents and recordings, pursuant to that stated in clause 119 of the License [sic];
(k) access to emergency services, pursuant to that stated in clause 68 of the License;
(l) any other detail as the Director shall so instruct.
38.4 Without derogating from that stated in clauses 38.1 and 38.2, if the Licensee wishes to begin providing Mobile Domestic Service through the Network, it is required to present a Use Agreement to the Director. For this purpose, “Use Agreement” – agreement regarding use of the Host Network.
39. Operation in the Territory of the Judea and Samaria Civil Administration
39.1 The Licensee shall operate in the areas of Judea and Samaria pursuant to a permit from the Civil Administration; the permit shall be based, for the most part, on the provisions of This License, mutatis mutandis, including with regard to the need to receive a separate approval from the Civil Administration for the establishment of each telecommunications facility, insofar as required.
40. Preparations to Ensure Functional Continuity during Emergencies
40.1 The Licensee shall appoint a functionary (including a first deputy and a second deputy) who shall be responsible for maintaining contact with the Ministry during an emergency; the Licensee shall issue to the Director, once a year, on January 1st, the details of the functionary and his deputies, as well as modes of contacting them.
40.2 A Licensee providing Domestic Service or Internet Access Service to more than 50,000 Subscribers shall be prepared to ensure functional continuity during emergencies as specified in Appendix E – Preparations to Ensure Functional Continuity during Emergencies.
36 Section D: Tests and Maintenance
41. Definitions
41.1 In this section:
“Periodic Test”- Test of the Network, or any portion thereof, that is conducted in accordance with the License provisions, at regular intervals and at least annually;
“Special Test” - Test of the Network, or any portion thereof, that is conducted due to a maintenance or repair activity resulting from an electromagnetic interference, a malfunction, a complaint clarification, a technological change, a modification of the Engineering Plan; etc., which is being conducted at the Licensee’s initiative or at the demand of the Director;
“Routine Test”- Testing of the Network or any portion thereof, that is conducted on a regular basis.
42. Maintenance and the Performance of Tests
42.1 The Licensee is responsible for the maintenance of the Network.
42.2 The Licensee shall conduct Periodic Tests of the Network and shall submit the results of the tests, upon the Director’s request, within 30 days of the date of the request.
42.3 The Licensee shall establish and operate a control system to constantly monitor the Network’s performance, to periodically test the working order of the Network, and shall conduct, on an ongoing basis, Routine Tests of the Network or any portion thereof, as needed, according to a test program to be decided by the Licensee.
42.4 The Licensee shall conduct a Routine Test in relation to all matters pertaining to the quality of service as specified in Appendix D, including compliance with the relevent standards of the ITU-T, and shall furnish the results of the tests, upon the Director’s request, within 30 days of the date of the request.
42.5 The Director may instruct the Licensee to conduct a Special Test; the Licensee shall conduct the said test in the format and at the time to be decided by the Director and shall furnish its results to the Director, upon his request.
37 42.6 The Director or whoever is so authorized on his behalf shall be allowed to conduct the test themselves, if it is required in their opinion; the Licensee shall allow the Director or anyone else authorized on his behalf, after prior coordination, access to installations and equipment and shall place at their disposal testing equipment that the Licensee uses and professional manpower employed by the Licensee.
43. Test, Malfunction and Maintenance Log
43.1 The Licensee shall maintain a test, malfunction and maintenance log (hereinafter: “Maintenance Log”), in which details of the malfunctions and tests of the Network shall be recorded.
43.2 The Licensee shall retain the related Maintenance Log at its offices at all times, for the twelve (12) preceding months, and shall allow the Director or anyone authorized on his behalf to peruse the log at any time, to check it, copy it in any manner and to forward it to the Director for his persual, upon his request.
44. Repair of Deficiencies and Defects
44.1 The Director may notify the Licensee in writing about deficiencies and defects that he found and that cause harm to the standard of service, the level of survivability and the backup of the Network, harm to the level of safety or that cause interference with other systems that are operating properly, and this, including based on monitoring of the Network’s performance, Subscriber complaints, tests he conducted or based on test reports, documents and information provided to him by the Licensee.
44.2 The Director may instruct the Licensee about the deadlines by which the Licensee must repair the deficiencies and defects.
44.3 If the Licensee receives such notice, it must notify the Director, within the timeframe specified in the Director’s notice, about the repair of the deficiencies and defects, detailed as per the Director’s request.
38 Section E: Equipment Tests and Installation Approvals
45. End Devices
45.1 The Licensee shall ensure that the Network shall support the End Devices for which it has a Type Approval or End Devices that are exempt from a Type Approval by virtue of the Law or the Ordinance, and shall enable the provision of the Licensee’s Services in a proper manner through such End Devices.
45.2 The Licensee shall make available to the Director the specifications of the End Devices that are compatible with the Network, and shall assist, in accordance with the Director’s requirements, in converting them to Israeli standards or to the Ministry’s specifications, or to standards and specifications as aforesaid; the Director shall present requirements that differ from the requirements of European standards only for the purpose of adapting the Licensee’s specifications to Israeli standards, to the Ministry’s specifications, for the purpose of integrating the Hebrew language, to prevent interference with other systems and interference from other systems, and in order to achieve compatibility with the Telecommunications Networks in Israel.
45.3 The Licensee may sell or lease End Devices to its Subscribers for connection to the Network, provided that all of the following are fulfilled:
(a) The Licensee has notified the Subscriber that he is not obligated to purchase an End Device from the Licensee in order to receive service and that he may also purchase the End Device from any authorized reseller in Israel or from a reseller abroad, for which the equipment manufacturer has confirmed that it is has similar features and options as the End Device being marketed by the Licensee;
(b) The Licensee shall not make the receipt of service contingent upon receiving maintenance services for End Devices from it, and shall inform the Subscriber that he may receive maintenance service for his End Device from any person, including for the End Device that it purchased or leased from the Licensee.
45.4 At the demand of the Director, the Licensee shall conduct tests to ensure that End Devices meet the Network specifications, at no charge; testing of End Devices as stated shall be completed within fourteen (14) days of the date of receipt of the Director’s demand. That stated above in no way derogates from the Minister’s authority to authorize the Licensee to conduct tests for the purpose of issuing a Type Approval for a payment.
The Licensee shall forward to the Director, upon his request, the standards and test specifications that are required for the purpose of issuing a Type Approval or for determining an exemption from a Type Approval by the Ministry or by any party on its behalf.
39 45.5 In the event that the Licensee is providing an End Device to a Subscriber when the operation thereof depends on the supply of electricity from the electricity system on the Subscriber’s premises, the Licensee shall inform the Subscriber that, during a blackout, the operation of the said End Device shall be interrupted, unless he installed a UPS (uninterrupted power supply) system for the supply of backup electricity (hereinafter: “UPS System”).
The Subscriber shall be so informed at the time of the purchase of the End Device and at the time of the installation thereof at the Subscriber’s premises, insofar as the sale or installation thereof, as the case may be, is being performed by the Licensee, and by way of a clear and conspicuous marking on the back of the End Device or on its packaging.
If the Licensee provided a UPS System for the End Device, the Licensee shall inform the Subscriber of the duration of the backup provided by the system and the duration of operation of the End Device.
For the purposes of this subclause: “End Device” – fixed-line End Device for the receipt of Telephony Service by the Subscriber, including a modem or adaptor.
45.6 (a) During a sale conversation through a telephone conversation for the purchase or rental of an MRT End Device, without a transaction being transacted with an Applicant for the purchase of MRT Services (hereinafter – “Purchase Agreement”), and before the Applicant expresses his consent to engage in a Purchase Agreement with the Licensee, the Licensee’s representative shall ask for the Applicant’s consent to send him a printed Purchase Agreement via electronic mail or SMS or facsimile, without any handwritten changes, and bearing the Licensee’s logo, which provides a detailed description of the End Device and the inclusive price and, insofar as payment in instalments for the End Device was agreed upon between the purchaser and the Licensee – the number of payments and the rate of each payment, and which includes the date of the execution of the sale conversation and the details of the purchaser and of the Licensee’s representative, who must inform the purchaser that he must confirm in writing that he is accepting the terms of the Purchase Agreement as a precondition to it coming into effect. Insofar as the Applicant expressly states that he is not interested in receiving the said document in one of the three said ways during the sale conversation, then the Licensee shall be released from having to send it to the Applicant when conducting the sale conversation, and it shall be sent to him on the transaction execution date. If the Applicant asked to receive the said document via one of the ways specified above, the Licensee’s representative shall send it to him in the manner requested.
40 The Licensee shall retain a copy of the Purchase Agreement in its possession, and shall make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the transaction execution date.
The Licensee shall record, in addition, the telephone conversation held with the Applicant, and shall make the recording available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the transaction execution date.
(b) A notice shall be sent to the Applicant asking the Applicant to confirm the execution of the transaction. The Applicant must expressly confirm the terms of the transaction, without any handwritten stipulations or qualifications or changes in relation to the terms of the Purchase Agreement, either via return electronic mail message or return SMS or facsimile, which includes his full name and ID number.
The Licensee shall retain a copy of the purchaser’s confirmation in its possession, and shall make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the transaction execution date.
(c) Immediately after the Applicant sends his confirmation, as stated, the Licensee shall send him a document pursuant to the law15 in the mode by which the Purchase Agreement was sent to him.
15 A tax invoice/receipt
41 (d) When executing a transaction for the purchase of an MRT End Device in the presence of both parties, without executing a transaction for the purchase of MRT Services, and before the Applicant expresses his consent to engage in a Purchase Agreement with the Licensee, the Licensee’s representative shall submit a printed copy of the Purchase Agreement to the Applicant and enable him to peruse it.
When executing the transaction, the Applicant and the Licensee’s representative shall sign the Purchase Agreement submitted to the Applicant for his perusal by original signature.
After signing, as stated, the Licensee’s representative shall deliver the Purchase Agreement to the Applicant bearing the original signatures of the Licensee’s representative and the Applicant, as well as the document specified in subclause (c).
After completing all that stated in this subclause, the Licensee’s representative may obtain the Applicant’s signature on a Purchase Agreement identical to the one signed with original signatures, while using electronic means.
The Licensee shall retain a copy of the Purchase Agreement and the document specified in subclause (c) in its possession, and shall make them available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the transaction execution date.
The Licensee’s representative shall perform a reliable identification of the Applicant pursuant to the procedure prescribed by the Licensee. The Licensee shall retain in its possession a copy of an identification certificate of the Applicant and a copy of an identification certificate of the payer of the Bill, which were issued to the Licensee’s representative at the time of execution of the engagement.
(e) Insofar as the Subscriber and the Licensee agreed on payment in installments for Goods that the Subscriber purchased or rented from it, and the Subscriber breached the Engagement Agreement before paying all of the payments for the said Goods, but rectified the breach within forty-five (45) days of the date the Licensee notified the Subscriber of the breach, then the Licensee is not allowed to collect the balance of the payments from the Subscriber for the Goods in a single payment, and the payment in installments shall continue as agreed upon between the Subscriber and the Licensee ab initio.16
42 46. Maintenance Obligation
46.1 If a Subscriber purchases an End Device from the Licensee or its agents, and the Purchase Agreement includes maintenance services, the Licensee shall be responsible for maintaining the End Device that was purchased as stated; however, the Licensee shall not be responsible for maintaining End Devices that are purchased, as stated, after the maintenance period undertaken by the manufacturer, unless otherwise agreed between it and the Subscriber; if the maintenance services include insurance services, the insurance service shall be provided after receiving the permits required by any law.
46.2 If the Subscriber makes use of an End Device for the purpose of receiving service that was not purchased from the Licensee or its agents, the Licensee shall not be obligated to maintain this End Device; however, the Licensee may engage in an agreement with the Subscriber for the provision of maintenance services also for such a Device.
46.3 For the purposes of the maintenance obligation, as stated above, this also means the supply of spare parts and accessories for End Devices, including for End Device models being offered to the public by the Licensee or its agents, even if the Licensee is not providing repair services for those models.
16 Amendment no. 5.
43 Section F – Use of Frequencies in Wireless Segments
47. Definitions
47.1 In this section, “the Manager” – a senior vice general manager for managing spectrum and the licensing of frequencies at the Ministry, or corresponding functionary in the Ministry who might replace him
48. Allotment and Use of Frequencies
48.1 If the Licensee was allotted frequencies:
(a) The Licensee shall be authorized to operate wireless telecommunications facilities only at those frequencies that have been approved by the Manager for use by the Licensee, within the scope of individual licenses, within the framework of the conditions as it was so instructed by the Manager pursuant to the Ordinance, and according to the rules for an allotment of frequencies.
(b) The Manager may instruct the Licensee with regard to restrictions, inter alia, in the operation of wireless telecommunications facilities on specific frequencies and in defined geographic areas, or with regard to restrictions on the operation of wireless telecommunications installations at frequencies allowed for use, concurrently with operators of other services or in coordination with them, all according to the Manager’s instructions.
(c) The Licensee shall pay fees for an allotment of frequencies and licensing fees, insofar as they were prescribed by law.
(d) The Manager may allot frequencies to the Licensee to replace frequencies that were allotted to it; if the Manager decided on alternative frequencies as stated, the Licensee shall effect the necessary changes, at its expense, that are required in order to use the alternative frequencies, within a timeframe as determined by the Manager;
(e) The Manager may reduce the frequency band, without compensation or consideration, on which the Licensee is allowed to operate its wireless telecommunications facilities as stated above, if he found that such a reduction shall lead to more efficient utilization of the spectrum of frequencies in Israel, including considering the extent of the Licensee’s frequency utilization, the number of its Subscribers, and the average traffic per Subscriber, compared to the number of Subscribers and the average traffic per Subscriber of other wireless systems; the Manager shall not decide to reduce the frequency band as stated, until after having given the Licensee an opportunity to voice its arguments.
44 48.2 With regard to an allotment of frequencies, the Manager may consider the Licensee’s volume of activity cumulatively, together with the volumes of activity of Licensees that are Interested Companies in the Licensee, and it may consider them as a single Licensee.
49. Conditions for Use of Frequencies
49.1 If the Licensee was allotted frequencies:
(a) The Licensee shall use frequencies solely for the purpose of providing the Licensee’s Services. The Licensee is not allowed to transfer the right of use of the frequencies to other uses or for use by others, and shall not allow others to make use thereof.
(b) The Licensee shall use frequencies pursuant to the Manager’s instructions; the Manager shall decide his instructions in this regard based, inter alia, on the use of frequencies by other parties, and on the plan that derives from preparations for emergencies or special situations on the home front.
49.2 The Licensee is not allowed to use frequencies that have been allotted to another party, except with the prior written permission of the Manager.
50. Safety during the Use of Frequencies and Prevention of Interference
50.1 If the Licensee established a wireless telegraph station, as defined in the Ordinance:
(a) then the Licensee shall establish and operate it in compliance with any law, including in compliance with the provisions of the Pharmacists’ Regulations (Radioactive Elements and their Products), 5740 – 1980 (hereinafter: “the Pharmacists’ Regulations”), and after having received a permit as required by the Pharmacists’ Regulations.
(b) The Licensee shall submit to the Manager, during the month of January of every year, an updated annual report about the wireless telecommunications facilities being operated by the Licensee, which includes, inter alia, the location of each facility, broadcasting and reception frequencies, betterment of antennas, antenna orientation, the polarization of the antennas, the height of the antennas, the transmission outputs and the broadcasting bandwidth. However, in special instances, the Manager may demand that the Licensee submit an updated report to him at any time and within five (5) days, about the operation of wireless telecommunications facilities, radio channels and the use of frequencies.
45 50.2 The Licensee shall establish and operate the wireless telegraph station in a manner that prevents any reciprocal interference between it and other legally operating systems. Without derogating from the general purport of that stated, the Licensee shall take action in this regard, inter alia, as follows, and this, whether the interference is to the Licensee’s wireless telegraph station or whether it was caused by it to a wireless telegraph station of any other legally operating entity.
(a) Prior to the activation of any wireless component, the Licensee shall conduct tests and measurements for the purpose of preventing any electromagnetic interference;
(b) If the Licensee found that electromagnetic interference may be expected, or if interference was detected when activating the installation, then the Licensee shall take immediate action, and by no later than 24 hours after such detection, and this, for the purpose of coordinating a solution to prevent such interference and to prevent its recurrence. In the absence of a solution, the Licensee shall apply to the Manager in writing, or to whomever was so appointed by the Manager, in order to find a reasonable solution to the problem;
(c) The Licensee shall cooperate with other Licensee in the event of interference to a duly operating system. If no solution is found for the interference between systems as stated, the Licensee shall take action, according to the Manager’s instructions regarding the implementation of changes in the operation of the wireless telegraph station or in the use of frequencies, or shall stop broadcasting on particular frequencies in a particular region;
(d) The Licensee shall immediately respond to all of the Manager’s demands, and by no later than 24 hours after receiving the Manager’s demands, regarding the handling of interference and coordination with other Licensees or other entities duly operating in Israel, in territories of the Palestinian Authority and in neighboring and other countries, shall submit any information to the Manager that is necessary for this purpose, shall conduct electromagnetic measurements as required by the Manager, shall refrain from using frequencies as determined by the Manager, and shall act within the constraints as instructed by the Director, including with regard to transmission output on specific frequencies at specific sites, including the imposition of restrictions with regard to the height of antennas, antenna betterment, antenna types, polarization and orientation. Such coordination shall be implemented by the Licensee at his expense and under his responsibility, both pursuant to special instructions issued by the Manager and pursuant to the instructions in international treaties and bilateral agreements with countries and/or with the Palestinian Authority to which the State of Israel is a party.
50.3 The granting of This License shall not be construed as providing protection against other transmitters operating on the same frequency bands as those that have been allowed for use by the Licensee, or any protection against fake broadcasts by other legally operating transmitters, or protection against other transmitters operating on frequency bands that are identical to those allowed for use by the Licensee and other entities operating in conjunction with the Licensee, or outside the territory of the State of Israel, or in areas over which the State has no control, or from space. However, the Manager shall do everything in his power to find an adequate solution for the necessary protection, and to resolve reciprocal interference, if any.
46 Section G – Numbering
51. Operation According to the Numbering Plan
51.1 The Licensee shall act in accordance with the Numbering Plan, and in accordance with the instructions of the Director regarding the activation and implementation of the Numbering Plan, including with regard to the activation of number portability. The Licensee shall integrate mechanisms in its Network that shall enable implementation of the provisions with regard to number portability, on the date and using the method prescribed in the Numbering Plan.
51.2 If the Numbering Plan contains no provision for a certain matter, and if the Director has not issued an instruction for the said matter, the Licensee shall be diligent about conducting itself in relation to that matter in compliance with accepted standards and recommendations, which are relevant to the Numbering Plan, which were prescribed by standards organizations around the world or other international organizations.
51.3 The Director may restrict the Licensee in its use of specific groups of numbers, according to the number range, dialing prefixes, access codes or telephone numbers, so as to ensure, inter alia, the efficient utilization of the ranges of numbers and dialing prefixes, or in order ensure that numbers are used in a manner compatible with the needs of Subscribers or to that customary worldwide.
51.4 On the matter of the allotment of dialing prefixes, number ranges and access codes pursuant to the Numbering Plan, the Director may deem the Licensee’s volume of activity cumulatively, together with the volumes of activity of other Licensees that are Interested Companies in the Licensee, and he may deem them as a single Licensee.
52. Telephone Numbers and Ranges of Numbers
52.1 The Licensee may allot Telephone Numbers for the use of its Subscribers out of the range of numbers allotted for its own use, in accordance with the Numbering Plan and the provisions of the License.
52.2 The Licensee may not transfer numbers or groups of numbers, which are included in the range of numbers allotted for its use, for the use of any other party, except when implementing number portability or in accordance with the Director’s instructions.
47 52.3 The Licensee may not assign a telephone number to a Subscriber that has been assigned to another Subscriber, with the exception of a number that was assigned to a Subscriber who no longer receives the Licensee’s Services, and after a reasonable timeframe has elapsed, in accordance with the rules prescribed by the Director.
52.4 The Licensee shall publish the basics of its telephone number plan, including the dialing rules to Subscribers’ telephone numbers and the access code to services being provided to Subscribers through an access code. The Director may issue instructions to the Licensee with regard to the format of such publication.
For the purposes of this clause, “telephone number plan” – plan prepared by the Licensee pursuant to the Numbering Plan and the Directors’ instructions, for the purpose of assigning telephone numbers to Subscribers, and which includes an access code to its services and to the services of other Licensees.
48 Section H – Security-related Arrangements
53. The Provision of Services to the Security Forces
53.1 Insofar as requested by representatives of the Security Forces, the Licensee shall provide special services to the Security Forces, as specified in provisions to be issued to it pursuant to the provisions of section 13 of the Law.
53.2 The Licensee shall enable the Security Forces to exercise, subject to any law, their powers in relation to any telecommunications activity within the scope the License, and shall be responsible for the existence, proper functioning and technological compatibility of the equipment and infrastructure required for the purpose of exercising the ability to execute that stated, all in coordination with the Security Forces and as specified in provisions to be issued to it by them pursuant to section 13 of the Law.
53.3 The Security Forces shall bear the cost, pursuant to the provisions of section 13 of the Law.
53.4 The Licensee shall be exempt from any obligation to indemnify the State by virtue of the provisions of section 98.2 or by virtue of any law, in respect of the provision of the special services to the Security Forces, provided that it had acted according to instructions issued to it pursuant to the provisions of section 13 of the Law.
54. The Security Provisions
54.1 Insofar as requested by representatives of the Security Forces, the Licensee shall appoint a security officer pursuant to the provisions of the Public Bodies Security Arrangements Law, 5758 – 1998, and shall strictly comply with the security provisions to be issued to it by them.
54.2 Insofar as requested by representatives of the Security Forces, the Licensee shall prescribe suitable provisions in its incorporation documents, and shall take action so that a person shall not be appointed and shall not serve in a position or office, which are specified in the security provisions to be issued to it by the Security Forces, unless said person fulfills the following conditions:
(a) he is a citizen and resident of Israel;
49 (b) he has been issued security clearance by the General Security Services, according to which, there is no obstacle to fulfilling a role as stated.
54.3 The Licensee shall act to maintain the confidentiality of the activities of the Security Forces, and shall conduct itself in accordance with the security guidelines of those Security Forces, including with regard to the appropriate security classification for Officers and functionaries in the Licensee, and the safeguarding of all information that was defined as classified.
54.4 The Licensee shall take the steps necessary for the protection of its system, the system’s components and the databases being used for the provision of services and the operation and control over the system against activities by non-authorized parties, pursuant to the provisions to be issued to it by the Security Forces, insofar as issued.
50 Chapter D – Provision of Services to Subscribers Section A – Engagement with Subscribers
55. The Engagement Agreement
55.1 The Licensee shall prepare a draft of the Engagement Agreement that it intends to offer to its Subscribers, and shall submit it for the Director’s perusal, upon his demand.
55.2 The terms of the Engagement Agreement shall not contradict, explicitly or implicitly, the provisions of any law or the License; the aforesaid is not meant to prevent changes to the provisions of the Engagement Agreement that benefit the Subscriber compared to the provisions of the Law or the License.
55.3 The Engagement Agreement shall be in writing and shall be clear and easy to read and understand, and shall state clearly any condition or restriction regarding the Subscriber’s right to terminate the Engagement Agreement or regarding the Licensee’s duties towards the Subscriber; any stipulation in the Engagement Agreement shall be stated expressly and not by reference.
For the purposes of this clause: “writing” - including an electronic document that can be saved and retrieved by the Subscriber.
55.4 The Engagement Agreement shall clearly include, inter alia, the following:
(a) The first part of the Engagement Agreement must clearly and precisely specify the principal details of the tariffs and services plan pursuant to the Engagement Agreement (hereinafter – “the Plan Basics”). If the Engagement Agreement includes one type of services, the Licensee shall be allowed to specify the Plan Basics on a maximum of two pages. If the agreement includes a number of types of services (fixed-line telephone, mobile telephone, international services, internet, etc.), then, subject to that stated above, the Licensee shall be able to add one page for each additional type of service. The Plan Basics document must be printed, without any handwritten alterations or additions, apart from that stated in clause (1), and all as specified hereunder:17
51 (1) The name of the Licensee or its logo, the details of the Licensee's representative who executed the engagement, the date and mode18 of execution of the transaction, the Subscriber's details, including his name, I.D. number, type of subscription,19 address, e-mail address,20 telephone number to which the agreement pertains, an additional telephone number of the Subscriber where notices shall be sent from the Licensee21 regarding the usage ratio of a services22 plan as stated in clause 90 and regarding disconnection of a Dormant Subscriber, as stated in clause 82,23 and a description of Goods,24 if included in the engagement; notwithstanding that stated at the beginning of clause (a), the details stated in this subclause, except for the Licensee’s name or logo, can be handwritten;
(2) The duration of the commitment period, if one exists, and its expiration date. For the purposes of this subclause, “commitment” as defined in clause 87.5;
(3) All of the tariffs according to which the Licensee bills the Subscriber for the services that it asked to receive when executing the engagement, including video call services and multimedia messages, and the rate of any fixed payment or one-time payment, including a fixed payment or one-time payment that is other than within the scope of a telecommunications service, including connection fees, as this term is defined in clause 85.1(a), SIM card fees, as this term is defined in clause 85.1(a1) and plan switching fees;
17 Amendment no. 5. 18 Transaction at a service station of the Licensee or through peddling, as this term is defined in the Consumer Protection Law, 5741 – 1981, or a transaction via telephone conversation or a transaction via the internet. Amendment no. 5, 19 Business subscriber or Split Business Subscriber or Non-Business Subscriber. Amendment no. 5. 20 Amendment no. 5. 21 Amendment no. 5. 22 Amendment no. 5. 23 Amendment no. 5.
52 Insofar as the Licensee is not charging for connection fees or SIM card fees or plan switching fees, this must be stated accordingly;
Insofar as the Engagement Agreement includes international services, such as a minutes package or a plan for calls abroad, the Licensee must specify its rates, the quota of minutes allotted in him, the three-digit international access code that must be dialed, the countries included in it, the type of targets in those countries (fixed-line, mobile) and the tariff for exceeding the quota in the plan;25
(3a)26 With regard to a cellular data package as defined in clause 90, the tariff for the unit of service not included in the package shall be displayed in the same values as those in the package;
(3b) The quota of service units set by the Licensee for the service or for the Bundle of Services (“Quota of Units”), and the maximum duration of a call, if any;
(3c) If the Licensee provides a service to Subscribers that is given at a discount or for free for a defined period (“Benefit”), and subsequently, at full price, or if a credit is given to Subscribers for End Devices that Subscribers surrendered to the Licensee, then the Licensee must specify the following in the Plan Basics:
(1) the monthly sum of the Benefit/credit;
(2) the duration of the period that the Benefit/credit is given;
(3) the type of date from which the period of the Benefit/credit shall begin to be counted;27
(4) the tariff for the service upon the expiration of the Benefit;
That stated above shall also apply when at issue is a Benefit being given within the scope of the tariff plan, and not necessarily for a particular service included in a plan;
(3d) If a Subscriber switches from one tariff plan to another, and the Licensee issues the new Plan Basics to the Subscriber, the Plan Basics must also include the effective date of the new plan;
(3e) Mode of provision of a cellular data service after the volume of the cellular data package has been fully utilized – suspension of the service or a slowdown of the speed, without any payment and without additional charge, until the end of the Billing Period or an allotment of additional paid packages, at the Subscriber’s choice on the execution date of the engagement. If the Licensee chose to slow down the speed, the maximum data download speed must be specified in the Plan Basics;
24 Amendment no. 5. 25 Amendment no. 5. 26 Amendment no. 5.
53 (3f) Mode of provision of a voice and message service after the monthly Quota of Units for these services has been fully utilized – suspension of service until the end of the Billing Period or continuing to provide the services and charging the Subscriber according to tariffs set by the Licensee in the Plan;28
(4) A description of all Goods purchased or rented at the time of execution of the engagement and their inclusive price and, insofar as payment in installments for the Goods was agreed between the Subscriber and the Licensee – the sum of each payment. Insofar as the Goods were given as a gift, this must be expressly stated;29
(5) Information about the cancellation of any Benefit due to a switch to another tariff plan;30
(6) Cancelled;
(7) For a Business Subscriber – information regarding the increase of tariffs during the commitment period, if such a possibility exists as part of the conditions of the Engagement Agreement, including the date and amount of the tariff increase;
In this clause, “Business Subscriber” – as defined in section 51A or 51D or the Law, as the case may be;
“Commitment” – as defined in clause 87.5;
(8) Information regarding the balance of payment31 for an End Device purchased from the Licensee, in a previous agreement;
(9) With regard to an Internet Access Service, the following information shall also be specified:
((a)) the upload and download speed in units of Mbps;
27 For example: as of the date the plan comes into effect, as of the date that the subscriber activates the SIM card. 28 Amendment no. 5. 29 Amendment no. 5. 30 Amendment no. 5.
54 ((b)) the volume of the electronic mail box;
((c)) the existence of restrictions on the permitted volume of cellular data for use within the scope of the engagement and the terms of use when the volume is exceeded;
(10) The Subscriber’s declaration that it read the Plan Basics document and received it at the time of execution of the agreement. The details of the representative on behalf of the Licensee who executed the engagement must be specified in the body of the declaration and the Subscriber’s original signature must appear at the end of the Plan Basics;32
(11) For the purposes of subclauses (1) to (10) “Subscriber” – whoever has signed an Engagement Agreement with a Licensee for the receipt of Mobile Domestic Operator Service for a maximum of twenty-five telephone numbers or for the receipt of a Fixed-line Domestic Operator Service and his average monthly bill is less than NIS 2,000, or whoever engaged in an integrated Engagement Agreement for the receipt of Mobile and Fixed-line Domestic Operator Service for a maximum of twenty-five mobile telephone numbers and his average monthly bill is less than NIS 2,000, and all, except for Prepaid Subscribers;
(12) A Split Business Subscriber must sign the Plan Basics;
(13) The Licensee shall not include additional information or details in the Plan Basics beyond that specified in this clause, unless at issue are data in values of NIS or NIS per unit of consumption, which could have a direct impact on the height of the Subscriber’s monthly bill;
(14) The tariffs for all of the services and the payments, as specified in subclauses (3), (3b), (3c), (4) and (5) must be presented in a table with two columns – “description of the service/Benefit/credit/Goods/payment” and “tariff for the service/sum of the Benefit/credit/payment;”33
(b) (1) a separate printed page, on which the Subscriber shall be required to mark his choice regarding the accessibility of each telephone number to which the Engagement Agreement refers, to services, as specified in Appendix C.3 (hereinafter: “Service Access Form” or “Form”) and to sign34 at the bottom of the Form. The Form shall be attached to the Plan Basics;35
31 Amendment no. 5. 32 Amendment no. 5.
55
(2) A new Subscriber who did not mark his choice with regard to a particular service, whether blocked or open, in the place designated for this in the Form, shall be blocked from receiving that service. A new Subscriber who did not sign at the bottom of the Form shall be blocked from all services appearing on the Form;
In this clause, “new Subscriber” – a Subscriber who engaged with the Licensee after 15 Iyar 5777 (May 11, 2017);36
(3) A Subscriber may request from the Licensee at any time, in writing or orally as a human response only,37 to change his access38 to the services specified in the Form (hereinafter in this clause: “Subscriber's request”). A first change shall be done free of charge. The Licensee shall execute the Subscriber’s request only after he has identified the Subscriber. The Licensee shall retain the request, as stated, in its possession and make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the submission date of the request;39
The Subscriber's request shall be executed within one workday of the date of the request;
(4) The Licensee shall retain the Telephone Bill, as stated, in its possession and make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the preparation date of the Bill;40
(4a) If the Subscriber marked his choices on the Service Access Form, the Licensee shall comply with the Subscriber’s choices immediately after being given the Form;
33 Amendment no. 5. 34 Amendment no. 5. 35 Amendment no. 5. 36 Amendment no. 5. 37 Amendment no. 5. 38 Amendment no. 5. 39 Amendment no. 5.
56 (4b) Subscribers shall be required to complete a new Service Access Form with every switch from one tariff plan to another, only if his existing Form is not in the format presented in Appendix C3;41
(5) The Licensee shall publish the Form on its website;
(6) If the Director ordered an amendment to the version of the Service Access Form, the Licensee shall publish the updated Service Access Form on its website within the timeframe stipulated by the Director since the signing date of the amended License;42
(7) Insofar as at issue is a Split Business Subscriber, only he shall complete and sign the Service Access Form, and only he is allowed to amend it;43
(8) The Licensee shall block the access to services being provided pursuant to clause 2(e) in the Service Access Form, to any existing Subscriber who did not expressly choose, by completing the Form, the possibility of “open” to these services, within seven (7) workdays of 15 Iyar 5777 (May 11, 2017);44
(c) the service conditions for the Subscriber, including quality of service indices to Subscribers as set forth in clause 2 in Appendix C;
(d) the disconnection conditions from the Licensee’s Services or the conditions for complete disconnection;
(e) the service tariffs of the Licensee that the subsciber joined, updated to the date of the engagement, including the date and conditions for the termination of the tariff plan;
(f) the restriction regarding the rate of the arrears interest, linkage differentials and collection expenses as set forth in clause 94.3;
(g) the conditions for changing the tariff of a service that the Subscriber has joined, as set forth in clause 92.1;
(h) the details set forth in clauses 64 and 64A regarding the Ombudsman;45
40 Amendment no. 5. 41 Amendment no. 5. 42 Amendment no. 5. 43 Amendment no. 5. 44 Amendment no. 5.
57 (i) a condition that states that, in case of a contradiction between the provisions regarding the tariffs and the Bundle of Services that are detailed in the agreement, and the provisions of the License in this regard, the provisions of the License shall prevail;
(j) a notice regarding the Director’s authority to instruct the Licensee to amend the Engagement Agreement, and clarification that the Subscriber’s engagement in the Engagement Agreement with the Licensee constitutes agreement to said changes.
55.5 In an agreement in the presence of the Licensee's representative and the Subscriber, the Licensee shall act as follows:
(a) The Licensee’s representative must perform a reliable identification of the Applicant pursuant to the procedure prescribed by the Licensee. The Licensee shall retain in its possession a copy of an identification certificate of the Applicant and a copy of an identification certificate of the payer of the Bill, which were issued to the Licensee’s representative at the time of execution of the engagement.46
(a1) 47Before signing the agreement, the representative shall present the Applicant48 with a printed copy of the Engagement Agreement and shall allow him to review it;
(b) At the time of the engagement, the Applicant and a representative of the Licensee shall sign the original copy of the Engagement Agreement that was presented for the Applicant's review. After the said signature, the Licensee’s representative shall give the Subscriber a copy of the Engagement Agreement upon which the Licensee representative's and Applicant's original signatures appear;
(c) After executing that stated in subclauses (a) and (b), the Licensee’s representative may ask the Subscriber to sign an additional copy of the Engagement Agreement identical to the one originally signed, by using electronic means;
45 Amendment no. 5. 46 Amendment no. 5.
58
(d) The Licensee shall keep a signed copy of the Engagement Agreement and make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the date of the engagement.49
(e) If the Subscriber requests to make changes to the conditions of the Engagement Agreement, including a request to replace an existing plan with a new plan,50 to receive additional services, to expand a service,51 or to join a service package, the Subscriber shall receive a printed notice at the time of the change that bears the Licensee's name or logo, which shall specify the request submission date,52 details of the change executed, the date they become effective and the full name of the Licensee’s representative and the Subscriber and their original signatures. The Licensee is not permitted to make any change, as stated, including replacement of an existing plan with a new plan, without receiving the express consent of the Subscriber as stated above.
The Licensee shall retain the signed notice, as stated, in its possession and make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the submission date of the request.53
55.6 Cancelled54
55.7 Notwithstanding that stated in clause 55.5, the Licensee may have a Subscriber sign an Engagement Agreement also by a computerized graphic signature, instead of an original signature, and for this matter, the provisions of Appendix C shall apply instead of that stated in clause 55.5.
In this regard, “computerized graphic signature” – a signature that is digitally saved as a graphic file.
56. Remote Sale Transaction
56.1 In a Remote Sale Transaction, as this term is defined in section 14.C. of the Consumer Protection Law, 5741 – 1981, which is being transacted via a telephone conversation, the Licensee shall act as follows:
(a) The Licensee shall record the telephone conversation held between the Applicant and the Licensee’s representative.
47 Amendment no. 5. 49 Amendment no. 5. 50 Amendment no. 5. 51 Amendment no. 5. 52 Amendment no. 5. 53 Amendment no. 5. 54 Amendment no. 5.
59 (b) During the sale conversation, and before the Applicant expresses his consent to engage in an agreement with the Licensee, the Licensee’s representative must ask for the Applicant’s consent to send him the Plan Basics via electronic mail or SMS or facsimile, and the Service Access Form, and must inform him that he must confirm in writing that he is accepting the terms of the Engagement Agreement as a precondition to it coming into effect. Insofar as the Applicant expressly states that he is not interested in receiving the said documents in one of the three said ways during the sale conversation, then the Licensee shall be released from having to send them to the Applicant when conducting the sale conversation, and these shall be sent to him, together with the rest of the provisions of the engagement terms document, on the transaction execution date. If the Applicant asked to receive the said documents via one of the ways specified above, the Licensee’s representative must send them to him in the manner requested during the sale conversation.
(c) In a Service Access Form sent via electronic mail or SMS, every service must be computer-marked as “blocked” or as “open,” as the Applicant chose during the said telephone conversation.
(d) The electronic mail message or the SMS shall ask the Applicant to confirm the execution of the transaction and the choices marked in the Service Access Form. The Applicant must expressly confirm the terms of the transaction, without any handwritten stipulations or qualifications or changes in relation to the terms in the engagement terms document, either via return electronic mail message or return SMS, which includes his full name and ID number.
(e) If the Applicant asked to receive the Plan Basics and the Service Access Form via facsimile, the Licensee’s representative shall send the said documents via facsimile, according to number given to the Licensee’s representative during the conversation.
The Applicant must expressly confirm the terms of the transaction, without any written stipulations or qualifications or changes in relation to the terms in the said documents, in his handwriting, his marking and his signature on the Plan Basics and on the Service Access Form, and he must send the two said documents via facsimile to the facsimile number given to him by the Licensee’s representative during the conversation between them.
60 The Licensee shall send the rest of the provisions of the engagement terms document via regular post to the Applicant, on the transaction execution date.
(f) A Remote Sale Transaction via telephone shall be completed and shall come into effect, and the Licensee shall be allowed to charge the Applicant pursuant to its terms, only after the Licensee has received the reply notice from the Applicant via electronic mail or SMS confirming the signing of the Engagement Agreement, or the said documents via facsimile, being duly marked and signed.
(g) The Licensee shall retain the following in its possession:
(1) the recording of the telephone conversation between the Applicant and the Licensee’s representative;
(2) the electronic mail message or the SMS that the Licensee sent to the Applicant, including the Plan Basics and the Service Access Form attached thereto;
(3) the electronic mail message or the SMS confirming the execution of the transaction that the Applicant sent to the Licensee, as its response to the electronic mail message or the SMS that the Licensee sent to the Applicant, being presented consecutively;
(4) if the transaction was executed via facsimile, the Licensee shall retain the Plan Basics bearing the Applicant’s handwritten signature and the Service Access Form bearing the Applicant’s handwritten markings and signature, in its possession;
(5) the rest of the provisions of the engagement terms document, updated to the agreement signing date with the Applicant.
(h) The Licensee shall make the recordings and the documents specified in clause (g) available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the effective date of the transaction.
61 (i) The rules specified in this clause shall also apply when at issue is the execution of a change in an existing plan or a replacement of an existing plan with a new plan.
For the purposes of this clause, “change” – the receipt of an additional service, the expansion of a service, subscribing to a service package.
The Licensee is not allowed to make any change, including a replacement of an existing plan with a new plan, without receiving the Subscriber’s express consent, in the manner specified in clause 62.7(b).55
(j)56 Notwithstanding that stated, if a Subscriber requests to make changes that do not entail an extension of the Subscriber's commitment period or creating said period, the Licensee shall include a notice in the first Telephone Bill after the request date specifying the details in subclause (b), except for the name of the Licensee’s representative. For this subclause, “commitment” – as defined in clause 87.5.
56.2 In a Remote Sale Transaction, as this term is defined in section 14.C of the Consumer Protection Law, 5741 – 1981, via the internet, the Licensee shall act as follows:
(a) In its advertisement of a tariff plan on its website, the Licensee must clearly include all of the details specified in subclauses 55.4(c) through 55.4(j), and the Plan Basics and the Service Access Form.
(b) During the registration process for a tariff plan, as stated, the Licensee must include a presentation of the Plan Basics to the Applicant and a box that the Applicant must mark before completing his registration, as stated, whereby marking that box shall constitute a declaration that he read the information included in the Plan Basics. Insofar as the Applicant shall not mark the box as stated, it must not be possible to complete registration.
(c) As part of the tariff plan registration process, as stated, the Licensee must include an online Service Access Form that the Applicant can mark, and retrieve at any time, and change his choices on it as he wishes.57
55 Amendment no. 5. 56 Amendment no. 5. 57 Amendment no. 5.
62 (d) The Licensee shall send a copy of the engagement terms document to the Subscriber who executed a “Remote Sale” transaction via the internet, immediately after executing the transaction. A copy of the Engagement Agreement signed between the Subscriber and the Licensee must be sent to the Subscriber via electronic mail message, which shall include the Engagement Agreement as an attached file.
(e) The Licensee shall retain the engagement terms document, as stated, in its possession, and make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the transaction execution date by the Subscriber.
(f) The rules specified in this clause shall also apply when at issue is the execution of a change in an existing plan or a replacement of an existing plan with a new plan.
For the purposes of this clause, “change” – the receipt of an additional service, the expansion of a service, subscribing to a service package.
The Licensee is not allowed to make any change, including a replacement of an existing plan with a new plan, without receiving the Subscriber’s express consent, in the manner specified in clause 62.7(b).58
57. Amendment to the Engagement Agreement
57.1 The Director may order the Licensee to amend the Engagement Agreement, after having given the Licensee a fair opportunity to voice its arguments.
57.2 If an Engagement Agreement was amended pursuant to the Directors’ instructions or pursuant to the court’s ruling for uniform contracts, if submitted for its approval, then the engagement between the Licensee and a Subscriber shall be done according to the amended Engagement Agreement as of the date of the amendment.
57.3 The provisions of clause 55 shall apply, mutatis mutandis to an amendment to the version of the Licensee’s Engagement Agreement.
58 Amendment no. 5.
63 58. Cancelled.
59. The Obligation to Connect Applicants and the Prohibition of Stipulations
59.1 The Licensee shall connect any Applicant to the Network by no later than the date prescribed in the Engagement Agreement with the Subscriber, unless the Director has given his approval to the Licensee to not connect an Applicant, under circumstances that he deems justifiable.
59.2 The Licensee may not make the connection of an Applicant, the provision of services or the setting of tariffs contingent upon unreasonable, discriminatory or unfair conditions and, without derogating from the general purport of that stated:
(a) The Licensee is not permitted to obligate a Subscriber to purchase an End Device from it or from its agent;
(b) The Licensee is not permitted to obligate the Subscriber to receive maintenance or insurance services from it for the End Device in his possession;
(c) The Licensee is not permitted to limit the supply of spare parts for End Devices that were purchased from it or from its agent, to Subscribers or to another provider of maintenance services.
64 Section B – Conflicts of Interest and Harm to Competition
60. Prohibition of Conflicts of Interests
60.1 The Licensee, any body in which the Licensee is an Interested Party, an Officer in the Licensee or an Interested Party in the company holding the License or an Officer in an Interested Party therein, shall not be party to any agreement, arrangement or understanding with a Competing Operator or an Interested Party or an Officer therein, or an Officer in an Interested Party in a Competing Operator, or any other body in which a Competing Operator is an Interested Party, which is designed or is liable to reduce or harm competition in relation to any matter pertaining to End Devices or any Telecommunications Services.
For the purposes of this clause, “competing operator” – operator other than the Licensee.
61. Prohibition of Harm to Competition
61.1 The Licensee shall not conduct any activity, by way of act or omission, and shall not be a party to any agreement, arrangement or understanding that is designed or is liable to reduce or harm competition in the telecommunications sector or in the broadcasting sector.
61.2 If the Minister finds that the actions of the Licensee could cause significant harm to the competition in the telecommunications sector or in the broadcasting sector, then the Minister may instruct the Licensee, after having given it a fair opportunity to voice its arguments, with regard to actions that it must take in order to prevent the harm.
61.3 If the Minister finds that a tariff or payment set by the Licensee contravenes the provisions of the Law or the License, or that it is liable to harm the competition or consumers, then the Minister shall notify the Licensee of this, specifying the required amendment and the effective date of the amended tariff to Subscribers. The Licensee shall comply with the Minister’s instruction and shall furnish the Minister with written notification specifying the amended tariff or payment.
61.4 If the Licensee billed a Subscriber according to a tariff or payment that contravenes the provisions of the License and the tariff or payment has been amended as stated, then the Licensee shall take action to refund the overcharge to the Subscriber, with linkage differentials and interest, as defined in clause 94.
65 Section C – Standards of Service to Subscribers
62. Obligation to Maintain the Service
62.1 The Licensee shall make available to its Subscribers all of the services specified in Appendix B, in accordance with the conditions specified in the said appendix, and shall maintain all of its services throughout all days of the year during all the hours of the day and night, both in peacetime and in times of emergency, subject to clause 40, in accordance with the Technical and Quality of Service Requirements, in an orderly and normal manner and at a quality that shall not be inferior to that stated in the service quality indices specified in Appendix C and in Appendix D to the License.
62.2 Without derogating from the provisions of clause 87.3, the Licensee shall provide Service and the Bundle of Services to every Applicant, on equal and non-discriminatory terms, and at a non-discriminatory tariff.
62.3 If the Director found that a service or a Bundle of Services might harm competition or consumers, he shall give notice of this to the Licensee, noting the date on which the Licensee is to stop offering the service or the Bundle of Services to its Subscribers.
62.4 The Licensee shall provide its services:
(a) With regard to Mobile Domestic Service, wherever there is coverage by the Host Network;
(b) With regard to Fixed-line Domestic Service, wherever the Licensee has deployed infrastructure, apart from in relation to Broadband Telephone Service, which shall be provided to every Subscriber to broadband service of a Domestic Operator;
(c) With regard to International Telecommunications Service, it shall be provided to every Subscriber of a Domestic Operator.
62.5 If the Licensee shall provide any service to any person or body for a payment, the service shall be available to every Subscriber as stated in clause 62.4, while complying with the minimum requirements pertaining to Quality of Service, without discrimination, within 24 months of the start date of the provision of the service for payment.
66 62.6 Upon written application from the Licensee, the Director may permit the Licensee exceptions to the provisions of clause 62.5 and clause 62.4, after being convinced that there is a substantive difficulty in providing the service to all who request it, and that the particular characteristics of the service contain special and extraordinary grounds that justify this.
62.7 (a) The Licensee shall not provide and shall not expand, whether for a consideration or for no consideration, any of its services that the Subscriber has not expressly asked to receive or expand, apart from a service being provided for free to all Subscribers, and it shall not enable the provision or expansion of a service by a service-provider that the Subscriber has not expressly asked to receive or expand from the Licensee.
For the purposes of this clause, “service-provider” – whoever provides a service through the Network, when the payment in respect of the service is paid through the Telephone Bill.59
(b) An express request shall be submitted in one of the following ways60:
(1) a document signed by the Subscriber that is sent to the Licensee;
(2) an electronic mail sent by the Subscriber to the Licensee;
(3) a telephone call between the Subscriber and the Licensee’s representative;
(4) an SMS sent by the Subscriber to the Licensee;
(5) an order of a service on the website of the Licensee or of a content-provider. A service order shall be done in accordance with the provisions of Appendix C.4 of the License;
(6) an internet chat call with a representative of the Licensee;61
59 Amendment no. 5. 60 Amendment no. 5. 61 Amendment no. 5.
67 (c) The Licensee shall retain the documentation of the Subscriber’s express request in its possession and shall make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the date of the Subscriber’s express request.62
In this regard, “documentation” –
For subclause (b)(1) - a copy of the document;
For subclause (b)(2) - a copy of the electronic mail;
For subclause (b)(3) - a recording of the telephone call;
For subclause (b)(4) - a copy of the Subscriber's Telephone Bill that lists under the "call details," the details of the SMS sent by the Subscriber and a printout of its contents as received in the Licensee’s system;63
For purposes of subclause (b)(5) - a log from the short message service center (SMSC) of the Licensee in which the fact of the sending of the 2 SMSs from the Licensee to the Subscriber are documented, as part of the procedure of ordering a service. If the service was ordered on the Licensee's website or cellular portal by using a user code and password as set forth in clause 1.3 of Appendix C4 of the License – a printout of the log from the internet server that attests to the execution of the service order process and a printout of the log-in of the typing the user code and password by the Subscriber.
For the purposes of clause (b)(6) – a printout of the calls via internet.64
Notes taken by the Licensee’s representative in the Licensee's information systems do not constitute documentation.
62.8 The Licensee is not allowed to collect payment from the Subscriber for a service or an expansion thereof65 unless it has documentation regarding the Subscriber's explicit request to receive the service or the expansion thereof.66
62.9 If the Subscriber is charged for a service or for an expansion of a service67 and notifies the Licensee that he did not request the service or an expansion thereof,68 the Licensee shall refund him the entire sum that was charged for the service or the expansion thereof,69 if the Licensee does not have the documentation regarding the Subscriber's explicit request to receive the service or an expansion thereof.70 The manner of handling the Subscriber's objections and the granting of the refund shall be executed in accordance with the provisions regarding "overcharging" specified in clause 95 of the License.
62 Amendment no. 5. 63 Amendment no. 5. 64 Amendment no. 5. 65 Amendment no. 5. 66 Amendment no. 5 67 Amendment no. 5 68 Amendment no. 5 69 Amendment no. 5. 70 Amendment no. 5.
68 63. Call Center
63.1 The Licensee shall operate a staffed call center for the receipt of calls from its Subscribers, and the Licensee shall operate additional means that shall enable its Subscribers to contact it in order to receive information and to make inquiries, as set forth in Appendix C to the License.
63.2 The Licensee shall publicize, including on its website and in the Telephone Bill to Subscribers, its address and mode of contacting the call center, including via facsimile or electronic mail; the Licensee shall notify the Director and its Subscribers about any change in its address or a change in the details for calling the call center.
63.3 The Call Center shall be manned by a skilled and professional employee team, with suitable qualifications to handle calls. Should a complaint be received regarding a malfunction that caused a complete discontinuance of services to the Subscriber, the said team shall take immediate action to locate the malfunction and to begin taking measures to immediately repair it.
63.4 The Licensee shall specify the details of the malfunction in the maintenance log as stated in clause 63.3 and the measures taken to rectify it, all as stated in clause 44.
64. Ombudsman
64.1 The Ombudsman shall be directly subordinate to the CEO of the Licensee or to the board of directors, including to one of the board committees.
64.2 Subject to the provisions of clause 64A relating to the settlement of disputes, the roles and authorities of the Ombudsman shall be as follows:
(a) to clarify complaints of Subscribers and Applicants concerning the Licensee’s Services;
(b) to clarify complaints of Subscribers concerning Bills that the Licensee submitted to them and to decide them;
69 (c) to clarify disagreements arising between the Licensee and a Subscriber concerning the interpretation or execution of the Engagement Agreement and to decide them.
64.3 The Licensee must display a link called “Ombudsman” on its website’s home page, in a conspicuous way and location.71 Pressing on the said link must lead to a target page that specifies the roles and authorities of the Ombudsman, and details for four (4) options for sending a complaint to him as follows:
(a) ordinary post;
(b) electronic mail address;
(c) online form on the Licensee’s website, to which various types of files may be attached;
(d) facsimile.
64.4 The Licensee shall specify the roles and authorities of the Ombudsman in every Bill that it submits to a Subscriber, and the address, facsimile number and electronic mail address through which a Subscriber can send a written complaint to him.
64.5 The Licensee shall specify on its website and in every Bill that it submits to a Subscriber, the details that a Subscriber must complete in a complaint that it intends to send with reference to each of the four (4) options specified above.
64.6 If a complaint is sent to the Ombudsman via electronic mail or using an online form, an automatic notice acknowledging its receipt must be sent to the Subscriber, immediately after receiving the complaint. The acknowledgement notice must include the reference number assigned to the complaint in the Licensee’s system, the date of receipt of the complaint, the contents of the complaint as sent by the Subscriber and the deadline by which a written response to the complaint shall be sent.
64.7 The Licensee must retain a copy of the complaint and of the written response sent to the Subscriber in its possession, and make them available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the date of receipt of the complaint and of the date the response was sent.72
71 A link entitled “contact us” shall not be deemed a substitute for the said link. 72 Amendment no. 5
70 64A. Dispute Settlement
64A.1 The Engagement Agreement shall state that all disagreements that arise between the Licensee and a Subscriber regarding the interpretation or implementation of the Engagement Agreement shall be forwarded for clarification by the Licensee's Ombudsman.73
64A.2. The Engagement Agreement shall state that an application to the Ombudsman74 in accordance with article 64A.1, shall not:
(a) prevent the Subscriber from bringing the matter before the competent court;
(b) derogate from the authority of the Licensee to act in accordance with the provisions of clause 79 regarding suspension or disconnection of service as a result of a breach of the Engagement Agreement.
65. Protection of Subscriber Privacy
65.1 Without derogating from the provisions of the Law, the Wiretapping Law, 5739 –1979, the Protection of Privacy Law, 5741 – 1981, or any other law regarding protection of a person’s privacy, the Licensee shall not be allowed to wiretap a telephone or any other communication of a Subscriber without the Subscriber's written consent, other than for the purposes of control over the quality of the service or the prevention of fraud.
65.2 Subject to the provisions of clause 54, the Licensee, its employees, agents and any person acting on its behalf shall not be allowed to disclose lists or documents containing a Subscriber’s name and address or any other information regarding a Subscriber, including account details, call traffic, times and destinations, to any person other than to the Subscriber or to a person authorized by the Subscriber for this.
65.3 Notwithstanding the provisions of clause 65.2, the Licensee may do the following:
(a) provide details of the Subscriber to another Licensee for the purpose of the collection of monies due to it from the Subscriber for services provided to it via the Network, provided that the details so provided are essential for the purpose of collecting money and accounting and the other Licensee has undertaken to maintain the privacy of the Subscribers;
(b) provide the details of a Subscriber, to the extent that such details are in its possession, to another party, under the authority of law.
73 Amendment no. 5. 74 Amendment no. 5.
71 66. Prevention of Fraud
66.1 The Licensee shall take appropriate and reasonable steps to prevent fraud and shall establish a system for control and monitoring in order to ensure, as far as possible, that services for which a Subscriber is charged are in fact being made from the Subscriber’s End Device that is connected to the Network, and shall credit the Subscriber with a refund for charges collected from it in respect of services that he did not consume, plus linkage differentials and interest, as defined in clause 94.2. The control and monitoring system must make use of advanced and efficient means to identify illegal traffic and to prevent it in real time or close to real time.
66.2 The Licensee shall disconnect service at a Subscriber’s request, after notification is received at the service center that there is a concern that someone else is using the service without authorization; the Subscriber is permitted to give notification as stated by telephone or in writing, including fax and electronic mail; upon receipt of the telephone notification or immediately after receipt of written notice as stated, the Licensee shall verify its reliability, and shall disconnect the service; the disconnection and reconnection of service as stated shall be done at no charge.
66.3 The Licensee shall cooperate with other Licensees in identifying and preventing fraud.
The Director may issue instructions regarding the institution of measures to prevent fraudulent acts and to identify and handle fraudulent acts, and the Licensee shall comply with the Director’s instructions in this regard.
67. Subscribers’ Bills
67.1 The Bill that the Licensee shall submit to the Subscriber shall be clear, concise, legible and comprehensible; the Bill shall include precise itemization of the required payments in accordance with the types of payments and the rules detailed in Chapter F of the License.
72
67.2 The Licensee may collect payments for its services from the Subscriber through another party.
67.3 (a) Without derogating from all other provisions of the License regarding the manner in which the Subscriber's Bill shall be prepared and the method of billing, the Licenseeshall act in accordance with Israeli Standard 5262, that concerns the credibility of the charge and full disclosure in Telephone Bills (hereinafter in this clause – “theStandard”).
(b) Notwithstanding that stated in subclause (a) –
(1) With regard to the provisions of clause 2.2.2 of the Standard, the rounding of sums method shall be implemented according to the following:
((a)) an amount in a Bill shall be rounded to the nearest number that ends with two digits after the decimal point of the Shekel, and an amount that ends with five tenths of an Agora (three digits after the decimal point), shall be rounded up.
((b)) An amount for payment of a single call shall be rounded to the nearest amount that ends with two75 digits after the decimal point of the Shekel, and an amount that ends with five tenths76 of an Agora (three77 digits after the decimal point), shall be rounded up.
(2) Cancelled.78
(3) The price of a phone call (voice) that includes a variable tariff, shall be presented in a Bill to a Subscriber as the average price per minute, which shall be calculated in accordance with the amount for payment for that call, divided by the total minutes in the call.
In this section, "variable tariff"- a tariff that changes during the course of the call based on different criteria, such as, a tariff that gradually reduces as consumption increases, or a tariff that varies as a result of changing from "peak time" to "off-peak time" during the course of the call or vice versa.
75 Amendment no. 5. 76 Amendment no. 5. 77 Amendment no. 5. 78 Amendment no. 5.
73 (4) In addition to the provisions at the end of clause 2.2.4 of the Standard regarding a Service Bundle, the Bill shall include a detailed list of the services that are included in the bundle, as well as the total tariff to be paid for the bundle.
67.4 A Bill that is sent to a Non-Business Subscriber shall also be prepared pursuant to the provisions of Appendix C.2 (hereinafter in this clause: "Bill Format for a Non-Business Subscriber and for a Split Business Subscriber"79).
67.5 A Bill submitted to a Business Subscriber shall include the details as stated in subclauses 9B (1) to 9B (4) in Appendix C.2. In this section, "Business Subscriber" - except for the Subscribers detailed in subclauses (b) and (d) of the definition of "Business Subscriber" in clause 1 of the License.
67.6 A Business Subscriber may request that the Licensee send him a Telephone Bill in a Non-Business Subscriber Format (hereinafter in this clause: "request"). If the Subscriber makes such a request, the Licensee shall begin sending him Bills in accordance with said format, by no later than two Billing Periods after the date of the Request. The Licensee shall publish bi-annually, a notice in the Telephone Bill that is submitted to Business Subscribers, whereby a Business Subscriber may request that the Licensee prepare the Telephone Bill being submitted to it in accordance with the Non-Business Subscriber Bill Format. In addition, a Business Subscriber may request details in writing from the Licensee regarding the mode of calculation of a "one-time charge." The Licensee shall submit the said details in writing to the Business Subscriber regarding a "one-time charge" within thirty (30) days of the date that the Subscriber requested this from customer service or from the Ombudsman.80
67.7 The Subscriber shall receive the Bill, at its choice, via one of the following modes:
(a) regular post;
(b) electronic mail with an attached file;
(c) SMS with an attached link;
(d) the Licensee’s website;
(e) other electronic means at the choice of the Licensee.
79 Amendment no. 5. 80 Amendment no. 5.
74 The Licensee must present the five (5) said modes for the Subscriber’s choice on the Service Access Form. If the Subscriber does not select one of the modes, then the Bill must be sent to him by regular post. The Subscriber may change the mode for receiving the Bill at any time, by way of an oral or written request.
The Licensee shall document the Subscriber’s request, as stated, and make this documentation available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the submission of the request.
If the Subscriber submitted his request during the first half of the Billing Period, then the Licensee shall send him the Bill immediately following the date of his request in the mode selected by the Subscriber. Otherwise, the Licensee shall send the Bill to the Subscriber in the mode selected by the Subscriber after the upcoming Bill.
The Licensee is not allowed to demand any payment from the Subscriber for issuing the Bill, which includes “itemized calls,” either regularly or on a one-time basis, and sending it to him, at his request, through electronic means. The Licensee may demand reasonable payment in respect of “itemized calls” from any particular date, which was sent to the Subscriber at his request, regularly or on a one-time basis, only in the event that the Bill was received by the Subscriber as specified in subclause (a).81
67.8 If the payment specified in the Telephone Bill is paid by instruction to debit a bank account or credit card, the said payment shall not be paid before ten (10)82 days have elapsed since the date that the Telephone Bill was sent to the Subscriber.
67.9 In relation to Subscribers receiving their Bills via regular post, the Licensee may act as follows in relation to the sending of Bills:
(a) The Licensee shall send a separate letter to every such Subscriber by regular post or via electronic mail message asking the Subscriber to choose, within thirty days (30) of the date the letter or the message was sent, the way by which his monthly Bill shall be sent to him, out of the following ways:
(1) regular post;
(2) electronic mail with an attached file;
81 Amendment no. 5. 82 Amendment no. 5.
75
(3) SMS with an attached link;
(4) the Licensee’s website;
(5) other electronic means at the choice of the Licensee.
(b) The Licensee must enable every Subscriber, as stated, to respond to the letter to him via regular post, without payment, and via electronic mail and facsimile.
(c) The Licensee is obligated to operate at least two electronic means out of that specified above in subclause (a).
(d) The Licensee must specify in its letter to a Business Subscriber and to a Split Business Subscriber, in a framed notice, in boldface and at a font size of at least 16, that, insofar as it shall not choose the mode by which it shall receive the Bill, the Bill shall be sent to it in the mode to be decided by the Licensee, and this, without derogating from the provisions of section 13.B.(a) of the Consumer Protection Law, 5741 – 1981.
(e) The Licensee must specify in the notice to a Non-business Subscriber, in a framed notice, in boldface and at a font size of at least 16, that, insofar as he shall not choose the mode by which he shall receive the Bill, the Bill shall be sent to him by regular post.
(f) The Licensee is not allowed to send the Bill by way of an SMS to an End Device that is blocked to the receipt of SMSs and to an End Device that is not a smartphone.
(g) The Licensee is not allowed to change the mode of sending the Bill to a Non-business Subscriber who did not respond to the request that the Licensee sent to him.
(h) If the mode of sending the Bill to a Subscriber was changed, the Licensee shall send a notice to the Subscriber before sending the first Bill in the new mode, by way of SMS, informing him of the details of the change. Any Subscriber blocked from receiving SMSs must receive the said message in the Bill following the execution of the change.83
83 Amendment no. 5.
76 68. Public Emergency Services
68.1 The Licensee shall enable all of its Subscribers free and rapid access to public emergency services, at any time and free of charge, such as: Magen David Adom, the Israel Police Force, the Fire Department and the Homefront Command Center. The Licensee shall coordinate with the providers of public emergency services the manner by which access to their services shall be provided.
68.2 The Licensee shall enable the public emergency service centers84 to indentify the telephone number of a Subscriber that dials them,85 free of charge and at any time, including a Subscriber with a “no caller ID” number, a Subscriber that implemented blocking of the call and a Subscriber that dials from a private switchboard.
The Licensee may implement the aforesaid through a Licensee that routes the call to the public emergency service center.
The Licensee shall notify a Subscriber who requested an “no-caller ID” number that the number is not unidentified to a call to public emergency service call centers.
69. Blocking Service to Harassing Subscribers
69.1 Notwithstanding that stated in clause 68.1, the Licensee shall block a harassing Subscriber’s access to public emergency services; if the blocking to public emergency services only is not technically possible, the Licensee shall block the harassing Subscriber’s access to all of the Licensee’s Services. For the purposes of this clause, “harassing Subscriber” - a Subscriber that calls a particular emergency hotline, without a justified reason, more than 10 times during one day, through the End Device in his possession.
69.2 Notice regarding a harassing Subscriber shall be given in writing to the Licensee by a senior employee of a public emergency service (hereinafter: “the Employee”), verified by an affidavit signed by the Employee (hereinafter: “the Complaint”). The Complaint shall include, inter alia, the name of the harassing Subscriber, his phone number, as far as these details are known to the complainant, as well as details of the times of the calls of the harassing Subscriber and the content of the calls that indicates that the calls were made without a justifiable reason. If the Complaint does not include the harassing Subscriber’s phone number, the Licensee shall act in a reasonable manner to identify the harassing Subscriber based on the details in the Complaint.
84 Israel Police-100, Magen David Adom-101 and the Fire Department-102 and Homefront Command Center 104. 85 Excluding a subscriber whose End Device allows him to dial emergency centers only, for example a handset without a SIM card on a GSM network.
77 69.3 The Licensee shall block the harassing Subscriber’s access to the emergency services as set forth in clause 69.1, after giving the harassing Subscriber prior notice. The notice shall be given 3 workdays before blocking the service, in one of the following manners:
(a) a call from the Licensee’s service center to the Subscriber’s End Device;
(b) sending an SMS to the Subscriber’s End Device;
(c) sending a registered letter to the Subscriber; except a Prepaid Subscriber whose address is unknown.
69.4 The blocking of service to a harassing Subscriber who is a Prepaid Subscriber whose address is unknown, shall be done no later than 24 hours after receiving the Complaint or identification as stated in clause 69.2.
69.5 Notwithstanding that stated in clause 69.1, the Licensee shall not block a Subscriber’s access to a public emergency service, if the circumstances of the calls made, based on the explanation the Subscriber provides to the Licensee, shows that there was justification for the calls and that he should not be deemed a harassing Subscriber; the Licensee shall forward the reasons for not blocking the harassing Subscriber’s access, to the Director within 10 workdays of the receipt of the Complaint or the identification as stated in clause 69.2.
69.6 If the Licensee blocks the harassing Subscriber’s access to the emergency calls as stated, he may collect from the Subscriber all charges and may also be entitled to collect payment from him in respect of removing the blocking.
69.7 The Licensee is permitted to remove the blocking after the harassing Subscriber provides him with a written undertaking that he shall not repeat the harassment in the future.
69.8 The Licensee shall record the manner of identification of the harassing Subscriber, the manner of notifying the harassing Subscriber or, alternatively, when notice was not given to the harassing Subscriber, the reason for not giving notice; in addition, it shall record the manner in which the blocking was removed.
69.9 The Licensee shall specify in a Harassing Subscriber report, as stated in clause 112.3(i), the number of harassing Subscribers whose access to the public emergency service or to all services has been blocked pursuant to this clause, as well as the number of Subscribers whose blocking has been removed and the number of Subscribers whose access was not blocked pursuant to this clause and the reasons for this.
78 69A. Personal Message Service
69A.1 The Licensee shall provide a personal message service (in this section: “the Service”), at all times and free of charge, whether itself or through another Licensee, to all of its Subscribers who have MRT End Devices that support the Service and in accordance with the "personal message" service file.
In this section:
"Another Licensee" – an MRT operator that provides service through its network to the Licensee and pursuant to a hosting agreement with the Licensee;
"Personal Message" – an announcement, warning and short explanation from the Security Establishment that is sent immediately, selectively and specifically to Subscribers with MRT End Devices that support the use of cell broadcast ("CB") technology.
"The Security Establishment" – representatives of the Ministry of Defense and Home Front Command who are responsible for a personal message system;
"Service File “Personal Message”” – a service file approved by the Director, including amendments that shall be executed in the service file;
69A.2 In order to execute that stated in clause 69A.1, the Licensee shall act as stated in Appendix B.1 and in the service file regarding this service and as follows:
(a) adaption of the Network and its components so that it shall support the provision of the personal message service;
(b) assistance and resource allocation to execute the connection of the Security Establishment’s personal message system to the Network;
(c) operation and maintenance of the Service components in the Network, in accordance with written directions that shall be presented to the Security Establishment; without derogating from the aforesaid, the Security Establishment may instruct the Licensee to change the said instructions, however, this shall not derogate from the Licensee's responsibility to repair and connect it to the Network;
79 (d) the execution of technical trials to examine the integration between the system and the Network and a drill of the Network and system operation, in accordance with the instructions of the Ministry and the Security Establishment.
69A.3 The Licensee shall report to the Security Establishment any gap in the ability to provide the Service and shall act to restore the ability as soon as possible, in accordance with the written operating procedures that it shall formulate and present to the Security Establishment.
Without derogating from the aforesaid, the Security Establishment may instruct the Licensees to change the operating procedures if they find them to be lacking, however, this provision does not diminish the Licensee’s responsibility as aforesaid.
69A.4 The Licensee shall notify the Security Establishment in advance of any change in the Network that may affect availability for provision of the Service.
69A.5 The Licensee may not make commercial use of the CB feature without informing the Security Establishment at least 30 days in advance before operating the Service, and the Security Establishment may notify the Licensee in writing, within 15 days about its objection to the provision of the service or about conditions for providing the said Service. In this case, the Licensee shall not operate the Service or shall only be able to operate it in accordance with the conditions prescribed by the Security Establishment, as the case may be.
The aforesaid does not detract from the License's obligation to receive the Director's approval for the said service.
69A.6 The Licensee shall assist in launching the Service to its Subscribers in all of the following ways:
(a) by written publicity on the Licensee’s website;
(b) by direct mail to Subscribers through the monthly Bills upon the launch of the Service;
80 (c) by providing a response to Subscriber inquiries to choose the necessary definitions on his MRT End Device; for models of MRT End Devices that were not marketed by the License, the License shall make a reasonable effort to give its Subscribers an answer as stated;
(d) The Licensee shall enable the Security Establishment to reasonably use its existing distribution channels in order to notify the Subscribers of the Service.
70. Information Service for Clarifying Telephone Numbers
70.1 Without derogating from the provisions of clause 65, the Licensee shall provide, either by itself or through another on its behalf, an information service for clarifying the telephone number of any Subscriber of another Licensee, apart from Subscribers with unlisted numbers (hereinafter: "Information Service"), as follows:
(a) to the general public and free of charge, through a website through which the service shall be provided;
(b) to its Subscribers, at a reasonable price, through a telephone call center to which the access shall be provided by a network access code defined by the Director in the Numbering Plan;
(c) the Information Service shall be provided by all of the above methods based on the same information characteristics that the Subscriber shall provide for the purpose of receiving the service.
70.2 In addition to that stated in clause 70.1, the Licensee may offer, at a reasonable price, either by itself or through another on its behalf, an Information Service, through any other means, including through a national access code or through a short message system service (SMS).
70.3 For the purpose of executing that stated in subclauses 70.1 and 70.2:
(a) The Licensee may query any database of a Domestic Operator (hereinafter in this clause: "another licensee"), or receive information from the database of another licensee through any other method and with the consent of the other licensee, all subject to the obligation regarding protection of the Subscriber's privacy;
81 (b) For the purpose of providing the Information Service by another licensee in accordance with its general license, the Licensee shall allow any other licensee access to the Licensee's database;
(c) The Licensee shall reguarly update the database, so that every name, address or telephone number of a Subscriber that has been added, changed or removed, shall be updated in the database within one workday of the execution of the update in the Licensee's system that is used for the purpose of providing telephony service.
For the purposes of this clause –
"database"- a pool of data that includes the name, address and telephone number of every Subscriber that is not unlisted, including a Subscriber that is a business.
70.4 (a) The Licensee shall request the consent of every new Subscriber in order to include their details in the database; if the Subscriber consents to the aforesaid, the Licensee shall include the Subscriber's details in the database.
(b) The Licensee shall fulfill the first request of any Subscriber who asked to remain unlisted, at no charge.
70.5 (a) The conditions for the provision of a directory assistance service for clarifying telephone numbers being provided pursuant to clause 70 shall be determined by the Licensee, provided that they are fair and nondiscriminatory, including with regard to the order of presentation of the data to anyone calling the service; the service shall be provided twenty-four (24) hours a day, every day of the year, except on Yom Kippur; in this subclause, "order of presentation of the data"- if the answer to a person’s query to the service consists of a number of different data, the data shall be presented in random order;
82 (b) A directory assistance service for clarifying telephone numbers as stated in clause 70.1(b) and an Information Service through a telephone center to which the access shall be provided by a national access code as set forth in clause 70.2 shall meet the following service indices:
(1) at all times, in the event of heavy traffic of calls requesting the service,86 the ratio of callers who shall receive service shall not be less than 90%;
(2) the average waiting time of a caller until the start of receiving service87 shall not exceed 30 seconds;
(3) the maximum waiting time of a caller until the start of receiving service shall not exceed 60 seconds.
70.6 Subclause 70.1(b) shall become effective no later than one year after the Licensee began providing service, pursuant to clause 38.4.
70.7 The Licensee, either itself or through another, including together with another Licensee, shall publish a service88 for clarifying telephone numbers that is being provided by the Licensee at no charge (hereinafter: “free information service"); the publication shall include at least the Licensee’s website.89
71. Service File
71.1 If the Licensee desires to operate a service that is included in the list of services in Appendix B and marked “future,” it shall submit a written application to the Director by no later than thirty (30) days before the date it intends to begin providing the service.
71.2 If the Licensee desires to operate a new service that is not included in the list of services in Appendix B that it intends to provide to its Subscribers, it shall submit a written application to the Director by no later than thirty (30) days before the date it intends to begin providing the new service.
71.3 The Director shall notify the Licensee within thirty (30) days of the receipt of the Licensee’s application as stated in clauses 71.1 and 71.2, if it is allowed to begin providing the service or if it must submit a service file for the Director’s approval, as a precondition for starting the service.
71.4 The Licensee shall submit a service file for the Director’s approval upon his request; if the Licensee shall not submit a service file according to the Director’s instruction, or if the Director does not approve the service file, the Licensee shall not begin providing the service.
86 Busy Hour Call Attempts 87 Start of receiving service-an answer by a telephone operator or by the IVR system that requests the information from the caller in order to locate the requested telephone number etc. 88 Amendment no. 5. 89 Amendment no. 5.
83 71.5 The Director’s decision regarding the service file submitted to him shall be given within sixty (60) days of the day that the Licensee submitted all of the documents and information to the Director that he required for the purpose of approving the service file. In special cases, the Director may extend the dates set forth in this clause, in a written and detailed notice to the Licensee.
71.6 The Director may require the Licensee to submit for his approval a service file for an existing service that does not require a service file, and he may also require the Licensee to submit a new service file for his approval for a service for which a service file has already been approved.
71.7 The service file shall be submitted to the Director in the format and at the time set forth by the Director and shall include, inter alia, provisions regarding the following: the name of the service, a detailed description of the service and the supply method, the service tariff, an engineering description, and all as specified in Appendix B; the Director may issue instructions regarding additional matters that must be included in the service file.
71.8 If the service file is approved, the Licensee shall provide the service in accordance with the conditions of the approved file, and the approved service file shall be deemed an integral part of the License.
71.9 The Licensee shall publish the approved service file, with the details and in a manner set forth by the Director, and the Director may publish it himself, as long as he does not do so until after the Licensee has begun providing the service. The announcement to the public shall not include information that is a trade secret, that has been indicated by the Licensee and marked as trade secrets attached in a separate annex to the service file.
71.10 Each new service that the Licensee shall begin providing in accordance with this clause shall be deemed part of Appendix B; the Director shall update Appendix B from time to time.
71.11 The provisions of this clause shall apply, mutatis mutandis, to a trial through the Network.
84 71A. Erotic Service
71A.1 An erotic service being provided through the Network, shall be done in accordance with the provisions of Appendix B.6.
For the purposes of this clause -
"erotic service" - as defined in clause 1 in Appendix B.6.
71B. Premium Service
71B.1 The Licensee may provide premium services in one of the following two ways:
(a) premium service, for which the payment is charged according to a premium tariff and is collected through the Telephone Bill, shall be provided in accordance with the provisions of Appendix B.5;
(b) premium service, for which the payment is charged according to a regular tariff (hereinafter in this subclause: "the service") shall be provided as follows:
(1) as a service within the Licensee’s network through a network access code90;
(2) by dialing a fixed-line telephone number to which the access shall be enabled for any Subscriber of any General Licensee.
For the purposes of this clause,
"Fixed-line telephone number" - a number format of geographic numbers and national fixed-line numbers or a number format asterisk plus 4 digits (*XXXX), in accordance with that defined in the Numbering Plan91;
"Premium Service" and "Regular Tariff" as defined in Appendix B.5.
72. International Roaming Service through the Network of an MRT Operator in a Neighboring Country
72.1 The Licensee shall act so that, in an area in which there is reception that allows the holding of a proper call through a Subscriber’s MRT End Device, both from the Network and from the network of an MRT Operator in a neighboring country, the Subscriber shall receive Mobile Domestic Service through the Network. The Licensee shall perform the action itself without requiring any action on the part of the Subscriber.
90 "Network access code" as defined in the Numbering Plan. 91 For example: numbers in the format 03-XXXXXXX and 07Z-xxxxxxx or *XXXX.
85 72.2 The Licensee shall block the possibility of a Subscriber receiving international roaming service through a network of an MRT Operator in a neighboring country ("the Service"), unless the Subscriber explicitly requested to receive the Service, and after it was explained to him that within the scope of receiving the Service, the MRT End Device in his possession may roam in the area bordering a neighboring country, involuntarily, to the network of a neighboring country, and he was given information about the tariffs for the Service; if the Subscriber requests to receive the Service as stated –
(a) The Licensee shall explain to him how he may manually select, through the MRT End Device in his possession, the MRT network from which he shall receive service;
(b) The Licensee shall allow the Subscriber to select whether to block access to receipt of data communications service through an MRT network of a neighboring country.
72.3 In this clause, "neighboring country" – Jordan and Egypt;
"Proper call" - a call that takes place in accordance with the minimal reception definitions prescribed in international standards according to which the Network operates.
73. Offensive sites and content
73.1 The Licensee shall notify its Subscribers about offensive sites and offensive content as defined in section 4.I of the Law, as stated in section 4.I(b)(1) of the Law; said notification shall be done in the manner set forth in section 4.I(c) of the Law.
73.2 The Licensee shall notify its Subscribers as stated about the existence of internet content that is unsuitable for children and teenagers (such as pornographic sites), and shall include details of ways in which the access to such content by children and teenagers can be blocked; said notification shall be done in the manner set forth in section 4.I(c) of the Law.
73.3 The Licensee shall offer its Subscribers as stated, in all of the ways set forth in section 4.I(c) of the Law, an effective service for filtering offensive sites and offensive content at no extra cost to the payment that it collects for the Internet Access Service, and all as set forth in section 4.I(d) of the Law, provided that the said service shall be based on an analysis of the information and not solely according to a "black list" of sites.
86 In this clause,
“The Licensee” – Licensee that provides Mobile Domestic Service or Internet Access Service, or both.
“Subscriber” – Subscriber to a Mobile Domestic Service, or Internet Access Service, or both.
87 Section D - Suspension or Disconnection of Service and Termination of an Engagement92
74. Definitions
74.1 In this section –
“Termination of Service” - permanent disconnection of any of the Licensee’s Services to all of the Subscribers;
“Suspension of Service” - temporary halting of any of the Licensee’s Services or of all of the Licensee’s Services, which are being provided to a Subscriber;
“Disconnection of Service” - permanent disconnection of any of the Licensee’s Services, which are being provided to a Subscriber;
“Termination of an Engagement” - disconnection of all of the Licensee’s Services being provided to a Subscriber, and termination of the Engagement Agreement with him.93
75. Termination of Service
75.1 The Licensee shall be allowed, with the Minister’s approval, to terminate the provision of service, including as a result of one of the following:
(a) the service has been rendered obsolete for technological reasons;
(b) economic reasons;
(c) the service has been abused and could cause substantive financial damage to the public, or a portion thereof, or to the Licensee.
In its application to terminate a service, the Licensee shall specify the number of Subscribers using that service, the measures that the Licensee intends to take in order to prevent any damage or loss to them, including the provision of an alternative service to the terminated service, and any other necessary information.
92 Amendment no. 5. 93 Amendment no. 5.
88 75.2 When granting authorization to terminate a service as aforesaid, the Minister shall consider, inter alia, issuing an instruction to the Licensee to provide an alternative service to replace the terminated service, or to continue providing the service for an additional period to be determined by the Minister.
76. Prohibition of Suspension or Disconnection of Service
76.1 The Licensee is not allowed to suspend or disconnect a service that it is obligated to provide pursuant to This License, unless that stated in this section, or that stated in clause 40 has transpired.
76.2 To dispel any doubt, if the Licensee began providing any service to its Subscriber, the service shall be deemed a service that it is obligated to provide, and that stated in clause 62.4 shall apply.
77. Suspension of Service at a Subscriber’s Request
77.1 A Subscriber may request from the Licensee to suspend service in respect of all of the Licensee’s Services, once a year, for a period of not less than thirty (30) days and not more than ninety (90) days.
77.2 A Subscriber may submit a request to suspend a service in the following ways:
(a) in writing, including by way of ordinary post, facsimile, electronic mail or online form on the Licensee’s website, to which various types of files may be attached, and the Licensee may enable the submission of a request by way of internet chat calls;
(b) orally, during a call to the telephone call center or at a service station of the Licensee;
77.3 The Licensee must document the Subscriber’s request and make this documentation available for delivery or forwarding to the Director, upon his request, and this, within five (5) workdays of the submission date of the request.
77.4 The Licensee shall carry out a suspension of service, disconnection of service or termination of engagement by no later than one workday after the day on which the request was submitted; if the Subscriber indicated a future date in its request for executing the suspension of service, disconnection of service or termination of the engagement, the Licensee shall carry out the request on the date specified by the Subscriber.
89 77.5 The Licensee must document in its information systems the date and time of the execution of the Subscriber’s request.
77.6 If a suspension of service was executed for a Subscriber, the Licensee shall resume the provision of the service by no later than one workday after the day on which the Subscriber’s request was submitted, unless the Subscriber requested a later date for resuming the provision of the service.
77.7 If the Subscriber requested a suspension of service for all of the Licensee’s Services, the Licensee shall save the Subscriber’s telephone number for him throughout the entire period of the suspension, and shall not transfer it to another party.
77.8 The Licensee is not allowed to collect payment from the Subscriber for suspension of service, for resuming the provision thereof, and is not allowed to collect payment from the Subscriber for the period of the suspension of all of its services.
77.9 After the provision of the service to the Subscriber is resumed, the Licensee shall charge the Subscriber according to the plan tariffs and conditions, pursuant whereto the Subscriber had been charged prior to the suspension of the service, unless the plan tariff and rates were changed for all Subscribers to that plan during the period of the suspension of service.
78. Disconnection of Service at a Subscriber’s Request
78.1 A Subscriber may request disconnection of service from the Licensee; the Subscriber may submit its request in writing or orally, as stated in clause 77.2.
78.2 The provisions of the above clauses 77.3 through 77.5 shall apply to a disconnection at a Subscriber’s request, and the Licensee is not allowed to collect payment from the Subscriber for disconnection of the service.94
94 Amendment no. 5.
90 78A. Termination of an Engagement at a Subscriber’s Request
78A.1 A Subscriber may notify the Licensee of termination of the engagement between them; the Subscriber may deliver its notice in writing or orally, as stated in clause 77.2.
78A.2 The provisions of the above clauses 77.3 through 77.5 shall apply to termination of an engagement at a Subscriber’s request.
78A.3 The Licensee shall send notice to the Subscriber about the termination of the engagement within two workdays of the date of the Subscriber’s request to carry out the termination of the engagement. The notice must include, inter alia, the date of execution of the termination of the engagement and the deadline for sending the last final Bill, which relates to the last Billing Period of his being a Subscriber of the Licensee (“Final Bill”).
78A.4 A Subscriber who terminated the engagement with the Licensee must receive a Final Bill on the closest possible date, and by no later than two months after the termination date of the engagement.
The Final Bill must specify the execution date of the termination of the engagement and it must bear the heading “Final Bill.”
78A.5 That stated in this clause in no way derogates from a termination of engagement by way of number portability, according to a Numbering Plan relating to number portability – consolidated version, of 22.8.2005, inclusive of amendments thereto.
78B. Saving the Telephone Number upon Termination of an Engagement
78B.1 If a termination of an engagement between the Licensee and a Subscriber was executed, whether at the initiative of the Licensee or at the Subscriber’s initiative, the Licensee shall save the telephone number for the Subscriber, at no charge and without any conditions or restrictions, and shall not deliver it to another party and shall not return it to the pool of numbers designated for allotment, either of the Licensee or of another licensee that had initially allotted it, and this, for a period of fourteen (14) days after the termination date of the engagement.
78B.2 If the Subscriber asked to retrieve his telephone number within the said timeframe, the Licensee shall carry out the Subscriber’s request immediately, and it is allowed to charge the Subscriber for the timeframe between the termination of the engagement and its resumption with that same telephone number that was returned to him, according to the terms of the tariff plan he had subscribed to prior to the execution of the termination of the engagement, and to continue to charge him pursuant to the terms of the said tariff plan.
91 78C. Suspension or Disconnection of Service or Termination of an Engagement – General Provisions
78C.1 The Licensee must display a link called “Suspending/Disconnecting of Service” on the home page of its website, in a conspicuous manner and location, the pressing of which shall redirect to the following three possibilities:
(a) suspension of service;
(b) disconnection of service;
(c) termination of an engagement.
78C.2 The Licensee shall display the following details in each of the three said possibilities:
(a) brief explanation of the selected possibility;
(b) the modes of communication for the purpose of submitting a request in each of the said possibilities, including the telephone number, address, facsimile number, electronic mail address, the online form and internet chat calls, insofar as the Licensee chose this possibility, through which a Subscriber can submit such a request;
(c) the details that the Subscriber must specify in his request, including the telephone number relevant to the request, the Subscriber’s ID number, the last four (4) digits of the means of payment, electronic mail address, insofar as the Subscriber uses electronic mail for the purpose of submitting his request, and the Subscriber’s specified date for carrying out his request;
(d) the date of execution of the Subscriber’s request, the termination date of the billing in the Telephone Bill and the deadline for sending a Final Bill to the Subscriber in the instance of termination of an engagement.
78C.3 The Licensee shall publish on every Telephone Bill, the telephone number, address, facsimile number and electronic mail address through which the Subscriber can submit requests as stated.
92 78C.4 If the Subscriber submitted his request via electronic mail, the Licensee shall send, immediately upon receiving the request, a reply electronic mail notice acknowledging the receipt of the request. The notice shall include the reference number assigned to the Subscriber’s request in the Licensee’s system, the receipt date of the request, and the contents of the request as sent by the Subscriber.
78C.5 If the Subscriber submitted his request via online form, the Licensee shall display on the device screen through which the online form was sent (computer or compatible MRT End Device) a notice acknowledging receipt of the request; the notice shall contain the details specified in clause 78C.4.
78C.6 If the Subscriber’s request, which was submitted via online form, included one of the details specified in subclause 78C.2(c) and it is erroneous, the Licensee shall mark the erroneous detail on the online form and the Subscriber shall be requested to resubmit his request with the correct detail.95
79. Suspension or Disconnection of Service Due to Breach of Agreement
79.1 The Licensee may suspend or disconnect service to a Subscriber if one of following transpires:
(a) the Subscriber did not pay a payment that he owes for a service that he received, by the payment due date in his Engagement Agreement with the Licensee;
(b) The Subscriber breached a condition of the Engagement Agreement between him and the Licensee, which has been deemed a fundamental condition;
(c) The Subscriber has unlawfully used or has permitted another party to unlawfully use the End Device in his possession.
79.2 Service to a Subscriber shall not be suspended or disconnected in the instances specified in clauses 79.1(a) and (b), until after the Licensee has given the Subscriber prior written notice of at least ten (10) days before the expected suspension or disconnection; the notice shall state that the Subscriber is being granted an opportunity, within a reasonable timeframe that shall be specified in the notice, to rectify the act or omission in respect whereof the Service shall be suspended or disconnected.
95 Amendment no. 5.
93 79.3 Notwithstanding that stated in Paragraph 79.2, the Licensee may suspend96 the Subscriber’s service without notice should one of the following occur:
(a) The Subscriber did not pay his Bill that he was billed for the third time within a period of twelve (12) months for service, by the date specified in the payment notice;
(b) There is reasonable concern about an act of fraud through the Subscriber’s End Device or though the features of his End Device;
(c) Cancelled.97
79.4 The Licensee may suspend98 Service to the Subscriber if it becomes evident that the End Device in the possession of the Subscriber, through which the Subscriber receives Service, causes interference with the provision of Service to other Subscribers, or interference with the operation of the Network, provided that the Licensee gave the Subscriber written notice of at least twenty-one (21) days before the expected suspension99 date; in the notice, the reason for the expected suspension100 shall be specified and that the Subscriber is being given an opportunity, within the timeframe to be specified in the notice, to repair the End Device in a way that shall prevent interference as stated.
79.5 Insofar as the Licensee suspends service for all of its services, due to a Subscriber’s breach of agreement, the Licensee shall stop collecting a monthly or other fixed periodic payment from the Subscriber on the date of the suspension of service, as stated, and this, until the provision of all services is resumed; during the Billing Period in which the service was suspended as stated, the Licensee shall collect a fixed payment from the Subscriber according to that specified in clause 85.3(c) or according to that specified in clause 85.3(d), as relevant.101
80. Disconnection of Service due to Maintenance Operations
80.1 The Licensee may temporarily disconnect or limit services that it is obligated to provide, if it is necessary to perform essential operations of maintenance or of establishment of the Network (hereinafter: “Disconnection due to Maintenance”), provided that all of the following are fulfilled:
(a) the duration of a Disconnection due to Maintenance does not exceed six (6) consecutive hours;
96 Amendment no. 5. 97 Amendment no. 5. 98 Amendment no. 5. 99 Amendment no. 5. 100 Amendment no. 5. 101 Amendment no. 5.
94 (b) the number of Disconnections due to Maintenance does not exceed two (2) during one year. Notwithstanding that stated, during the first two years after the granting of the License, the number of disconnections shall not exceed four (4) during one year;
(c) prior notice of at least four (4) days before the planned disconnection is issued to the Director;
(d) prior notice has been issued to Subscribers, at least four (4) days prior to the planned disconnection, including via means of public communications;
(e) the Licensee has done all in its power, within reason, so that the Disconnection due to Maintenance shall take place at low-load hours of the day.
80.2 The Director may require the Licensee to present a detailed explanation of the circumstances that necessitate Disconnection due to Maintenance, and the Director may require the Licensee to postpone the said Disconnection if he finds, after considering the Licensee’s arguments, that vital public interest dictates the said postponement.
80.3 If Disconnection due to Maintenance is required that exceeds six (6) hours, the Licensee shall request the Director’s approval in advance; the request shall specify the required maintenance operations and the actions taken by the Licensee in order to expedite these operations and to minimize the duration of the Disconnection due to Maintenance.
80.4 If Disconnection due to Maintenance is required urgently for the purpose of performing essential and immediate activities, the Licensee shall inform the Director immediately, including by telephone, or facsimile, about the urgent disconnection or limitation; the Licensee shall inform its Subscribers about Disconnection due to Maintenance as stated as soon as possible, including through the public address system operating through the Network, insofar as this is possible, and also through the public media.
95 80.5 Notwithstanding that stated in clause 80.1, the Licensee is not obligated to notify the Director or its Subscribers about a Disconnection due to Maintenance if one of the following is fulfilled:
(a) The duration of the Disconnection due to Maintenance does not exceed half an hour;
(b) The Disconnection due to Maintenance is being done between 24:00 Saturday night and 05:00 on the following Sunday morning.
81. Blocking of End Devices and MRT Services Due to Theft or Loss102
81.1 The Licensee shall retain in its IMEI (International Mobile Equipment Identity) System, the IMEI number of the End Device that the Subscriber is using, apart from MRT End Devices operating with iDen technology (hereinafter in this clause – “End Devices”).103
81.2 If the Subscriber notified the Licensee that his End Device has been stolen or lost, the Licensee shall perform the following:
(a) During the conversation with the Subscriber who is delivering his notice as stated, the Licensee shall take action to reliably identify the Subscriber.
(b) The Licensee shall raise the possibility to the Subscriber of immediately filing a complaint at a police station about the theft or loss of the End Device.
(c) The Licensee shall request an alternate telephone number from the Subscriber through which he may be contacted.
(d) The Licensee shall immediately perform a “suspension of service” at no charge for all of the services being provided for consumption, including international services, by blocking the Subscriber’s SIM card, apart from incoming calls, if the Subscriber asked to not block these calls, immediately upon receiving the notice about the theft or loss of the End Device, and shall notify the Subscriber of this.
(e) Notwithstanding that stated, the Licensee shall perform a “suspension of service” at no charge for all of the MRT services being provided to the Subscriber, including incoming calls, after three (3) days have elapsed since the receipt date of the notice regarding the theft or loss of the End Device.
102 Amendment no. 5. 103 Amendment no. 5.
96 (f) If the Subscriber notified of the theft or loss of the End Device while he is located abroad and is receiving international roaming services, the Licensee shall immediately perform “suspension of service” at no charge for all of the MRT services being provided to the Subscriber, by blocking the Subscriber’s SIM card, including with regard to incoming calls, unless the Subscriber asked to not block these calls.
(g) The Licensee shall block the End Device at no charge, by blocking the IMEI number of the said device, as last received in the Licensee’s MRT System, and this, immediately after twelve (12) hours have elapsed since the time of the Subscriber’s notice about the theft or loss of the End Device. The Licensee shall advise the Subscriber, when receiving his notice about the theft or loss of the End Device, that the blocking of the End Device by blocking his IMEI number, shall be carried out at the time as stated.
(h) The Licensee shall immediately remove the blocking from the End Device, at no charge, according to the request of an authorized party; “authorized party” for the purposes of this clause, is a police officer who received authorization from a police officer at the rank of brigadier-general to contact the Licensee and to instruct him about removal of the blocking. The Licensee shall mark in its information system, using a special marking, End Devices for which an “authorized party” requested removal of blocking, but shall not disclose any information about removal of the blocking, as stated.
(i) The Licensee shall again block the End Device after authorized to do so by the “authorized party.”
(j) The Licensee shall resume the provision of all of the services to the Subscriber immediately upon delivering a new SIM card to the Subscriber.
(k) The Licensee shall specify in the Subscriber’s Telephone Bill immediately after the date it received the Subscriber’s notice about the theft or loss of the End Device, or in the following Telephone Bill, the date and time of the Subscriber’s report, the date and time of the suspension of the MRT Services to the said End Device, as specified in clauses 81.2.(d) through 81.2.(f), and the date and time of the execution of the blocking of the End Device, in the event that the equipment was not found.
97 (l) The Licensee must retain documentation of the Telephone Bill, which includes the said notices, and make this documentation available for delivery or forwarding to the Director, upon his request, and this, within five (5) workdays of the production of the Bill.
(m) On a daily basis, the Licensee shall forward a computer file to all MRT Operators, including MRT Operators on Another Network, and to “the authorized party,” which includes information about all End Devices, the IMEI number of which it has blocked on that day, about all End Devices for which the blocking of the IMEI number has been removed on that day at the Subscriber’s request, about all End Devices for which the blocking of the IMEI number has been removed on that day at the request of “the authorized party,” and about all End Devices, the IMEI number of which has been reblocked, with the approval of “the authorized party,” after the blocking thereof had been removed earlier at its request. The Licensee shall forward the said computer file daily, by 23:00, in relation to all End Devices that were blocked or unblocked as stated up until 23:00.
(n) On a daily basis and by 24:00, the Licensee shall update the list of End Devices in its information system that it blocked on that day and, by 24:00, shall update the list of End Devices that were blocked by other MRT Operators on that day, and for which a report about them was delivered to it by way of computer files sent to it by other MRT Operators. The list must include the following details in relation to each End Device:
(1) its IMEI number;
(2) name of the manufacturer;
(3) model of the End Device;
(4) blocking date and time;
(5) name of the Licensee that ordered the blocking.
98 (o) The Licensee shall at all times enable the performance of a search on its website according to the IMEI number of the End Device, when the IMEI number has been blocked due to a notice of theft or loss.
(p) The Licensee shall retain an updated list in its possession, with the details as specified in subclause (n), of all End Devices that have been blocked, and deliver or forward it to the Director, upon his request. The said list must be identical at all of the MRT Operators.
(q) The Licensee shall publish the following information on its website:
(1) recommended actions that Subscribers should take if their End Device is stolen or lost, including:
((a)) setting a password to prevent use of the End Device by any unauthorized person;
((b)) installing applications in the End Device, insofar as at issue is a smartphone, which enable the location of the End Device to be identified, and enable remote blocking of access to information in it, or deletion thereof;
((c)) performing backups of vital information to a computer or through cloud services, such as: photos, videos, lists of contacts and e-mail messages.
(2) actions that Subscribers should take once they realize that their End Device has been stolen or is lost.104
81.3 The Licensee shall provide the details of End Devices it has blocked to every general Licensee providing Mobile Domestic Service (hereinafter: “Another MRT Operator”), by no later than one workday after the execution of that stated in clause 81.2.
81.4 The Licensee is not allowed to provide service to MRT End Devices that have been blocked by it or by Another MRT Operator.
Notwithstanding that stated, if it has been found that the blocking of the IMEI number shall cause suspension of service to other End Devices with the same IMEI number, the Licensee may choose to not execute the blocking as stated.
104 Amendment no. 5.
99 81.5 The Licensee shall remove the blocking of an MRT End Device that it has blocked, after receiving a request from the Subscriber; the removal of the blocking shall be done by no later than one workday after the Licensee has verified the credibility of the request, unless the Subscriber has specifically noted a later date.
81.6 The Licensee shall publish its obligations to all its Subscribers regarding the possibility of blocking MRT End Devices, the format for registering the IMEI number of the MRT End Device with the Licensee and the application procedure for the purpose of executing a blocking; the publication shall be done at least in the Engagement Agreement and on the Licensee’s website.
81.7 The Licensee shall detail in a bi-annual report, the number of IMEI numbers that were blocked and the number of IMEI numbers for which blocking was removed, and the number of IMEI numbers that were not blocked pursuant to this clause and the reasons for it.
82. Disconnection of Service105 to Dormant Subscribers
82.1 The Licensee is allowed to disconnect service to a Dormant Subscriber.106 If the Licensee wishes to disconnect107 service to a Dormant Subscriber, it must give the Dormant Subscriber prior notice of this intention as set forth below (hereinafter in this clause "notice"). The service disconnection108 date shall not be less than thirty (30) workdays after the date the notice is sent.
82.2 In the notice, the Licensee shall specify the telephone number that it intends to disconnect109 from service.
82.3 The notice to a Dormant Subscriber shall be sent as follows:
(a) For a Subscriber whose name and address are known to the Licensee, in any of the following ways -
(1) by a letter sent by regular mail;
(2) by two SMSs that shall be sent to the Dormant Subscriber at intervals of at least two weeks between messages.
105 Amendment no. 5. 106 Amendment no. 5. 107 Amendment no. 5. 108 Amendment no. 5. 109 Amendment no. 5.
100 (b) For a Subscriber whose name and address are unknown to the Licensee - by four SMSs that shall be sent at intervals of at least one week between messages;
(c) Notwithstanding that stated in subclauses (a)(2) and (b), if the Subscriber's End Device does not support the receipt of SMSs, the Licensee shall send the Subscriber voice messages instead of SMSs, if the Subscriber's End Device supports the receipt of voice messages.
(d) The Licensee shall retain documentation of the sending of a notice to a Dormant Subscriber as follows:
(1) a copy of the letter sent via ordinary post;
(2) a printout of the log from the short message service center (SMSC), as specified in clause 62.7(c).110
82.4 The Licensee shall not disconnect111 service to a Dormant Subscriber to whom a message was sent if the Dormant Subscriber notified the Licensee that he does not wish to disconnect from112 services. The Subscriber may send such a message either by telephone or in writing, including by facsimile or electronic e-mail;
Notwithstanding the aforesaid, the Licensee may disconnect113 service to a Dormant Subscriber who notified the Licensee that he is not interested in disconnecting from114 the service, after sending the Subscriber at least two messages, as stated in clauses 82.3 and 82.5, and, in the second message, the Licensee notified the Subscriber that if, within one year of the second message, the Subscriber shall not use the service, then the service shall be disconnected115 to the Subscriber, and this, without sending any further notification to the Subscriber.
82.5 The Licensee shall not be allowed to send a Subscriber an additional notice regarding its request to disconnect116 service, except after one year of the date when the previous notice was sent to the Subscriber in this regard.
110 Amendment no. 5. 111 Amendment no. 5. 112 Amendment no. 5. 113 Amendment no. 5. 114 Amendment no. 5. 115 Amendment no. 5. 116 Amendment no. 5.
101 82.6 The Licensee shall save the telephone number of the Dormant Subscriber to whom service was disconnected117 for at least four (4)118 months, free of charge,119 from the date of disconnection120 of service, before returning the number to the telephone number pool of the Licensee itself or of another general Licensee that had originally assigned the telephone number to the Dormant Subscriber. If, during this period, a written request is received from the Dormant Subscriber to renew the service, the Licensee shall renew the service under identical conditions to those that applied before the service was disconnected,121 free of charge.
82.7 In the event of disconnection122 of service to a Dormant Prepaid Subscriber, that has a remaining balance to his credit, the Licensee shall refund the Dormant Subscriber the remaining balance within 30 days after receiving a written request from the Dormant Subscriber that proves that he is the owner of the line to which service was disconnected,123 if the request is received by the Licensee no later than six months after the service disconnection124 date.
Disconnection as stated shall not be taken into account in relation to the number of disconnections as required pursuant to clause 80.1 (b).
117 Amendment no. 5. 118 Amendment no. 5. 119 Amendment no. 5. 120 Amendment no. 5. 121 Amendment no. 5. 122 Amendment no. 5. 123 Amendment no. 5. 124 Amendment no. 5.
102 Section E – Provision of Service Through Another Entity
83. Engagement with Another Entity
83.1 If the Licensee requested to provide all or a portion of any of the services pursuant to This License through another entity on its behalf, the Licensee shall apply to the Director and request his approval; the Licensee shall attach the agreement between it and the other entity to its application; the provision of this clause shall not apply to an engagement between the Licensee and an End Device reseller or any party acting on the Licensee’s behalf for the purpose of marketing its services.
83.2 The Director may approve the application, reject it or make his approval contingent upon conditions that must be fulfilled, including amendments to the agreement; the Director shall consider, inter alia, to what extent the terms of the engagement with the other entity ensure the existence of fair competition, the standards of service to the public, the provisions of This License and the Licensee’s obligations pursuant thereto; the Director shall not approve an engagement with another entity that contravenes the Licensee’s obligations pursuant to This license.
83.3 An engagement with another entity in no way derogates from the Licensee’s obligations and responsibility to execute all or a portion of any of the services pursuant to This License, and in no way derogates from the authorities of the Minister, the Director or any party on their behalf.
83.4 To dispel any doubt, it is clarified that this clause shall not apply to the signing of a usage agreement pursuant to clause 38.3.
83A. Joint Service Bundle
83A.1 In this clause –
“Bundle of Services” - a number of services being marketed to a Subscriber as a package, which includes at least one service being provided by the Licensee and one service being provided by another Licensee, which is not “Bezeq”; “Joint Bundle of Services” - a number of services being marketed to a Subscriber as a package, which include a service or Bundle of Services being provided by the Licensee and at least one service being provided by “Bezeq.”
103 83A.2 If Bezeq markets a Joint Service Bundle, as defined in clause 9A.1 of its General License for the Provision of Fixed-Line Domestic Telecommunications Services, then the Licensee shall allow Subscribers to separately purchase each service, a Bundle of Services or a package of services being marketed by it, which are included in the said Joint Bundle of Services, and this, under conditions that are identical to the conditions under which the services as stated are being marketed within the framework of that Joint Bundle of Services.
83A.3 Commercial information about a particular Subscriber that was forwarded to the Licensee by Bezeq for the purpose of providing any of its services, which is included in the Joint Bundle of Services that the Subscriber purchased from Bezeq, shall be used by the Licensee solely for the purpose of providing that service.
83A.4 The Licensee may market a Joint Bundle of Service to Subscribers and to perform the collection operations involved in this, provided that the following conditions are fulfilled:
(a) a Bundle of Services in a similar format exists that is being marketed to Subscribers as a package by a Licensee that is not a member of the group to which the Licensee belongs, whether the services are being provided by that Licensee or are being provided by another Licensee (“Competing Bundle”), or there is a group that contains Licensees that are providing all of the services included in the Joint Bundle of Services to Subscribers (“Competitive Group”);
For the purposes of this subclause – “group” – a number of companies when the relations between them is that of Parent Company, Subsidiary or Sister Companies, as defined in clause 1 of the License.
In this regard – “company” – including another corporation.
104
(b) the Licensee has submitted a written application to the Director to market a particular Joint Bundle of Services (hereinafter in this clause: “the Application”). The Application shall include the components of the Joint Bundle of Services, shall specify whether it is intended for Non-Business Subscribers or Business Subscribers, and all of the following:
(1) the details of the Licensee that shall be providing each of the services included in the bundle;
(2) the payment that the Licensee shall transfer in respect of each service to the Licensees whose services shall be provided in the bundle;
(3) the conditions under which the bundle shall be marketed to Subscribers, including the tariff for each service therein and the inclusive tariff of the said bundle;
(4) the tariff that the Licensee shall collect from the Subscriber for a service included in the bundle, when it is purchased other than through the bundle;
(5) the planned marketing launch date for the bundle and the planned duration of its marketing;
(6) details of a Competing Bundle or a Competitive Group, as stated in subclause (a);
(7) with regard to a Competitive Group – a detailed economic analysis that supports the Application and substantiates the claim about the contribution of the bundle to the advancement of competition in the telecommunications or broadcasting sector, as the case may be.
(c) The Director notified the company in writing that he is not objecting to the marketing of the bundle or the Director did not issue notice that he objects to the marketing of the bundle within the defined timeframe.
In this regard – “the defined timeframe” –
(1) for an Application based on the existence of a Competing Bundle – 7 workdays after the Application receipt date by the Manager, or 5 workdays after the date on which the Director received additional information that the Licensee was requested to forward, whichever is later;
105 (2) for an Application based on the existence of a Competitive Group – 45 workdays after the Application receipt date by the Manager, or 15 workdays after the date on which the Director received additional information that the Licensee was requested to forward, whichever is later.
83A.5 If the Licensee submits an Application, the Director shall consider the Application, while taking into account, inter alia, the state of the competition in the telecommunications or broadcasting segment, as the case may be, and, in relation to an Application as stated that is based on the existence of a Competitive Group, the Director shall not approve it unless he is convinced that approval of the Joint Bundle of Services could Contribute to competition in the telecommunications or broadcasting segment, as the case may be.
83A.6 The Director shall be allowed to approve an Application, reject it or approve it conditionally.
83A.7 If the Licensee does not begin marketing a Joint Bundle of Services within 30 days of the Director’s notice that he is not objecting to the marketing of the bundle, or of the elapse of the defined timeframe, as specified in subclause 83A.4(c), then the approval of the Application shall be voided.
83A.8 The Joint Bundle of Services shall be marketed by the Licensee for a minimum period of two months. The Licensee shall notify the Director that it discontinued the marketing of a particular Joint Bundle of Services that it had marketed and this, by no later than 48 hours after the discontinuance.
83A.9 If the Licensee began marketing a Joint Bundle of Services and wants to amend any of the details that were included in the Application relevant to that bundle, pursuant to subclause 83A.4(b), the Licensee shall submit a new Application to the Director pursuant to the said clause. Notwithstanding that stated, if the Licensee began marketing a Joint Bundle of Services and wants to change the bundle’s tariff, or the tariff of a service included therein, it shall not be required to submit a new Application to the Director for approval of the bundle, but shall be required to notify the Director about the change as stated by no later than 48 hours after it made the change.
106 83A.10 In relation to a Joint Bundle of Services that does not include services of Bezeq, apart from broadband access service to internet service-providers, the Licensee shall not be required to submit a new Application to the Director pursuant to clause 83A.4, it shall not be required to notify the Director about a discontinuance of its marketing pursuant to clause 83A.8, and shall not be required to notify that it made a change in its tariffs pursuant to clause 83A.9.
83A.11 (a) The Licensee shall allow Subscribers to separately purchase any service, Bundle of Services or package of services that are included in the Joint Bundle of Services under conditions identical to the conditions under which services as stated are being marketed in the Joint Bundle of Services.
(b) Notwithstanding that stated in subclause (a), in relation to the marketing of a Joint Bundle of Services that does not include services of Bezeq, apart from broadband access service to internet service-providers, the Licensee shall not be obligated to allow Subscribers to separately purchase the services, the Bundle of Services or the package of services that are included in the said Bundle, under the same conditions at which it is marketing the bundle.
83A.12 The Licensee shall forward a report to the Director, upon his request, about the number of Subscribers who subscribed to each Joint Bundle of Services, in the format that the Director shall define.
83A.13 If the Director shall find that a particular Joint Bundle of Services is harming competition in the telecommunications sector or in the broadcasting sector, as the case may be, he is allowed to order the Licensee to immediately stop marketing it, and he is allowed to issue instructions about the date for discontinuing the provision of that bundle.
107 Chapter E - Payment for Services Section A - General
84. Definitions
84.1 In this Chapter:
“Time Unit” - a time unit of 1 second, or portion thereof; “Service Segment” - Fixed-line Domestic Service or Mobile Domestic Service; “Duration of the Service” - duration that a Subscriber receives a service, whether the engagement was at the Subscriber’s initiative or was done by another party; “Domestic Operator Tariff” - call tariff using a Basic Telephone Service of a Fixed-line Domestic Operator; “Interconnection Regulations” - Communications Regulations (Telecommunications and Broadcasting) (Payment for Interconnection), 5770 – 2000; “Payment for Call Completion” a payment payable by the initiator of a call, starting from an End Device connected to one Public Telecommunications Network and ending at another Public Telecommunications Network or at an End Device connected to a Public Telecommunications Network as stated, for completing the call on the other Public Telecommunications Network.
108 85. Types of Payments
85.1 The Licensee shall be allowed to collect payments from its Subscribers for:
(a) one-time installation fee125 for each Service Segment (hereinafter: “Connection Fee”) for the connection of an End Device in the possession of the Subscriber, to the Network126; notwithstanding that stated, the Licensee may collect a Connection Fee for its reconnection after removal of a blocking pursuant to clause 69.6, for connection after termination of an engagement pursuant to clause 78A.127
(a1) SIM card fee – a one-time payment for a SIM card;128
(b) a fixed monthly payment;
(c) payment for the Duration of the Service as specified in clause 87.10;
(d) Payment for Call Completion as defined in clause 88;
(e) payment for the Licensee’s Services, specified in Appendix B to the License.
85.2 The Licensee is not allowed to collect from a Subscriber:
(a) payment for initiating a call;
(b) minimum price per call;
(c) cancelled.129
85.3130 The Licensee shall collect payments from Subscribers in accordance with the following:
(a) In a One-time Transaction, the payment for the services that are to be provided shall be executed by way of a Prepaid payment; the Licensee shall be allowed to collect all of the payments for this type of transaction retroactively.
(b) In an Ongoing Transaction, the payment for the services that were supplied shall be executed by way of a Postpaid payment; however, the Licensee may collect a Prepaid payment in an Ongoing Transaction, at the Subscriber’s request, provided that the payment shall be made in cash through vouchers to be issued to the Subscriber by the Licensee.
125 Amendment no. 5. 126 Amendment no. 5. 127 Amendment no. 5. 128 Amendment no. 5. 129 Amendment no. 1 [Inception: this amendment shall come into effect by no later than July 1, 2016]. 130 Amendment no. 1 [Inception: this amendment shall come into effect by no later than July 1, 2016].
109
(c) In a transaction as specified in subclause (b), in which a monthly or other fixed periodic payment is collected from the Subscriber for a Bundle of Services, the Licensee shall charge the Subscriber, in respect of the Billing Period during which an engagement was terminated or all of its services were suspended at the Subscriber’s request, including when porting a number, as the fixed payment as stated, according to the higher of the following:
(1) The ratio between the number of days from the start of the Billing Period until the termination of the engagement or the suspension date, as stated, on the date defined by the Subscriber in his request, or until a maximum of one workday after the submission date of his request to terminate an engagement or to suspend all of the Licensee’s Services, insofar as the Subscriber did not define a date for terminating the engagement or for the suspension, as stated, and the inclusive number of days in the Billing Period;
(2) The higher ratio between the services included in the Bundle of Services and the number of units of the service consumed since the beginning of the Billing Period up until the termination date of the engagement or the suspension date, as stated, on the date defined by the Subscriber in his request, or until a maximum of one workday after the submission date of his request to terminate an engagement or to suspend all of the Licensee’s Services, insofar as the Subscriber did not define a date for terminating the engagement or for the suspension, as stated, and the number of units allotted for the Billing Period.
(d) In a transaction as specified in subclause (b), in which a monthly or other fixed periodic payment is collected from the Subscriber without a Bundle of Services, the Licensee shall charge the Subscriber the fixed payment as stated, in respect of the Billing Period during which an engagement was terminated or all of its services were suspended at the Subscriber’s request, including when porting a number, according to that specified in clause 85.3(c)(1).
(e) In a transaction as specified in subclause (b), in which a monthly or other fixed periodic payment is collected from the Subscriber, the Licensee is not allowed to collect any payment from the Subscriber for the timeframe before the activation of the SIM card.
110 (f) In a transaction as specified in subclause (b), in which a monthly or other fixed periodic payment is collected from the Subscriber, as a result of a Subscriber’s switching from one tariff plan to another tariff plan, the Licensee shall charge the Subscriber, as the fixed payment as stated, for the period as of the start of the Billing Period until the transaction execution date, according to the tariffs in the previous tariff plan, according to that specified in clause 85.3(c) or according to that specified in clause 85.3(d), as the case may be, while, for the period subsequent to the transaction execution date and until the end of the Billing Period, according to the ratio between the number of days from the day after the transaction execution date and until the end of the Billing Period, and the inclusive number of days in the Billing Period, according to the tariffs in the new tariff plan.131
85A. Connection fee
85A.1 Connection fees shall be uniform, regardless of the type or model of the End Device, the type of SIM card, the generation of the network technology to which the Subscriber’s End Device shall be connected, etc.
85A.2 The Licensee is not allowed to collect a connection fee from a Subscriber as long as the connection of the End Device to the Network has not been completed, including activation of the SIM card.
85A.3 The Licensee is not allowed to discriminate against a Subscriber during the collection of a connection fee because he did not purchase the End Device from it.
85A.4 Connection fees shall not be included in the price of the End Device and they shall be presented separately in the Engagement Agreement, in the Subscriber’s Telephone Bill and in advertisements of a tariff plan on the Licensee’s website, insofar as advertised.132
85B. SIM card fee
(a) The SIM card fee must be reasonable relative to the cost of the SIM card to the Licensee.
131 Amendment no. 5. 132 Amendment no. 5.
111 (b) The SIM card fee shall be uniform, regardless of the type or model of the End Device, the type of SIM card, the generation of the network technology to which the Subscriber’s End Device shall be connected, etc.
(c) The SIM card fee shall not be included in the price of the End Device, and shall be presented separately in the engagement agreement, in the Subscriber’s Telephone Bill and in advertisements of a tariff plan on the Licensee’s website, insofar as advertised.
(d) Insofar as the Licensee shall charge the Subscriber for a SIM card fee, it shall be allowed to collect the payment from him only as a one-time payment in the first Telephone Bill after the delivery or sending of the SIM card. If the Licensee does not do so, it shall not be allowed to collect the said payment from the Subscriber subsequently, and it shall not be allowed to collect the said payment from the Subscriber, or any other payment, if he does not return the SIM card as a result of termination of the engagement between them.
(e) The Licensee is not allowed to collect a SIM card fee from the Subscriber in respect of a replacement of the SIM card, due to a malfunction in it.
(f) The Licensee is not allowed to discriminate against a Subscriber during the collection of a SIM card fee because he did not purchase the End Device from it.
(g) Insofar as a Subscriber has a SIM card that was issued to him by the Licensee, which had been used by the Subscriber in the past and was disconnected due to the termination of the engagement, and the Subscriber asks to activate it in order to resume being a Subscriber of the Licensee, the Licensee shall do so and it shall not be allowed to collect a SIM card fee from the Subscriber.133
86. Collection of a Subscriber Fee in Installments
86.1 The Licensee is permitted to collect the Collection Fee as stated in clause 85 in a number of payments, on the dates agreed upon with the Subscriber and at the ratio prescribed in the Engagement Agreement.
133 Amendment no. 5.
112 Section B – Setting and Advertising of Tariffs
87. Setting of the Tariffs and their Rates
87.1 Subject to clause 87.5, the Licensee shall set a tariff for each service and Bundle of Services that it provides to its Subscribers.
87.2 The Licensee may define Service Bundles according to types of services included in the Bundle, according to periods, or according to any other method. The Licensee may set a separate tariff for each of the services included in the Bundle, or may set an all-inclusive tariff.
87.3 The Licensee shall offer each service and Bundle of Services under equal conditions and at a uniform tariff according to the type of Subscriber; for the purposes of this clause, “type of Subscriber” – a group of Subscribers whose characteristics provide reasonable grounds to justify its being distinguished from another group.
87.4 The Licensee shall allow each Subscriber to switch, without discrimination, from one Bundle of Services to another Bundle of Services that it is offering at that time. The Licensee shall include a provision to this effect in its Engagement Agreement with Subscribers. In this provision, it may prescribe dates available when switches may be made and may prescribe conditions, including payment, in respect of implementing the switch.
87.5 If the Licensee engages with a Non-Business Subscriber in relation to a service or Bundle of Services in an engagement that includes a commitment, the following provisions shall apply:
(a) The terms of the engagement, apart from the tariffs in the engagement, shall be final, known and defined in advance for the entire Commitment Period;
(b) The tariff for each service shall be defined in the engagement, shall be uniform and denominated in New Shekels for duration of the Commitment Period;
For the purposes of this clause,
"Uniform" - each tariff before V.A.T. that the Subscriber must pay as defined on the engagement date, shall not able to be increased for the duration of the Commitment Period.
113 “Commitment” – the Subscriber’s commitment to comply with the terms pertaining to the volume of consumption of services, the height of the payment and the payment terms during a defined period, when noncompliance with those terms during that period involves a payment, including the return of a benefit or an exit fee.
Notwithstanding the aforesaid, the Licensee may provide its services to Subscribers at lower tariffs than those predefined in the Engagement Agreement during a limited timeframe, to all of its Subscribers or to a type of Subscriber.
87.6 The Licensee shall not make an engagement with a Subscriber, or a Subscriber’s switch from one Bundle of Services to another, contingent upon the purchase of a service or an End Device from it.
87.7 Cancelled.134
87.8 Charging for a service shall be done according to the following rules:
(a) The Licensee may not collect any payment from a Subscriber for a call not initiated by the Subscriber (hereinafter: an “Uninitiated Call”).
(b) Notwithstanding that stated in subclause (a), the Licensee may collect payment from a Subscriber for an Uninitiated Call in the following instances:
(1) a collect call that the Subscriber accepted;
(2) a call made by dialing a number with a special prefix for a toll-free service for the person initiating the call, that was allotted to the Subscriber in accordance with an agreement with him;
(3) the Subscriber's portion of a call that was made by dialing a special prefix for the partially toll-fee service call, that was allocated to the Subscriber in accordance with an agreement with him;
(4) a call made from a Subscriber’s line to another line as a result of activating a “follow me” service (or a similar service) on the Subscriber’s line.
134 Amendment no. 5.
114 (5) a call being transferred to the Subscriber via an International Roaming Service;
(c) The Licensee is not allowed to collect payment from a Subscriber who has initiated a call to these services:
(1) public emergency services;
(2) collect call service;
(3) toll-free service for the caller;
(4) partially toll-free call service – that portion of the payment payable by the call recipient, when a Subscriber to the Licensee’s Mobile Domestic Service is initiating a call to this service.
(5) any other service as shall be prescribed in the administration’s order.
(d) The Licensee may charge a Subscriber, who initiates a call by dialing services or the following access codes, for a payment that does not exceed the tariff that the Licensee collects from the Subscriber for a call whose destination is on the network of a Fixed-line Domestic Operator:
(1) partially toll-free call service135
(2) speed dial service for businesses136
87.9 In relation to tariffs defined by duration, the charge shall be determined as follows:
The tariffs shall be denominated in NIS per minute and shall be measured in units of time; the mode of determining the payment shall be as follows:
(a) For the purpose of determining the payment, the duration of the call shall be from the time that the connection is made between the Subscriber initiating the call (hereinafter: “the Calling Subscriber”) and the Subscriber receiving the call (“the Recipient”), until the call is terminated, which is the time that an instruction was received to terminate the connection from the Calling Subscriber or from the Recipient; the length of time in establishing the connection, until the time when contact is in fact established, and the length of time to disconnect, from the moment an instruction is received to terminate the communication up until actual disconnection, are not included in the counting of the duration of the call.
135 In accordance with the service file "partially toll-free calls" (1-700 service). 136 In accordance with the Director's provision "speed dial for businesses - asterisk and four digits", dated May 4, 2008.
115 For the purpose of this subclause, a recipient, includes voicemail.
"Voice Mail"- a device or mechanism that is part of a Public Telecommunications Network, designed to allow the Calling Subscriber to leave a voice message for the Recipient.
(b) For a call that is being transferred to Voice Mail, the Licensee shall play an introductory recorded message to the Calling Subscriber, that is at least 2 seconds long (in this subclause: "a message"), and shall allow the Calling Subscriber, at his discretion, to disconnect the call without a charge, during the course of the Message, or within a reasonable length of time that shall not be less than 1 second after its conclusion ("the reasonable time"). In this instance, the timing of the connection of the call to the Recipient shall be as defined in subclause (a) above, as beginning after the reasonable time.
The wording of the Message shall be "the call is being transferred to voice mail" and it shall be played in a clear manner and at a reasonable pace.
In this subclause, "a call that is being transferred to voice mail" – except for a call that originated outside of Israel.
87.10 When setting tariffs for the Licensee’s Domestic Services, the following rules shall be followed:
(a) (1) A call tariff that a Subscriber shall pay for a domestic call, being completed on the network of a Mobile Domestic Operator shall be a uniform tariff;
(2) A call tariff that a Subscriber shall pay for a domestic call, being completed on the network of a Fixed-line Domestic Operator shall be a uniform tariff;
(b) Notwithstanding that stated, the Licensee may set a tariff for an call within the Licensee’s Network that differs from the call tariffs that are not calls within the Licensee’s Network, provided that the call is between Subscribers of a Service Segment amongst themselves, and provided that the Licensee shall operate measures, with the Director’s approval, that enable its Subscribers to differentiate between a call on the Licensee’s Network and a call that is not on the Licensee’s Network.
116 (c) The payment for each Unit of Time, at the very least, during the first minute of the call, shall be fixed;
(d) The tariff for a call to a Special Telephone Service or for a call to a Special National Telephone Service, as defined in the Numbering Plan, shall be identical to the call tariff whose destination is on the network of a Fixed-Line Domestic Operator, apart from services with a special dialing prefix, as specified in clause 87.8, and services for which another tariff has been defined in Regulations pursuant to the Law or at the order of the administration.
(e) The principles set forth in this clause with regard to the setting of tariffs shall apply whether the Licensee sets a tariff based on the duration of the call or whether a tariff has been set in any other way (e.g. flat rate).
87.11 (a) In this article:
"Limited Package" - a package of minutes that is limited to a number of minutes, in accordance with the engagement plan with the Subscriber.
"Unlimited Package" - a package with unlimited minutes for which the Subscriber pays.
"Toll-free Number"- a telephone number when a call to it from any network does not involve any payment from the initiator of the call;
"Special Telephone Number with a Composite Tariff" - a national or Network telephone number with an unusual numbering format, for which the call tariff to it is a composite tariff;
"Special Telephone Number with a Regular Tariff" - a national137 or Network138 telephone number with an unusual numbering format, for which the call tariff to it does not exceed the regular tariff;
"Unusual Numbering Format" - a numbering format that is not a regular numbering format;
137 A telephone number that can be accessed from any network. 138 A telephone number that can be accessed only from the Licensee's Network.
117
"Usual Numbering Format" - a numbering format of geographic numbers and national numbers in accordance with the definitions in the Numbering Plan.139
"Composite Tariff" - a tariff comprised of a regular tariff plus a tariff for a service being provided by the Licensee or by any party on its behalf or by a service-provider;
"Regular Tariff" - a tariff per call minute to telephone numbers with a regular Numbering Format, in accordance with the Subscriber's tariff plan.
(b) The Licensee shall not charge a Subscriber that calls destinations with Toll-Free Numbers and shall not count the minutes of the call to these destinations as part of a Limited Package.
(c) The Licensee may charge a Subscriber that calls destinations with Special Telephone Numbers at a Regular Tariff and shall count the minutes of the call to the said destinations as part of a Limited Package or as part of an Unlimited Package. To dispel any doubt, the Licensee may not charge a Subscriber any additional payment for calls to destinations with Special Telephone Numbers at a Regular Tariff beyond the fixed payment that he pays for a package of minutes, as long as the Subscriber has not exceeded his quota of minutes in the package. If the Subscriber exceeds his quota of minutes in the package, the Licensee may charge him for calling the said destinations in accordance with a tariff that does not exceed the Regular Tariff. In addition to the aforesaid, the Licensee may not differentiate in the tariffs that it charges the Subscriber between a call to telephone numbers with a Regular Numbering Format and a call to Special Telephone Numbers at a Regular Tariff, including by defining separate call minute packages;
(d) If the charge for calls to destinations with Special Telephone Numbers is done according to a Composite Tariff, the Licensee shall count the minutes of the calls to the said destinations as part of a Limited Plan or as part of an Unlimited Plan, for which the Subscriber pays.
The Licensee may charge the Subscriber for the services being provided as part of calling telephone numbers that are charged according to a Composite Tariff, whether the charge is per call minute or whether at issue is a fixed charge for a call, in addition to the defined payment for the package of minutes.
139 For example: numbers in the format 03-XXXXXXX, 05Y-XXXXXXX and 07Z-XXXXXXX.
118 87.12 When setting tariffs for the Licensee’s International Services, the following rules shall be followed:
(a) The Licensee shall not set different tariffs for a particular destination, but rather, shall differentiate between a fixed-line destination and a mobile destination in the same country;
(b) When charging Subscribers for calling the particular destination, the following rules shall be followed:
(1) a call tariff that a Subscriber shall pay who is calling from a Network of a Fixed-line Domestic Operator shall be a tariff set for a Subscriber to that destination;
(2) a call tariff that a Subscriber shall pay who is calling from a Network of a Mobile Domestic Operator shall be the call tariff to that destination from the network of a Fixed- line Domestic Operator, with an addition that shall not exceed the difference between the Interconnection fee to the network of a Mobile Domestic Operator and the Interconnection fee to the network of a Fixed-Line Domestic Operator,140 which are prescribed in the Interconnection Regulations.
88. Payment for Completion of a Call in Another Public Telecommunications Network
88.1 The payment that the Licensee may collect for call completion in a network of another Public Telecommunications Network shall not exceed the interconnect tariff prescribed in the Interconnection Regulations.
89. Completion of a Short Message Service (SMS) in a Network of Another Public Telecommunications Network
89.1 The payment that the Licensee may collect from a Subscriber for transferring an SMS from an End Device connected to the Network to an End Device connected to the Public Telecommunications Network of another Licensee (hereinafter: “Another Network”), shall not exceed the payment that the Licensee collects from Subscribers for transferring any SMS within the Licensee’s Network, with an additional payment that shall not exceed the tariff for transferring an SMS that is prescribed in the Interconnection Regulations, if prescribed.
For the purposes of this clause – “SMS” – telecommunications message that includes writing, including letters or symbols.
140 The Interconnection Regulations prescribe a “Peak Payment” and a “Reduced Payment” for Interconnection service to the network of a Fixed-line Domestic Operator; the difference in the Interconnection Fees shall be calculated according to the “Reduced Payment.”
119 Section B1 – Service Package in Israel141
90. Notice of Utilization of Services142 in Israel
90.1 Cancelled.143
90.2 Notices regarding Utilization of a Service Package
(a) If a Subscriber purchases a service or a package of services for which a unit quota has been set, the Licensee shall notify the Subscriber by SMS of his utilization ratio of the Quota of Units, when the Subscriber utilizes 75% and 100% of the Quota of Units in the service package or of each of the services included therein. The SMS shall be sent to the Subscriber as close as possible to the time that the Subscriber reaches each of the said utilization ratios. The SMS shall be sent to the Subscriber’s telephone number and to an additional telephone number, insofar as the Subscriber defined one at the time of his engagement with the Licensee. The SMS shall be sent at no charge, and shall include the utilization ratio of the package or the service, the date when the Subscriber reached the said utilization ratio, while specifying the date and time when the utilization ratio was determined, the tariff for exceeding the service package or each of the services included therein, insofar as a deviation is permitted, and the last day of the Billing Period. The said information shall be specified as relevant according to the following:
(1) call minutes;
(2) SMSs;
(3) cellular data (in MB);
(4) integrated call minutes and SMSs;
(5) integrated call minutes, SMSs and cellular data.
In this regard, “service package” – a number of services being marketed to Subscribers as a package at a fixed monthly payment, including domestic calls, an international call service, SMS service or cellular data service, when an inclusive Quota of Units is defined for the package,144 or if a particular Quota of Units has been defined for each of the services included therein,145 or if the Subscriber set a consumption maximum for the package in order to control consumption.
141 Amendment no. 5. 142 Amendment no. 5. 143 Amendment no. 5.
120 (b) Insofar as at issue is a international call service, the Licensee shall send notices as stated to the Subscriber via the international system through which the calls are routed abroad.
(c) Insofar as at issue is a telephone line blocked from receiving SMSs, then voice messages shall be sent to the Subscriber instead of SMSs. After hearing the voice message for the first time, the Subscriber shall be given an option to hear it again by pressing a particular key, and the message shall be replayed for the Subscriber as many times as he wants.
(d) The Licensee shall enable every Prepaid Subscriber to receive updates at any time, free of charge, of the balance available to him and the expiration date of the budget available to him, by dialing a designated telephone number, after which the Subscriber shall receive the said information either by voice message or by SMS.
90.3 Consumption of a Cellular Data Service by a Subscriber who Purchased Cellular Data Service
(a) When the Subscriber reaches 100% utilization of the quota defined for the cellular data service, the Licensee shall suspend the cellular data service or slow the surfing speed. The Licensee shall sent an SMS to the Subscriber at no charge, advising him about the suspension or slowdown of the service. If the Licensee enables the Subscriber to continue surfing at a slower surfing speed, then it is not allowed to charge the Subscriber for any additional payment beyond the fixed monthly payment for the cellular data service.
(b) The Licensee may continue providing the cellular data service to a Subscriber for an additional payment after he utilizes 100% of the quota defined for the cellular data service, provided that the Subscriber requested this explicitly, as specified in clause 62.7, during the Billing Period when he utilized 100% of the quota defined for the cellular data service; the Licensee shall document the Subscriber’s explicit request as stated, shall retain the documentation in its possession, and shall make it available for delivery or forwarding to the Manager, upon his request, within five (5) workdays of the submission of the request.
144 For example: in a package including 100 units of call minutes, SMSs and cellular data (in MB) for NIS 15, the Subscriber shall receive an SMS according to his consumption in relation to all of the aforesaid services. For example: an SMS shall be sent after 75 units have been utilized and an additional warning message after 100 units have been utilized. 145 For example: in a package including 100 call minutes, 100 SMSs and 50 MB of cellular data for NIS 20, the Subscriber shall receive an SMS according to his consumption in relation to each of the aforesaid services. For example: an SMS shall be sent after 75 call minutes have been utilized and an additional warning message after 100 call minutes have been utilized.
121 When engaging in the engagement with the Licensee, the Subscriber may refuse to continue receiving the cellular data service for an additional payment after he utilizes 100% of the quota defined for the cellular data service prior to the end of the Billing Period.
This shall be conspicuously stated in the advertisements of the relevant plans on the Licensee’s website, insofar as they are advertised on the website, and by a representative of the Licensee when conducting a sale conversation.
(c) If a Subscriber purchases a package that includes cellular data, which is comprised of a basic cellular data package and additional cellular data packages for utilization after he utilizes all of the basic cellular data package before the end of the Billing Period, for which a quantity of service units and a price has been defined for each, the Subscriber may, at any time, completely cancel the purchase of the additional cellular data packages that it purchased, in writing or orally, and the Licensee shall stop providing him the additional cellular data packages and shall no longer charge him in respect thereof as of the date of his request and thereafter.
This shall be conspicuously stated in the advertisements of the relevant plans on the Licensee’s website, insofar as they are advertised on the website, and by a representative of the Licensee when conducting a sale conversation.
(d) If a Subscriber purchases a package that includes a basic cellular data package, the Subscriber may ask the Licensee to block the access to the cellular data service at any time, in writing or orally, and the Licensee shall comply with his request.
122 90.4 Consumption of a Cellular Data Service by a Subscriber who did Not Purchase a Cellular Data Service
(a) The Licensee shall block cellular data for a Non-Business Subscriber who did not purchase a cellular data service with a surfing volume defined in an agreement between him and the Licensee.
(b) If the Licensee blocks the cellular data service as stated in subclause (a), the Subscriber may contact the Licensee via telephone call with a service representative for the purpose of reconnecting the cellular data service, and the Licensee shall charge the Subscriber according to the surfing volume that he ordered or consumed. The Licensee’s representative must advise the Subscriber of the cellular data tariff per 1 MB. The Subscriber’s request and documentation thereof shall be done as stated in clause 62.7.146
146 Amendment no. 5.
123 Section B2 – International Roaming Service Package147
90A. Charges for International Roaming Service
90A.1 Definitions148 in this clause:
"Arrangement" - - a package or plan that includes cellular data or calls or SMSs;149 “Cellular Data Arrangement” - package or plan that includes cellular data;150 “Call or SMS Arrangement” - package or plan that includes calls or SMSs;151 "Cellular Data Arrangement Offer152"- - an offer of three packages or various plans that include a cellular data service, insofar as the Licensee has any, which were offered to the Licensee's Subscribers in the month preceding the month in which the package offers were sent to the Subscriber; “Call or SMS Arrangement Offer” - an offer of three packages or various plans including a call or SMS service, insofar as the Licensee has any, which were offered to the Licensee's Subscribers in the month preceding the date on which the arrangement offer was sent to the Subscriber.153 "Package" - a limited quantity of service units that can be used during a limited period through an International Roaming Service abroad, which is sold at a fixed predefined price and is valid for particular destinations "Abroad or Destination" - a country, including a vessel at sea and an aircraft;
147 Amendment no. 5. 148 Amendment no. 5. 149 Amendment no. 5. 150 Amendment no. 5. 151 Amendment no. 5. 152 Amendment no. 5. 153 Amendment no. 5.
124 "Mb" - Mbyte
“Blocked Subscriber” - Subscriber who did not request constant access to cellular data services on the Service Access Form; “Open Subscriber” - Subscriber who requested constant access to cellular data services on the Service Access Form;154 “Cellular Data Service” or “Cellular Data” - cellular data service abroad; "Plan" - a tariff plan for a limited period or for a specific trip abroad. for consumption of services through an International Roaming Service abroad (for example: voice service, sending and receiving SMSs and cellular data) to destinations included in the plan, and the payment for the services shall be made according to consumption; the service tariffs included in the plan are different from the tariffs for those services for a Subscriber who did not subscribe to the plan; a plan can define a fixed payment that does not depend on consumption. “Full tariff” - tariff per call minute, per SMS and per 1 MB other than within the scope of an arrangement; “Discount tariff” - tariff per call minute, per SMS and per 1 MB within the scope of an arrangement.155
154 Amendment no. 5. 155 Amendment no. 5.
125
90A.2 Notices about Utilization of an International Roaming Service Package and about a Full Tariff for Calls and SMSs156
(a) An Arrangement that a Subscriber purchases shall come into effect on the date defined by the Subscriber at the time of his purchase.157
(b) (1) The Licensee shall send SMSs to a Subscriber who purchases an Arrangement, when the Subscriber utilizes 75% and 100% of each of the following:
((a)) the number of service units or the defined sum of money defined for payment in respect of consumption of the services;
((b)) the period of validity of the Arrangement.
(2) The SMSs shall be sent at no charge, as close as possible to the time that the Subscriber reaches the said utilization ratio; the SMSs shall include notice to the Subscriber that he reached the utilization ratios as stated, the number of service units remaining, the number of days remaining until the expiration of the validity of the Arrangement, the calculation date of the utilization (date and time), and the tariff for exceeding the Arrangement, insofar as a deviation is permitted.
(3) In this clause, “service units” shall be according to the following:
((a)) calls – call minutes;
((b)) SMSs – the number of SMSs sent;
((c)) cellular data – the cellular data volumes in MB or GB.
(4) In Packages bundling call services, SMSs or cellular data, the utilization ratio of the Package shall be calculated according to the said service units.
(5) The Licensee shall send an SMS to a Subscriber who did not purchase a Call or SMS Arrangement, or if the said Arrangement that he purchased does not include the Destination he contacted, at no charge, immediately upon the Subscriber reaching any Destination as stated, which shall state that outgoing calls, incoming calls and the sending of SMSs shall involve payment according to the Full Tariff. The SMS shall also include a Call or SMS Arrangement Offer.
156 Amendment no. 5. 157 Amendment no. 5.
126 (6) The Licensee shall document the SMSs referred to in this clause, as specified in clause 62.7(c), shall retain the documentation in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the day they were sent.158
(c) Notwithstanding that stated in clause 90A.2(b)(1)159 –
(1) The Licensee shall be exempt from sending SMSs to a Subscriber regarding the utilization of the Package that he ordered, as set forth in subclause 90A.2(b)(1),160 provided that all of the following have been fulfilled:
(a) Cancelled;
(b) The Subscriber specifically agreed in writing to waive the receipt of SMSs as stated in subclause 90A.2(b)(1);161
(c) The Licensee proved, to the satisfaction of the Director, that a technological constraint that is not under its control prevents it from receiving a real-time indication or close to real-time indication with respect to the execution of calls by direct dialing.
(2) If a Subscriber uses an MRT End Device that does not support an SMS service, including tablets with SIM cards and cellular modems, the Licensee shall require the Subscriber, when he orders the Package. an alternative means of communication to an SMS (such as WhatsApp, Viber, Skype applications, e-mail or voice mail) ("alternative means"); if the Subscriber provided alternative means, the Licensee shall send the messages regarding utilization of the Package as stated in subclause 90A.2 (a) by the alternative means.162
158 Amendment no. 5. 159 Amendment no. 5. 160 Amendment no. 5. 161 Amendment no. 5. 162 Amendment no. 5.
127
90A.3 Blocking of Cellular Data Service to a Non-Business Subscriber, to a Split Business Subscriber with Cellular Data via International Roaming, to a Blocked Business Subscriber and to a Subscriber without a Cellular Data Arrangement
(a) If a Non-Business Subscriber or a Split Business Subscriber that is charged in respect of Cellular Data Service via international roaming (hereinafter – “Split Business Subscriber with Cellular Data Service via International Roaming”) or a Blocked Business Subscriber purchases a Package that includes Cellular Data, the Licensee shall block the access to the Cellular Data Service after the full utilization of the Package or upon the expiration of the validity of the Package, whichever is earlier, at no charge, and the Subscriber shall not be required to pay any payment whatsoever for the Cellular Data Service beyond the payment known in advance for the Package that he purchased. The Licensee shall send an SMS to the Subscriber, at no charge, about the blocking as stated, shortly before the blocking date. The SMS shall include a Cellular Data Arrangement Offer.
If a Non-Business Subscriber or a Split Business Subscriber with Cellular Data Service via International Roaming or a Blocked Business Subscriber purchases a Package that includes Cellular Data, which is comprised of a basic Cellular Data Package and additional Cellular Data Packages for utilization after the full utilization of the basic Cellular Data Package, for which a number of service units and a price has been defined for each of them, or which is comprised of a basic Cellular Data Package, when after its full utilization or until it expires, the Subscriber is charged according to a Discount Tariff, the Subscriber may completely cancel the purchase of the additional Cellular Data Packages that he purchased or the additional Cellular Data according to a Discount Tariff that he purchased, at any time, in writing or orally, and the Licensee shall stop providing him the additional Cellular Data Packages or the additional Cellular Data at a Discount Tariff and shall no longer charge him in respect of Cellular Data as of the date of his request and thereafter.
The Licensee shall document the Subscriber’s explicit request as stated, as specified in clause 62.7(c), shall retain the documentation in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the submission of the request.
128 When engaging in the order of the service from the Licensee, a Non-Business Subscriber or a Split Business Subscriber with Cellular Data Service via International Roaming or a Blocked Business Subscriber may refuse to continue receiving the Cellular Data Service for an additional payment after he utilizes 100% of the basic Package defined for the Cellular Data Service, as specified in clause 90A.2(b)(1).
This shall be conspicuously stated in the advertisements of the relevant Plans on the Licensee’s website and by a representative of the Licensee when conducting a sale conversation.
(b) The Licensee shall block the access to Cellular Data Service to any Subscriber, at no charge, immediately upon his arrival Abroad, unless the Subscriber has fulfilled the conditions specified hereunder:
(1) the Subscriber has a Cellular Data Arrangement;
(2) the Subscriber asked to be an Open Subscriber.163
(c) If a Subscriber does not fulfill one of the conditions specified in subclause (b), and the Licensee did not block the Subscriber to Cellular Data Service, then the Licensee shall not charge the Subscriber in respect of Cellular Data Service.
(d) The Licensee shall block, at no charge, the access to Cellular Data Service, as stated in subclause (b) and shall not charge a Non-Business Subscriber or a Split Business Subscriber with Cellular Data Service via International Roaming or a Blocked Business Subscriber in respect of Cellular Data Service, as stated in subclause (c), at any time that the Subscriber, as stated, who purchased a Cellular Data Arrangement, reaches a Destination that is not included in the Cellular Data Arrangement. The Licensee shall again reinstate the Cellular Data Service immediately and automatically to the Subscriber, as stated, and without the Subscriber having to perform any manual operation, at any time that the Subscriber is located in a Destination that is included in the Cellular Data Arrangement.
163 An “open” status on the Service Access Form, without a Cellular Data Arrangement, is relevant solely to a Business Subscriber; a Non-Business Subscriber and a Split Business Subscriber with Cellular Data via International Roaming, without a Cellular Data Arrangement, shall be blocked from Cellular Data as the default mode.
129 (e) The Licensee shall send an SMS to the Subscriber as stated, at no charge, about the blocking as stated in subclauses (b) and (d), shortly before the blocking date, and shall specify the reason for the blocking and the ways to contact the Licensee in order to open the blocking. The SMS shall include a Cellular Data Arrangement Offer.
(f) The ordering of Cellular Data Service by a Blocked Business Subscriber, while he is Abroad, after his access to the Cellular Data Service had been blocked, in order to enable him access to Cellular Data Service without purchasing a Cellular Data Arrangement, shall be carried out through a telephone conversation with a representative of the Licensee, who shall advise the Subscriber about the Full Tariff for Cellular Data per 1 MB. The access to the Cellular Data Service shall be opened after the Subscriber confirms the Full Tariff for Cellular Data that was quoted to him. Clause 62.7 shall apply to documentation of the order, and the documentation shall also include the Subscriber’s verified identification particulars and his confirmation, as stated.164
90A.4 Cancelled.165
90A.5 Blocking of Cellular Data Service to an Open Business Subscriber166
(a) The Licensee shall send an SMS, at no charge, to an Open Business Subscriber who did not purchase a Cellular Data Arrangement, or if the Cellular Data Arrangement that he purchased does not include the country to which he arrived, immediately upon his arrival Abroad, which shall include a warning about possible consumption of chargeable Cellular Data Service without the Subscriber initiating any action to consume Cellular Data, and the message shall also include the tariffs for Cellular Data without a purchase of a Cellular Data Arrangement. The SMS shall also include a Cellular Data Arrangement Offer.
The Licensee shall document the sending of the said SMS to the Business Subscriber, as specified in clause 62.7(c), shall retain the documentation in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the sending of the SMSs.
164 Amendment no. 5. 165 Amendment no. 5. 166 Amendment no. 5.
130 (b) The Licensee shall send SMSs, at no charge, to an Open Business Subscriber who purchased only a basic Package whereby the tariff after the full utilization of the Package is a Discount Tariff or a Full Tariff, and the messages shall include notice regarding the Package utilization ratio, as stated in clause 90A.2(b), and the tariff, as stated.
The Licensee shall document its sending of the said SMSs to the Business Subscriber, and about the Subscriber sending the said SMSs to the Licensee, if sent, as specified in clause 62.7(c), shall retain the documentation in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the sending of the SMSs.167
90A.6 The Licensee shall notify its Subscribers in the Telephone Bill following the signing date of the License amendment, with respect to the possibility of requesting to be blocked to Cellular Data Service by filling out a "Service Access Form" that is displayed on the Licensee's website. The Subscriber may send the said form to the Licensee by regular mail, e-mail, fax or by an online form on the Licensee's website, insofar as the Licensee's website supports this possibility.
90A.7 The Licensee shall display information on its website about the Subscriber's ability to block access to Cellular Data Service also through the End Device, insofar as blocking as stated does not block the possibility of cellular data in Israel.
90A.8 The Licensee shall display information on its website about services that consume chargeable data volume, even without the Subscriber initiating any action, for example: automatic synchronization of e-mail and updates of various applications.
90A.9 Charges for International Roaming Services according to a tariff per unit shall be done retroactively in the Telephone Bill, after consuming the services and not in advance. If a Subscriber purchases an Arrangement that includes a payment that is known in advance, the charge in respect of this payment shall be executed during the Billing Period when the transaction came into effect.
167 Amendment no. 5.
131
90A.10 Without derogating from the aforesaid in clause 56, clause 62.7 shall apply to a "remote sale transaction" of services through an International Roaming Service.
90A.11 The Licensee shall send an SMS to every Subscriber who executes a Remote Sale Transaction for the purchase of services through an International Roaming Service, that includes the main points of the transaction, as soon as possible, free of charge, and by no later than the end of the day on which the Remote Sale Transaction was made.
Insofar as the transaction for the purchase of calls or SMSs does not include Destinations abroad, the said SMS shall advise that outgoing calls and the sending of SMSs to Destinations Abroad shall be charged according to the Full Tariff.
The Licensee shall document the sending of the said SMS, as specified in clause 62.7(c), shall retain the documentation in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the transaction execution date.168
In addition, the Licensee shall note information regarding the said "Remote Sale Transaction" in the Telephone Bill following the date of the execution of the transaction, in accordance with the Billing Period of the Subscriber, that includes the telephone number for which the transaction was executed, the date of the transaction, the quantity and types of services that were purchased through an International Roaming Service, the number of days allocated for the use of the services, the starting date and time of the provision of the services, the price of the services purchased, the price according to which the charge shall be executed for consuming the services beyond the Package, insofar as a Package is purchased and the manner of rounding up every amount consumed (hereinafter: "the transaction details").
The Licensee shall retain a copy of the Telephone Bill that specifies the transaction details in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the Bill preparation date.169
90A.12 In an engagement for the purchase of services through an International Roaming Service that was done in the presence of the Licensee's representative and the Subscriber, the Subscriber shall be given, at the time of executing the transaction, a printed confirmation that includes the transaction details. The Licensee shall retain a copy of the confirmation as stated in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the transaction execution date.170
168 Amendment no. 5. 169 Amendment no. 5.
132 90A.13 The Licensee shall publish on its website all of the Arrangements being marketed171 to Non-Business Subscribers, as well as the tariffs of all International Roaming Services for Subscribers without an Arrangement, for all of the Destinations for which the Licensee has an international roaming agreement. The Licensee shall not charge a Subscriber for an International Roaming Service that was done at a Destination that was not published by it as stated before the charge.
90A.14 The tariff for a Cellular Data Service shall be noted by the Licensee, in every place where it is noted, in units of NIS per 1 MB.
90A.15 The Cellular Data tariff per 1 MB for a Subscriber that does not have a Cellular Data172 Arrangement shall be lower than the price of the least expensive Package offered by the Licensee.
90A.16 The purchase of a Cellular Data173 Arrangement, in Israel or Abroad, does not change the default listed in the updated service order form except for the period of that Cellular Data174 Arrangement.
91. Publication of Tariffs
91.1 The Licensee shall make available full and detailed information to any Applicant on its website, at its service offices and customer service centers, free of charge, about the latest tariffs for all of its services, including the payment for Call Completion; the Director may instruct the Licensee with regard to the mode and format for publishing the tariffs, as stated.
91.2 The Director may, at any time, require the Licensee to furnish him with details of the tariffs that it charges.
170 Amendment no. 5. 171 Amendment no. 5. 172 Amendment no. 5. 173 Amendment no. 5. 174 Amendment no. 5.
133 Section C – Amendments to Tariffs
92. Change in Tariffs
92.1 Subject to that stated in clause 87, the Licensee may change a tariff or the number of service units being allotted for a Billing Period (hereinafter – “the Number of Units”) of any service or Bundle of Services (hereinafter in this clause – “service”) that it defines, provided:
(a) that it sent written notice to the Director between fourteen (14) and twenty-one (21) days before the effective date of the change, in which it specifies the name of the service, the tariff or the new Number of Units, and their effective date, and the tariff or Number of Units prior to the change.
The obligation to send notice of a change to the Director shall not apply to a change defined from the outset in the Engagement Agreement, when the Subscriber subscribed to the service or to the Bundle of Services.
(b) that it sent prior written notice to every Subscriber who subscribed to the service, specifying the name of the service, the tariff or the new Number of Units, and their effective date, and the tariff or Number of Units prior to the change, between fourteen (14) and twenty-one (21) days before the effective date of the change.
Notwithstanding that stated, with regard to a tariff reduction, the Licensee may send the notice to the Subscriber up to one month after the reduction.
For the purposes of this section, “change” means – any change in tariff that could cause an increase or decrease in the pre-VAT payment that a Subscriber must pay for the Licensee’s Services or any reduction in the number of service units allotted for a Billing Period, without a change in tariff.
(c) Notice as stated in subclause (b) shall be sent to a Subscriber to a Mobile Domestic Service who has access to the receipt of SMS services via SMS, to a Subscriber to a Mobile Domestic Service who is blocked from the receipt of SMS services, by voice message, and to a Subscriber to a Fixed-line Domestic Service via SMS or electronic mail message or voice message. After hearing the voice message for the first time, the Subscriber shall be given an option to hear it again by pressing a particular key, and the message shall be replayed for the Subscriber as many times as he wants.
134 (d) The Licensee shall retain documentation of the sending of the notice as follows:
(1) a printout of the log from the server of the short message service center (SMSC), or a printout of the electronic mail message, as the case may be, as specified in clause 106A;
(2) recording of the voice message as specified in clause 113A.
The Licensee shall make the documentation of the sending of the notice available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the sending thereof.
(e) The obligation to send notice of a change to a Subscriber shall also apply to a change defined from the outset in the Engagement Agreement, when the Subscriber subscribes to a service or to a Bundle of Services or to the tariff plan.
(f) The Licensee shall specify in the Telephone Bill that a change came into effect during his Billing Period, under the “bill details,” as specified in clause 9(a) in Appendix C.2, the tariff or the new Number of Units and the effective date, and the tariff or Number of Units prior to the change.
The Licensee shall make a copy of the Telephone Bill available for delivery or forwarding to the Director, upon his request, within five (5) workdays of its production date.
(g) Insofar as the Licensee provided a service to a Subscriber that is other than a voice or SMS or cellular data service, at a discount or for free for a defined period, including a service that is other than a telecommunications service, the Licensee shall send an SMS to the Subscriber about the change in the tariff, as specified in clause 92.1(b), in which the Subscriber shall be asked to send a reply SMS to the said SMS, which includes the digit zero (0), and this, if he is no longer interested in continuing to receive the service for a charge. If the Subscriber sends an SMS to the Licensee, which includes the digit zero (0), then it is no longer allowed to continue or to start charging the Subscriber in respect of the said service at the end of the said period. Documentation of the sending of the SMS by the Licensee to the Subscriber shall be done as specified in clause 62.7(c), and the contents of the SMS shall be documented.
The Licensee shall make the said documentation available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the sending of the SMS.175
135 93. Inception of a Change in a Tariff
93.1 If a change is made in a tariff for a service pursuant to the provisions of the License, the change shall not apply to payments for a service that the Subscriber consumed prior to the date of the change; the provisions of this clause shall not apply in the instance of an amendment to a tariff pursuant to the instructions of the Minister pursuant to clause 61.3.
94. Late Payments
94.1 The Licensee may obligate a Subscriber to pay arrears interest, linkage differentials and collection expenses on payments for a service that the Subscriber did not pay on the due date as specified in the payment notice sent to the Subscriber, in accordance with the Engagement Agreement between them (hereinafter: the “payment due date”).
94.2 The rate of the arrears interest shall not exceed the rate prescribed in the definition of “linkage differentials and interest” in section 1 of the Adjudication of Interest and Linkage Law, 5721 – 1961, plus linkage differentials for the period between the payment due date and the actual payment date of the specified sum.
94.3 The Licensee may obligate a Subscriber to pay collection expenses on a payment for a service that it provided to the Subscriber that was not paid on the payment due date (hereinafter: "the sum of the debt"), provided that at least fourteen (14) days have elapsed since the payment due date, except in the instance of non-payment due to refusal by a bank or credit card company to pay a charge that the Licensee has been authorized to collect; the ratio of the collection expenses that the Licensee shall collect shall be reasonable and proportional to the extent of the debt and the actions that the Licensee is forced to take to collect the sum of the debt as stated. In this regard, "collection expenses" - including legal handling that the Licensee or anyone on the Licensee's behalf performs for the purpose of collecting the sum of the debt before referring to the courts.
175 Amendment no. 5.
136 Section D – Miscellaneous
95. Overcharging
95.1 The Licensee is allowed to collect payments from a Subscriber only in conformity with that specified in its Engagement Agreement with the Subscriber, and in conformity with the provisions of clauses 85.3(c) – 85.3(f)176;
(b) [sic] If a Subscriber submits a complaint to the Licensee that the Licensee collected a sum in excess of the sum that it is allowed to collect pursuant to the Engagement Agreement (hereinafter – “Overcharge”), the Licensee shall clarify the Subscriber’s complaint within ten (10) workdays of the date of receipt of the complaint. For the purposes of this clause, “complaint” – whether written or oral, including a Subscriber’s inquiry to the Licensee to clarify the details of the charges; “date of receipt of the complaint” – in relation to a written complaint – the date of receipt of the complaint by the Licensee and, in relation to an oral complaint – the day the complaint was voiced to the Licensee.
The Licensee shall document the contents of the complaint in its information system immediately upon its submission, and the outcome of the clarification of the complaint, immediately upon completing the clarification, and shall make this documentation available for delivery or forwarding to the Director, upon his request, within five (5) workdays of completing the clarification of the complaint.177
(c) If the Licensee found that it had overcharged the Subscriber, the Licensee shall refund the Subscriber for the overcharge in a single payment, unconditionally, and shall refund the VAT in respect of the said sum, plus “linkage differentials and interest,” as defined in section 1 of the Adjudication of Interest and Linkage Law, 5721 – 1961, from the collection date and until the date of the actual refund (hereinafter: “sum of the refund”) as specified hereunder:
(1) If the sum of the refund is higher than NIS fifty (50), the refund shall be transferred directly to the Subscriber’s means of payment (bank account or credit card) within four (4) workdays of the end of the period prescribed in subclause (b). Notwithstanding that stated, the Licensee may refund the said refund to a Business Subscriber by crediting the next Telephone Bill, if the Business Subscriber expressly agrees to this;
176 Amendment no. 5. 177 Amendment no. 5.
137 (2) If the sum of the refund is NIS fifty (50) or less, the Licensee shall refund the sum of the refund by crediting the next Telephone Bill after the end of the period prescribed in subclause (b). If the sum of the refund exceeds the sum for payment in the next Telephone Bill as stated, the balance shall be transferred directly to the Subscriber’s means of payment, within four (4) workdays of sending the Telephone Bill to the Subscriber; the matter of the offset of the balance of the refund from the Telephone Bill or the matter of the transfer of the balance of the refund to the means of payment shall be stated in the relevant Telephone Bill;
(3) Notwithstanding that stated in subclauses (1) and (2), the sum of the refund to a Prepaid Subscriber shall be refunded by increasing the balance available to the Subscriber.178
(d) The Licensee shall issue a written response to the Subscriber of his complaint within twenty-one (21) workdays of the date of receipt of the complaint. The response to the complaint shall include details of the rationale for rejecting the complaint and, insofar as the rationale relates to the terms of the Engagement Agreement, then the Licensee shall attach it to its response, and refer to the clause therein pursuant whereto the charge was included in the Telephone Bill, and details of the mode of its calculation, or specifying the sum of the refund and details of its mode of calculation.
(e) (1) The Licensee shall document any Subscriber complaint in its information system regarding an Overcharge, that was submitted in writing or orally.
(2) The Licensee shall retain a copy of its response, as stated in subclause (d), in its possession; if the Licensee sent its response via electronic mail or facsimile, the Licensee shall retain a copy of its response and a copy of the transmission confirmation (hereinafter – “Copy of its Response”).
(3) The Licensee shall make the complaint and the Copy of its Response available for delivery or forwarding to the Director, upon his request, within five (5) workdays of sending the response to the Subscriber.179
178 Amendment no. 5. 179 Amendment no. 5.
138 Chapter F - Payments from the Licensee, Liability, Insurance and Guarantee Section A - Liability and Insurance
96. Definition
96.1 In this section:
“Use of the License” - the establishment of the Network, its installation, development, fulfillment, maintenance or operation, and the provision of service through it, whether by the Licensee itself or through another party on its behalf, including its employees, contractors, agents or representatives.
97. Liability of the Licensee
97.1 By making use of the License, the Licensee shall take all reasonable measures to prevent personal injury to a person or damage or loss to his property and, if injury, damage or loss has been caused as stated as a result of the Use of the License, the Licensee shall repair the damage at its expense and shall compensate the injured party, all pursuant to all laws, with the exception of in an instance whereby the Minister has granted it immunity as specified in section I of the Law.
97.2 To dispel any doubt, that stated in this clause in no way imposes liability on the Licensee beyond the tortious liability prescribed in the regular torts law nor does it detract therefrom.
98. Drawing Up of an Insurance Contract
98.1 The Licensee, at its own expense, shall draw up an insurance contract with a licensed insurer in accordance with the provisions of clause 99, and it shall be presented to the Director together with the notice with regard to the start date of the provision of service pursuant to clause 38.1.
98.2 The Licensee shall indemnify the State for all financial liability, as set out in clause 98.1, that the State shall incur vis-a-vis any third party as a result of the Use of the License; indemnification in accordance with this clause shall be insured by the Licensee under liability insurance, as this term is defined in the Insurance Contract Law, 5741 – 1981.
139 98.3 The Licensee shall insure itself, including its employees and contractors, against any financial liability as set out in clause 98.1, which it is liable to be adjudged pursuant to any law as a result of personal injury to a person or damage to his property being caused due to Use of the License, and against any loss or damage that shall be caused to all or a portion of the Network from Use of the License, and including against third-party risks.
98.4 The Licensee shall furnish the Director with a legal opinion, written by an attorney specializing in insurance, that confirms that the insurance policy covers all of the requirements set out in clauses 98.2 and 98.3; the Licensee shall attach a copy of the insurance contract and its annexes to the said legal opinion; the said documents shall be submitted to the Director, together with the insurance contract.
99. Conditions in the Insurance Contract
99.1 The insurance contract shall specify the period of insurance and shall stipulate that at the end of the defined period, the insurance shall be automatically extended.
99.2 The Licensee shall present to the Director, upon his request, confirmation from the insurer that the insurance contract is valid, that the Licensee is not in arrears in payments of the insurance premiums and that there are no pending notices regarding a termination, suspension, restriction, amendment or expiration of the insurance contract.
99.3 The insurance contract shall contain a stipulation that, in any instance whereby the insurer shall decide to terminate the insurance contract as a result of a default in the payment of the premiums, it must inform the Director in advance, and no less than ninety (90) days before it intends to actually terminate the contract (hereinafter in this paragraph “termination notice”).
99.4 If a termination notice is sent as stated in clause 99.3, the Licensee shall take immediate action to remove the cause for the termination, or shall take immediate action to obtain an alternative insurance contract as stated in clause 99.6, and notify the Director of the actions it has taken in this regard; if the cause for the termination is default in the payment of premiums by the Licensee, the Director may pay the premiums in its stead, and may confiscate the bank guarantee or any part thereof to cover the sums incurred due to payment of the premiums, or collect them in any other way.
140 99.5 If the Licensee wants to terminate the insurance contract, it shall inform the Director of this at least forty-five (45) days before it intends to actually terminate the contract.
99.6 If the Licensee agrees to the termination of the insurance contract by the insurer, or if it itself has requested to terminate the insurance contract, the Licensee shall draw up an insurance contract with another licensed insurer so that the new insurance contract shall come into effect simultaneously with the expiration of the previous contract; the new insurance contract shall be submitted to the Director, together with a legal opinion as stated in clause 99.4, at least thirty (30) days before it comes into effect, and the provisions of this section shall apply thereto.
100. Remedy for Breach of Insurance Conditions
100.1 Should the Licensee not arrange an insurance contract, or if it becomes clear that the insurance contract that it arranged has been terminated or has expired, and the Licensee has not arranged a new insurance contract as stated in clause 99.6, the Director may execute the insurance in its stead and pay the insurance premiums, and may confiscate the bank guarantee to cover sums incurred because of the insurance, or collect them in any other way; all of the above without derogating from his authority to terminate, restrict or suspend the License because of the Licensee’s failure to execute the insurance in conformity with the conditions of This License.
141 Section B - Guarantee for Fulfilling the License Conditions
101. Rate of the Guarantee and the Date of its Issue
101.1 The Licensee shall deposit a bank guarantee and shall attach a deed of covenant to extend the guarantee, as stated in regulation 18 of the Regulations.
102. The Guarantee and its Objective
102.1 The guarantee furnished by the Licensee pursuant to clause 101 (hereinafter: “the Guarantee”) shall be used to secure the fulfillment of the License conditions by the Licensee, to secure payment of pecuniary sanctions and to compensate and indemnify the State for any damage, payment, loss or expense that might be incurred by the State, whether directly or indirectly, as a result of noncompliance with all or a portion of the conditions of the License, in a timely manner and in their entirety, or as a result of the revoking of the License, its limitation or suspension.
103. Confiscation of the Guarantee
103.1 Without derogating from the general purport of that stated in clause 102.1, the Director may confiscate the Guarantee, in any one of the circumstances specified hereunder:
(a) if the Licensee failed to arrange an insurance contract in accordance with clauses 98 and 99, failed to pay the insurance premiums, or if an insurance contract was terminated or expired;
(b) if a lawsuit or a demand for payment of compensation is filed against the State in respect of damage caused due to a breach of a condition of the License, due to defective performance of the License or due to the revoking of the License, and if expenses were caused to the State due to a lawsuit or demand as stated; the Guarantee shall be confiscated to cover the sum of a claim as stated only after the judgment in that lawsuit has become conclusive; notice of a demand or lawsuit as stated shall be delivered to the Licensee immediately upon receipt;
(c) if expenses or damages were incurred by the State as a result of the revoking of the License;
142 (d) if the Licensee failed to comply with the License provisions relating to the Guarantee;
(e) if the Licensee failed to pay a fee imposed on it pursuant to the Law or the Ordinance;
(f) if the Licensee has not paid the license fee by its payment due date;
(g) if a pecuniary sanction is imposed on the Licensee and the sum required has not been paid on time, provided that a sum exceeding the sum of the sanction shall not be confiscated;
103.2 The Director may confiscate the Guarantee in accordance with this section also due to an expected breach of the License conditions that justifies, at his discretion, early confiscation of the Guarantee.
103.3 For the purposes of this section, “confiscation of the Guarantee” – in whole or in part.
104. Mode of Confiscation of the Guarantee
104.1 The Director may confiscate the guarantee, provided that he warned the Licensee that if, within the timeframe specified in the warning, the Licensee does not rectify the act or omission that is the subject of the warning, it shall forfeit the Guarantee as stated.
104.2 If the Guarantee is confiscated, the Licensee shall issue a new Guarantee or supplement the balance up to the sum of the original Guarantee;
104.3 If the Director decided to confiscate the Guarantee, the Licensee may appeal the decision to the Minister within fifteen (15) days of the day it was brought to its attention. If an appeal is filed, the forfeiture of the Guarantee shall be postponed until the Minister’s decision on the appeal.
105. The Period of Validity of the Guarantee
105.1 The validity of the Guarantee shall be in accordance with the provisions of the Regulations.
143 106. Reservation of Remedies
106.1 The confiscation of the Guarantee in no way derogates from the authority to revoke, restrict or suspend the License.
106.2 The sum of the Guarantee in no way limits the scope of the Licensee’s liability to the State for full payment of the damages caused to it, and when the payment obligation applies to the Licensee in accordance with the License or any law.
106.3 The confiscation of the Guarantee in no way derogates from the possibility of suing the Licensee in any other way for the payment of damages that it is obligated to cover in accordance with This License, or of exercising other remedies pursuant to any law.
144
Chapter G - Supervision and Reporting Section A - Supervision of the Licensee’s Operations
107. Authority to Oversee
107.1 For the purposes of this section and section B, “the Director” – as defined in the Supervision Regulations.
107.2 The Director or any party he authorized for this purpose, may supervise the Licensee’s operations in relation to all matters concerning the performance of the License and compliance with the provisions of the Law, the Ordinance and the Regulations pursuant thereto.
108. Safeguarding of Confidentiality
108.1 The Director and anyone who is engaged on his behalf in overseeing the Licensee shall not disclose any information or document (for the purposes of this clause – “Information”), which came into their possession by virtue of their roles, to any person who has not been authorized to receive them, unless the Information has been publicized. The duty of confidentiality shall apply to any person to whom Information has been given pursuant to the provisions of this chapter.
108.2 The Director may forward Information to the Antitrust Commissioner, the Consumer Protection Commissioner, the Central Bureau of Statistics, and to any other authority that is authorized to receive the Information in order to carry out their duties and to exercise their lawful authorities.
109. Entry into Premises and Perusal of Documents
109.1 For the purpose of carrying out the supervision as stated in this section, the Director, or any person who is engaged on his behalf in performing supervision of the Licensee, may:
(a) enter any facility or office used by the Licensee for the purpose of providing its services according to This License at any reasonable time;
(b) perform measurements and inspections;
(c) instruct the Licensee to perform measurements and inspections for him and report their results to him;
145 (d) peruse any record, document, plan, accounting ledger, register, database or computer file of the Licensee or of anyone who engages on its behalf in matters over which the Director has the authority to oversee; the Director may examine and copy these in any way he deems fit;
(e) instruct the Licensee to forward reports to him, upon his request, for the purpose of setting policy, at such time, in the format and in the mode that he shall instruct.
110. Cooperation
110.1 The Licensee shall cooperate with the Director, or with any person who is engaged on his behalf in performing supervision in relation to all matters pertaining to the performance of supervision of the Licensee’s operations and, inter alia, shall provide to them, upon their request, any information in its possession or under its control that they require in order to carry out the supervision.
146 Section B - Reporting and Rectification of Deficiencies
111. Obligation to Submit Reports
111.1 The Licensee shall submit the reports specified in This License to the Director, in the format and on the dates prescribed in this section.
111.2 Each report shall reflect the correct and relevent facts pertaining to the subject of the report, being updated to the period of the report.
111.3 Each report shall be submitted in two (2) copies, printed and prepared in a manner that is easy to read, shall specify the date of its preparation and shall be signed by the Licensee or by any authorized signatory. The report shall be submitted in the format to be advised by the Director, including with regard to the contents, structure and mode of submission of the report.
111.4 The Director may require the Licensee to redraft or supplement a report it has submitted, including if the Director has found that it omits necessary details or other details that, in the Director’s opinion, the Licensee should have included in the report.
112. Types of Report and their Submission Dates
112.1 The Licensee shall submit the annual reports to the Director upon his request, or at least annually, at the end of the calender year, and by no later than ninety (90) days, which describe the activities during the period from January through December, of the previous year:
(a) audited financial statements, signed by an accountant;
(b) report on Subscribers, including the following data:
(1) the inclusive number of Subscribers;
(2) the number of Subscribers to Domestic Telephony Service, and all, as the case may be;
((a)) segmented by Business and Non-Business Subscribers;
((b)) segmented by Postpaid and Prepaid;
((c)) segmented by new and existing Subscribers and Subscribers that disconnected.
147 (3) the volume of revenue in each service, segmented by types of services;
(c) report on the use of frequencies in accordance with Chapter 3, section F;
(d) Appendix A – “The Licensee’s Details” updated, at the beginning of January, as specified in clause 17.1;
(e) report on the blocking of MRT End Devices, as stated in clause 81.7.
112.2 The Licensee shall submit the following reports to the Director on a quarterly basis, and by no later than one month after the end of the quarter:
(a) unaudited quarterly financial statements, signed by an accountant;
(b) unaudited quarterly revenue report, signed by an accountant, which includes all income subject to royalties;
(c) traffic report in respect of an International Telephone Service, containing details of the number of outgoing and incoming minutes used, in relation to each country, segmented by fixed-line and mobile destinations, and differentiating between outgoing traffic from Israel and incoming traffic, and traffic as stated to and from the Palestinian Authority.
112.3 The Licensee shall submit the following reports to the Director, upon his request:
(a) report on the Network’s development works as stated in clause 26;
(b) report on malfunctions, containing a summary and analysis of the malfunctions that occurred in the Network, details about the number of malfunctions and the cumulative duration of each type of malfunction, an analysis of the malfunctions, and details of the measures to repair them.
(c) report on the quality of service – an analysis of the Licensee’s compliance with the requirements in clauses 42 and 43 and in Appendix C “Standards of the Services to Subscribers, during the period of the report;
(d) report on complaints, containing details of the written complaints submitted by Subscribers with respect to service, including the subject of the complaints, the dates they were received and of the issue of a written response, the mode of handling them, and details of the Ombudsman’s activities;
(e) details of the Licensee’s tariffs;
(f) an updated engineering program.
148 (g) report on liens – the Licensee shall report immediately to the Director in any instance of the imposition of an attachment or lien on one of the Licensee's assets, or in the event of a lien on a Means of Control over the Licensee, an exercise of liens as stated or the revoking of any right of the Licensee over an asset; furthermore, the Licensee shall forward to the Director, upon his request, a report that itemizes all of the liens as stated above;
(i) [sic] report on Harassing Subscribers, as specified in clause 69;
(j) the Licensee shall issue a report on an exceptional event, as specified in regulation 8 of the Supervision Regulations, and in the format that the Director shall so instruct.
(k) Any additional data that might be required in order to supervise the operations of the Licensee, as well as any information needed by the Ministry in order to regulate the communications sector.
112.4 The Director may add or remove periodic, quarterly or annual reports and may require the Licensee to submit special reports, as he shall so instruct.
113. Notice of Deficiency
113.1 If the Director found defects or deficiencies in the Licensee’s activities, the Director shall notify it of this in writing (in this clause – “the Director’s Notice” or “the Notice.”
113.2 The Licensee shall deliver its response to the Director in writing, within the timeframe defined by the Director in the Notice. If the Director did not define a timeframe for the Licensee’s response, the Licensee shall deliver its response to the Director by no later than thirty (30) days of its receipt of the Director’s notice. In its response, the Licensee shall specify the means it took to rectify the defects and deficiencies specified in the Notice and to prevent their recurrence.180
113A. Retention of documents and recordings
(a) The Licensee shall retain documents and recordings in its possession concerning the terms of the engagement with the Subscriber for the entire duration of the Engagement Agreement and for one year after the termination of the engagement.
(b) The Licensee shall deliver or forward to the Director, upon his request, any document or recording concerning the terms of the engagement with the Subscriber, and this, on the date, in the format and in the mode that the Director shall instruct.181
180 Amendment no. 5. 181 Amendment no. 5.
149 Chapter H - Miscellaneous
114. The License as an Exhaustive Document
114.1 The rights of the Licensee, its obligations and authorities in all matters pertaining to the establishment, subsistence and operation of the Network and the provision of services through it, originate in This License and they derive from it and are in accordance with it only.
114.2 The Licensee shall be precluded from claiming the existence of any right, obligation or authority pertaining to that stated in clause 114.1, based on information, promise, undertaking, representation, proposal, publication, minutes, discussion or declaration that were made outside the License, either in writing or orally, either prior to the award of the License or after it was awarded, apart from interpretation that was issued by the Minister pursuant to clause 2.
115. Perusal of the License Documents
115.1 The Licensee shall retain the License documents in its office and shall allow the public to peruse accurate and updated copies thereof; if a License condition has been amended, the Licensee shall attach the wording of the amendment to the said License documents.
115.2 If the License and appendices thereto were presented for perusal by the public, the public shall not be able to peruse the following documents:
(a) Appendix A – Details of the Licensee;
(b) Appendix D – the Engineering Plan that is attached to Appendix D;
115.3 The Licensee shall allow the public to peruse the License documents via the internet; the Licensee may also do so by way of referral to the Ministry of Communications’ website, as long as the Ministry of Communications publishes the License on its website.
115.4 The Ministry may publish the License, apart from the appendices as stated in clause 115.2, on such date and in the manner as it shall deem fit.
150 116. Time Deferments
116.1 If an obligation was imposed on the Licensee in This License and a date has been stipulated for its fulfillment, the Licensee shall fulfill it by that date.
116.2 The Director may, at the Licensee’s request, approve a deferment of the deadline for performing an obligation specified in the License (hereinafter in this clause: “the deferment”), for a period that he shall decide, if he is convinced that one of the following has transpired:
(a) the deferment derives from a reason not dependent upon the Licensee, and the Licensee has and is exerting every reasonable effort to comply with its obligation;
(b) the deferment shall enable the Licensee to improve the technology used to provide its services;
(c) the deferment shall promote competition in the communications sector;
(d) the deferment derives from emergency circumstances, as defined in clause 40, or due to deployment in preparation for these circumstances.
117. Reservation of Liability
117.1 The approval or supervisory authority conferred upon the Minister or the Director pursuant to This License, including the exercise of authority as stated, in no way imposes any liability whatsoever on them, which is imposed on the Licensee pursuant to This License, and in no way prejudices or derogates from or eliminates or diminishes the liability of the Licensee as stated.
118. Mode of Sending Notice
118.1 A notice pertaining to This License or its performance shall be issued in writing and sent by post, by messenger or by facsimile; a notice dispatched by post as stated shall be presumed to have reached the addressee by the end of forty-eight (48) hours of the time of its delivery for dispatch. In relation to a notice sent in any other way as stated, the sender shall verify its receipt by the addressee.
118.2 For the purpose of receiving notices pursuant to this clause, the Licensee’s address is: 8 Ha’Amal Street, Afek Industrial Park, Rosh Ha’ayin, 48103; the Licensee shall inform the Director immediately about any change that occurred in the said address.
119. Cancelled.182
182 Amendment no. 5. 151
Exhibit 4.(a).2
Translation from Hebrew The Binding version is the Hebrew version
State of Israel Ministry of Communications
General License
For Partner Communications Company Ltd.
For the Provision of Mobile Radio Telephone Services
Using the Cellular Method (MRT) in Israel
Jerusalem
April 7, 1998
Integrated Version – last updated March 12, 2017
State of Israel Ministry of Communications
General License
For Partner Communications Company Ltd.
Award of The License
By virtue of my authority pursuant to The Telecommunication Law, 1982, The Wireless Telegraphy Ordinance (New Version), 1972, and all my other authorities pursuant to all law, I award a License to Partner Communications Company Ltd. for the establishment of a Mobile Radio Telephone System using the cellular method, its subsistence, maintenance and operation, and for the provision of Mobile Radio Telephone services to the public in Israel through it, as set out in this License.
The License is issued for the period set out in the License and is subject to the following conditions: Chapter A - General
Section A - Definitions and Interpretation
1. Definitions
1.1 In this License, the following words and expressions will have the meaning appended to them, unless another meaning is implicit in the text or its context.
“Type approval” - Approval given by the Ministry in accordance with the Law and Ordinance for a model of MRT Terminal Equipment.
“Means of Control” - In a corporation, each of the following: (1) Voting rights in the corporation’s general meeting or in an equivalent body in another corporation; (2) The right to appoint a director or managing director; (3) The right to participate in the corporation’s profits; (4) The right to share in the corporation’s remaining assets after payment of debts when the corporation is wound-up;
”Telecommunications”- - Broadcasting, transmission or reception of signs, signals, text, visual forms, voices or information through wire, wireless, an optic system or other electromagnetic systems;
1“Franchisee” - As defined in section 6L(1) of the Law;
"2Cellular Licensee - Whoever receives a license for establishment, Infrastructure Licensee" existence and operation of a radio infrastructure for an MRT operator;
"32nd Generation" - A network which allows mainly the provision of voice and message services, using basic MRT technology of GSM or CDMA and all of their updates, such as GPRS, EDGE, etc.;
1 Amendment No. 14 2 Amendment No. 83 3 Amendment No. 83
"43rd Generation" - A network, which in addition to 2nd Generation services, allows for the provision of data services at a medium pace (a few dozen megabits per second) using basic MRT technology of UMTS and CDMA2000 and all of their updates, such as HSPA, HSPA+, etc.;
"54th Generation" - A network, which in addition to 3rd Generation services, allows for the transfer of date at a high pace (approximately 100 megabits per seconds) using basic MRT technology in accordance with the 3GPP TS 36.104 last release standard, for supplying all of the Licensee's services under its license, such as LTE technology;
“Interested Party” - Whoever holds, either directly or indirectly, 5% of a specific type of Means of Control; for the purpose of this definition, “holding”, includes holding as an agent;
“The Licensee” - Partner Communications Company Ltd., which was awarded this License;
“A Licensee” - The body to which the Minister has awarded, in accordance with the Law, a general or special License;
6"General Licensee" - A person who has received a general license to effect telecommunications activities and to provide telecommunications services:
7Roaming Licensee"- - A person who has won tender 12/2010- a combined license for the provision of cellular mobile radio telephone (MRT) services in Israel –an expansion of the existing license and the grant of a new license;
8"Broadcast Licensee" - as defined in the Law;
“Access Fee” - Payment for use of other telecommunication systems, including payment for connection, transmission and collection;
4 Amendment No. 83 5 Amendment No. 83 6Amendment No. 14 7 Amendment No. 59 8 Amendment No. 14
“Technical Requirements - Standards of availability and grade of service, standards for Telecommunication Installations and installation instructions, operation and Grade of Service” and maintenance, all in accordance with the Engineering Plan and the Annexes to this License, and as the Director will order from time to time regarding the Licensee’s services;
9"Subscriber Agreement" - a contract that serves as an agreement between the Licensee and a subscriber, for the provision of all or part of the Licensee's services;
“The Bid” - The Licensee’s bid in the Tender;
“The Bezeq Corporation” - Bezeq, Israel Telecommunication Corporation Ltd.
10“Bill” or "Telephone Bill" - A bill that the Licensee submits to a subscriber for services that it itself provided to the subscriber or for Goods that it sold or rented to the subscriber;
“The Law” - The 11 Communications (Telecommunication and Broadcasts) Law, 5742-1982;
12“Goods” - As defined in section 3 of the Interpretation Law, 5741 – 1981;
13“Holding” - for the purposes of Means of Control, directly or indirectly, whether alone or jointly , including by way of another, and including by way of a trustee or agent, or by a right granted under any agreement, including an option to hold which does not arise from convertible securities, or any other means;
14“Transfer” - for the purposes of Means of Control, directly or indirectly, for valuable consideration or otherwise, in perpetuity or for a fixed period, at once or in portions;
9 Amendment No. 41 10 Amendment No. 87 11 Amendment No. 14 12 Amendment No. 87 13 Amendment No. 14 14 Amendment No. 14
15“Jointly with Others” - cooperation on a permanent basis; and the following shall be deemed to be in cooperation on a permanent basis: in respect of an individual – the individual, a person related to him, and a corporation that either of them controls; and in respect of a corporation – the corporation, the person who controls it and a person controlled by either of them;”
“The Security Forces” - The Israel Defense Forces, The Israel Police, the General Security Force and the Institution of Intelligence and Special Operations;
16“Applicant” - whoever asks to engage in an engagement agreement or a purchase agreement with the Licensee;
“The Index” - The Consumer Price Index that is published by the Central Bureau of Statistics, from time to time, or any other index which will be substituted for it;
“Cellular Radio Base” - A wireless installation operating on the operating frequencies of the MRT System and used for establishing radio contact between subscribers’ MRT Terminal Equipment units in its area of coverage and the MRT exchange;
“Interface” - The physical connection, including optic or wireless, meeting between various operational telecommunications installations;17
“Telecommunication - An installation or device which is primarily designated for telecommunications purposes, including Terminal Equipment;18 Installation” "194th Generation Tender" - Tender No. 2014/021 – a combined license for the provision of mobile radio telephony communications by way of the cellular method in Israel (MRT): expansion of an existing license or granting a new license;
20“Tender No. 1/01 - The tender published by the Ministry on 4 Nissan 5761 (28 March 2001), including clarifications given by the Ministry during the tender, and following which this License has been amended;
15 Amendment No. 14 16 Amendment No. 87 17 Amendment No. 14 18 Amendment No. 14 19 Amendment No. 83 20 Amendment No. 14 “The Tender” - Tender No. 7/97, published by the Ministry on July 15, 1997, including clarifications provided by the Ministry during the course of the Tender, following which this License has been awarded;
”The Director” - The Director General of the Ministry of Communications or his appointee in the matter of this License, wholly or partly;
“Subscriber” - Whoever has signed a subscriber agreement with the Licensee for obtaining MRT services as a terminal user.21 ;
"Business Subscriber"22 - a Subscriber that is one of the following: a corporation, as defined in the Interpretations Law, 1981; government offices and other quasi-governmental offices; a licensed dealer except for an exempt dealer; a body that was incorporated in a law or by-law.
23“Split Business Subscriber” - a user of the Terminal Equipment, when his Telephone Bill is split between himself and a Business Subscriber or when he is charged for the entire Telephone Bill;
24"Non-Business Subscriber" - a Subscriber that is not a Business Subscriber and that is not a Split Business Subscriber;
"Dormant Subscriber"25 - a subscriber that fulfills all of the following conditions: Has not received and not made use of MRT services for at least one year, as of 1 January 2008; Does not pay the Licensee any fixed tariffs; Does not have an agreement with the Licensee for a fixed period program.
21 Amendment No. 41 22 Amendment No. 45 23 Amendment No. 87 24 Amendment No. 87 25 Amendment No. 46 a subscriber that fulfills all of the following conditions: Has not received and not made use of MRT services for at least one year, as of 1 January 2008; Does not pay the Licensee any fixed tariffs; Does not have an agreement with the Licensee for a fixed period program. a subscriber that fulfills all of the following conditions: Has not received and not made use of MRT services for at least one year, as of 1 January 2008; Does not pay the Licensee any fixed tariffs; Does not have an agreement with the Licensee for a fixed period program. a subscriber that fulfills all of the following conditions: Has not received and not made use of MRT services for at least one year, as of 1 January 2008; Does not pay the Licensee any fixed tariffs; Does not have an agreement with the Licensee for a fixed period program. a subscriber that fulfills all of the following conditions: Has not received and not made use of MRT services for at least one year, as of 1 January 2008; Does not pay the Licensee any fixed tariffs; Does not have an agreement with the Licensee for a fixed period program. a subscriber that fulfills all of the following conditions: Has not received and not made use of MRT services for at least one year, as of 1 January 2008; Does not pay the Licensee any fixed tariffs; Does not have an agreement with the Licensee for a fixed period program. a subscriber that fulfills all of the following conditions: Has not received and not made use of MRT services for at least one year, as of 1 January 2008; Does not pay the Licensee any fixed tariffs; Does not have an agreement with the Licensee for a fixed period program.
a subscriber that fulfills all of the following conditions: Has not received and not made use of MRT services for at least one year, as of 1 January 2008; Does not pay the Licensee any fixed tariffs; Does not have an agreement with the Licensee for a fixed period program.
a subscriber that fulfills all of the following conditions: Has not received and not made use of MRT services for at least one year, as of 1 January 2008; Does not pay the Licensee any fixed tariffs; Does not have an agreement with the Licensee for a fixed period program.
a subscriber that fulfills all of the following conditions: Has not received and not made use of MRT services for at least one year, as of 1 January 2008; Does not pay the Licensee any fixed tariffs; Does not have an agreement with the Licensee for a fixed period program.
”International - a telecommunications installations system , connected or intended to be connected to a Public Telecommunications Network through Communication System” an International Network Termination Point (NTP), which serves or intends to serve for the transmission of telecommunications messages between an international switch located in Israel and a Telecommunications Installation located outside of Israel, including a satellite ground station and other Telecommunications Installations (hereinafter: “Components of the System”), and including transmission facilities between Components of the System;26
"One-time Transaction" - A transaction that is not a Continuous Transaction;
"Continuous Transaction" - An engagement agreement to purchase Licensee services continuously and ongoing, including any change to the agreement or addition to it that do not constitute a new transaction, and all whether the engagement agreement is for a set period or whether not for a set period;
26 Amendment No. 14 27 Amendment No. 14 28 Amendment No. 14 29 Amendment No. 87 30 Amendment No. 14 31 Amendment No. 14 32 Amendment No. 59 33 Amendment No. 14 34 Amendment No. 14 35 Amendment No. 14 36 Amendment No. 64 37 Amendment No, 52 38 Amendment No. 84 39 Amendment No. 84 40 Amendment No. 83
“The MRT System” - The MRT through which the Licensee provides its services;
27“DO (Domestic Operator)” - a holder of a general license for the provision of wireless domestic telecommunications services;
Mobile Radio - A wireless installation system built according to the cellular method and other installations, through which Mobile Radio Telephone Telephone System (MRT)” Services are provided to the public, including an MRT exchange, Cellular Radio Bases and wireless or physical transmission channels which connect Cellular Radio Bases, Cellular Radio Bases and an MRT exchange, and between MRT exchanges;
“International Operator” - An operator which provides International Communication Services to the public in Israel in accordance with a general License awarded by the Minister;
- - - 28“MRT Operator” - A holder of a general license for the provision of mobile radio telephone services;
29“MRT Operator on Another Network” - a Licensee for the Provision of MRT Services that involves the use of all or a portion of an MRT System of an MRT Operator and at least of the Access Network of the said MRT System; 30“Competing MRT - An MRT Operator that is not the Licensee; Operator” “Domestic Operator” - An operator who provides communication services (infrastructure, transmission and telephony) to the public in Israel in accordance with a general license from the Minister.
27 Amendment No. 14 28 Amendment No. 14 29 Amendment No. 87 30 Amendment No. 14
“Exchange” - A Telecommunication Installation in which switching and transmission means are operated, which allows the establishment of contact between various Terminal Equipment units connected to it, and transmission of telecommunication messages between them, including control and monitoring installations and other installations which enable provision of various services to the Licensee’s subscribers or to the subscribers of another Licensee.
“The Ministry” - The Ministry of Communications;
31“Transfer Switch” - A Telecommunications Installation which contains and operates switching, routing and transmission devices which enable the creation of a connection between various switching centers connected thereto , and the transmission of telecommunications messages between them , including monitoring and routing installations;
32”National Roaming" (NR)" - The expansion of the services of another MRT Operator (hereinafter-"another operator") to coverage areas of the Licensee through the Licensee's MRT system, as detailed in section 67E.
“Officer” - 33a person serving as a director, general manager, chief executive officer, deputy general manager, vice general manager, or a person acting as a replacement of one of the above in a company even under a different title as well as any other manager directly subordinate to the general manager of the company;
“Appendices” - 34The First Annex and the Appendices set out in the Second Annex to the License;;
NTP - - An interface to one end of which a Public Telecommunication Network is connected, and to the other, Terminal Equipment, a private (Network Termination network, a mobile telephone network or another Public Telecommunications Network, as the case may be; Point)”
31 Amendment No. 14 32 Amendment No. 59 33 Amendment No. 14 34 Amendment No. 14
“International NTP” - An interface to one end of which a Public Telecommunication Network is connected, and to the other, an International Communication Network;
“Telecommunication - Operation of a Telecommunication Installation, its installation, construction or its subsistence, all with the objective of Activity” telecommunication;
“The Ordinance” - The Wireless Telegraphy Ordinance (New Version) 1972;
Terminal Equipment” - Telecommunication equipment connected or designated to be connected to the Public Telecommunication Network, through an NTP or a private network, including telephones, modems, facsimile machines or private exchanges;
MRT Terminal - Hand-held, mobile Terminal Equipment, or Terminal Equipment designated for permanent installation in motor vehicles or ships, Equipment” designated to be connected to the MRT System by radio communication through Cellular Radio Bases.
“PTP Line - A line which serves for telecommunications, both ends of which are located on an NTP which is not in a public telecommunication (Point to Point)” network, in which a call or other form of communication which initiates at one end may terminate only in the other end.
35“Interconnection” - a physical or logical connection between the Public Telecommunications Network of one licensee and the Public Telecommunications Network of another licensee, enabling the transfer of telecommunications messages between the subscribers of both licensees or the provision of services by one licensee to the subscribers of another licensee;
“Relative” - A spouse, parent, son, daughter, brother or sister and their spouses;
“The License” - This License and all its Appendices as well as any document or condition which has been determined in the License as constituting an integral part of the License or of its conditions;
35 Amendment No. 14
“the Network” - The Licensee’s MRT system;
“Public - a system of Telecommunications Installations serving or designated to serve as a provider of Telecommunications Services to the Telecommunication entire public around the country, or at least in an area of service that includes exchanges and transmission switches, transmission Network” equipment and an access network including an MRT system and an International Telecommunications System, and with the exception of a private network, Terminal Equipment and MRT Terminal Equipment;
“Wireline Public - A public domestic telecommunications network, with the exception of an MRT system and an International Telecommunications Telecommunications System; Network” “Access Network” - Components of a Public Telecommunications Network used to connect a switching center and a network termination point (NTP) using wireline infrastructure, wireless infrastructure or a combination of the two;”
“The Bezeq Corporation - The Public Telecommunication Network which serves The Bezeq Corporation for provision of services in accordance with the general Network” License which it was awarded, as well as other Telecommunication Services provided, in accordance with the Law, either by The Bezeq Corporation or by another body;
“Use” - Access to a Telecommunications Installation of the Licensee, including to its Public Telecommunications Network or Access Network, in whole or in part, and the ability to use such , for the implementation of Telecommunications Activity and to provide Telecommunications Services thereby, including the installation of a Telecommunications Installation of another licensee on the Licensee’s telecommunications facility or premises;
“Telecommunication - Operation of telecommunication activities for the public; Service”
“International - Telecommunication Service provided for the public in Israel, in accordance with a License granted by the Minister, through an Communication international communications system of an International Operator; Service” “Basic Telephone Service” - Switched or routed bi-directional transmission , including via modem, speech or speech-like telecommunications messages, such as facsimile signals;
“Telephony Service” - Basic Telephone Service and Accompanying Services to such service;
“36International Roaming Service” - An MRT Service provided overseas and in the territories under the Civil Administration of the Palestinian Council via the MRT system of a foreign MRT operator (hereinafter: a “Foreign Operator”), whereby the Subscriber pays the Licensee for the service; and similarly – an MRT Service provided in Israel via the Licensee’s MRT system, whereby the Licensee provides a service to a Foreign Operator for the subscribers of such operator; for this purpose, the “Palestinian Council” – as defined in the Law for Implementation of the Interim Agreement regarding the West Bank and Gaza Strip Law (Jurisdictional Powers and Other Provisions) ( (Legislative Amendments), 5756-1998 [sic]
“Accompanying Service” - A service as set out in the First Annex to the License, provided on the basis of a Basic Telephone Service, which by its nature can only be provided by the provider of the basic service;
“Added Value Service”- - A service provided based on a Basic Telephone Service, which by its nature can also be granted by another licensee who is not the supplier of the basic service; for the purposes of the services of the Licensee, such service as set out in the First Annex of the License;
“Infrastructure Service” - an Interconnection or the ability of Use given to another licensee, a Franchisee or to a broadcast licensee;”
“Wireline Domestic - Infrastructure Service, transmission, data communications and telephony services Telecommunications Services”
36 Amendment No. 64
“The Licensee’s Services” - MRT Services, Telecommunications Services and other services that the Licensee is entitled to provide to its subscribers, to other licensees, to broadcast licensees, to Franchisees and to the Security Forces under this License;
“MRT Services” - Telecommunication Services provided through the MRT Terminal Equipment and through the MRT System;
Control” - The ability to direct the activity of a corporation, either alone or jointly with others, either directly or indirectly, including the ability that derives from the Articles of the corporation, by virtue of an agreement, either written or oral, by virtue of holding the Means of Control in the corporation or in another corporation or which derives from another source, and excluding the ability deriving solely from holding the office of director or any other office in the company; any person controlling a subsidiary company or another corporation held directly by him/her, will be deemed as controlling another corporation, controlled by the corporation which is held directly, as aforesaid; it should be presumed that an individual or corporation shall control the corporation if one of the following conditions exist:
A. If he or it holds, either directly or indirectly, fifty percent (50%) or more of any Means of Control in the corporation;
B. If he or it holds, either directly or indirectly, a percentage of any Means of Control in the corporation which is the greatest part in relation to the holdings of the other Interested Parties in the corporation.
C. If he or it has the ability to prevent taking business decisions in the corporation, with the exception of decisions in the matter of issuance of means of control in a corporation or 37decisions in the matters of sale or liquidation of most businesses of the corporation, or fundamental change of these businesses;
“The Minister” - The Minister of Communication, including a person to whom the Minister has delegated his authority in the matter of this License, either in whole or in part;
37 Amendment No, 52
“The Engineering Plan” - The Engineering Plan, including the Maintenance Organization and Grade of Services for the Subscribers, attached in the Appendices of the Second Annex to the License;
“Numbering Plan” - As defined in section 5A(b) of the Law;
"Billing Period" - A cyclical time period, with a set period, at the end of which a bill is presented to the subscriber for payment for the Licensee's services and for content services that were provided to the subscriber during that period.
"Radio Infrastructure" - Radio centers by way of the cellular method, monitoring units thereof, if any, and transmission connecting them to the core of the public telecommunications network of the Licensee.
"38Post- paid" - Payment for services that is collected from the subscriber after the Bill Period;
"39Pre-paid" - Payment for services that is collected from the subscriber before or at the beginning of the provision of the services;
40
1.2 Words and expressions in the License that are not defined in Paragraph 1.1, will be interpreted as in the Law, Ordinance and Regulations which have been enacted in accordance with them, The Law of Interpretations, 1981, or as specified in appropriate paragraphs in the License, unless a different meaning is implicit in the text or in its context.
2. Paragraph Headings
The paragraph headings in this License are provided for ease of reading only, and they must not be used for purposes of interpretation or explanation of the content of one or all of the Terms of the License.
3. The “Blue Pencil” Principle
Revocation or a decision in the matter of the nullification of a condition of this License or a part thereof will only apply to that condition or the part thereof, as the case may be, and they themselves will not prejudice the binding validity of the License or any other condition it contains.
38 Amendment No. 84 39 Amendment No. 84 40 Amendment No. 83
Section B - Legal and Administrative Provisions
4. Observation of Laws and Provisions
4.1 In all matters pertaining to the establishment of the MRT network, its subsistence, operation and maintenance and also for the provision of MRT services through it, the Licensee will act in accordance with the instructions of any law, and without derogating from the generality of the above, will strictly observe the following:
1) The instructions of the Telecommunication Law and the regulations pursuant thereto;
2) The Wireless Telegraphy Ordinance and the regulations pursuant thereto;
3) Administrative instructions;
4) International conventions to which Israel is a signatory, in the matter of telecommunications and radio;
5) Any other law or convention applicable to telecommunication and radio, even though they have become valid after the award of the License.
4.2 The Licensee will act in accordance with the laws and provisions as set out in Paragraph 4.1 according to their validity from time to time during the License Period, including the remedies for breaching them, and they will be deemed to be an integral part of the Terms of the License.
5. The Obligation of Permit according to all other Laws
The award of this License does not exempt the Licensee from the obligation to obtain, for execution of the License, any License, permit, approval or consent according to all other laws.
6. Contradiction between the License Provisions
In any case of apparent contradiction between the provisions of the License, the Minister will decide on the interpretation of the provisions, or how to settle the contradiction between them, after the Licensee has been given an opportunity to voice its arguments.
Chapter B - The License - Its Scope, Validity and Revocation
Section A - The Scope of the License and the License Period
7. The Scope of the License
7.1 The Licensee is permitted, according to this License and subject to all its instructions and conditions, to establish, sustain, maintain and operate an MRT System, and through it provide MRT services; for this purpose, the Licensee is permitted to do the following:
a) To establish, sustain, maintain and operate Cellular Radio Bases and connect them to MRT exchanges, and also to connect between MRT exchanges through wireless or physical transmission channels;
b) To connect the MRT System to another Public Telecommunication system in Israel;
c) To enter an agreement with subscribers for the provision of MRT Services;
d) To supply MRT Terminal Equipment to subscribers;
e) To supply its customers with MRT services as set forth in the First Annex to the License;
f) To supply its customers with services that were approved to the Licensee in accordance with Article 67C of the License.41
7.1a The Licensee’s services to its subscribers will be provided solely through MRT terminal equipment.
7.2 The Licensee in not permitted to provide any MRT or other Telecommunication Service that it is not explicitly permitted to provide within the framework of this License or another License awarded it by the Minister.
8. 42No Exclusivity
8.1 The Licensee shall not have any form of exclusivity whatsoever in the provision of its services.
8.2 The Minister may at any time grant a license for the provision of MRT Services to additional operators.
8.3 Should the Minister publish a tender for the provision of MRT Services, the Licensee may submit a bid in the tender, however, the Minister may determine , as part of the conditions of such tender, that if the Licensee wins the tender, the receipt of a license shall be conditional upon the Licensee transferring its MRT System to another as the Minister may order, and on such conditions as he may prescribe, and that the Licensee shall cease to provide MRT Services.
41 Amendment No, 64 42 Amendment No. 14
9. The License Period
9.1 The validity of this License is for a period of ten (10) years, that will begin on the day the License is awarded (hereinafter “The License Period”).
9.2 The License Period may be extended by six (6) additional years in accordance with Paragraph 10 (hereinafter “The Additional Period”).
9.3 This License may be renewed for one or more Additional Periods of six (6) years, over and above the License Period or the Additional Period, in accordance with Paragraph 11.
9.4 During the entire License Period or the Additional Period or with renewal of the License, the License will be subject to the authority of the Minister in accordance with Paragraphs 13 to 15 regarding changes to the License, its limitation, suspension or revocation.
9.5 43Notwithstanding the above 44in the context of extension of the License, following the winning by the Licensee of Tender No. 1/01, the validity of this License shall be for a period of twenty (20) years that will begin on 19 Shvat 5762 (1 February 2002).
10. Extending the License Period
10.1 The Minister may, at the Licensee’s request, extend the License Period by six (6) additional years, after examining the following:
(A) The Licensee has observed the provisions of the Law, the Ordinance, the regulations therein and the provisions of the License;
(B) The Licensee has acted to constantly improve the MRT Services, their scope, availability and quality and also the technological updating of the MRT System, and there was no act or omission in the Licensee’s activity that harmed or limited competition in the MRT branch;
(C) The Licensee is able to continue to provide MRT Services of a high standard and is able to implement the required investments in the technological updating of the MRT System for improving the scope of the MRT Services, their availability and quality;
(D) The Licensee has efficiently used the frequency bands allocated to it, compared to alternative applications;
10.2 The Licensee will submit its request for extending the License Period in the course of the forty-five (45) days that precede the period of the eighteen (18) months prior to the termination date of the License Period.
43 Amendment No. 13 44 Amendment No. 14
10.3 The Licensee will append the following to its request:
(A) A report summarizing all the annual reports submitted by the Licensee according to this License between the commencement date of the License and the submission date of its request;
(B) A comparison of the data in the report with regard to each year with the data of the preceding year, and also explanations of extraordinary variations in the data;
(C) A review of the means, actions and investments undertaken or implemented by the Licensee for the improvement of the quality of the MRT Services, their scope and availability, for the development and technological updating of the MRT System.
10.4 The Concluding Report in accordance with Paragraph 10.3 will contain precise up-to-date details and will be drafted in the form of an affidavit.
10.5 For the purpose of examining the Licensee’s request to extend the License Period, the Minister may require the Licensee to produce, during a period determined in the request and in a manner that the Minister will determine, all information and every document, and without derogating from the generality of the above, the Minister may:
(A) Require the Licensee to append to the Concluding Report any document to verify the data detailed in it, to complete the report or to provide any additional datum it does not contain;
(B) To ask the Licensee to appear before him and answer questions or present documents in its possession or under its control that are related to the data in the report;
(C) To require the Licensee to submit to him an Engineering Plan that describes its plans for the technological updating of the MRT System during the Additional Period.
10.6 The Licensee will comply with every requirement or request as set out in Paragraph 10.5; should the Licensee be required to appear before the Minister, either the chairman of the board of the company holding the License, the General Manager of the company, or a person authorized in writing for this purpose, will appear.
10.7 Should the Licensee not comply with the request or requirement as set out in Paragraph 10.5, on two occasions at least, the Minister may rejects its request to extend the validity of the License.
10.8 The Minister will inform the Licensee of his decision in the matter of its request to extend the validity of the License no later than one year before the termination of the License Period.
10.9 The conditions of this License will apply to the Additional Period, including and changes in them.
10.10 The instructions of Paragraph 100 in the matter of confidentiality will apply, with the required modifications, to information provided by the Licensee in accordance with the instructions of this paragraph, to the Minister or his appointee.
11. Renewing the License
11.1 At the end of the License Period or the Additional Period, the Minister may, at the Licensee’s request, renew the License for one or more Additional Periods of six (6) years, as he decides.
11.2 The Licensee will submit its request for renewal of the License Period in the course of the forty-five (45) days that precede the period of the eighteen (18) months prior to the termination date of the License Period or of the Additional Period.
11.3 The Minister will inform the Licensee within thirty (30) days from the date its request for renewal of the License was received, whether he intends to take steps to renew the License and the required proceedings for doing so, including proceedings and considerations in accordance with Paragraph 10, or that proceedings will be undertaken for a tender for the provision of the services which are the subject of this License.
12. Termination of the License Period
12.1 If the License Period has ended in accordance with Paragraph 9.5 or the Additional Period in accordance with Paragraph 10.1 or the License Period after its renewal in accordance with Paragraph 11.1, and the License has not been extended or renewed, the Minister may instruct the Licensee to continue operating the MRT System for a fixed period (hereinafter “the Service Termination Period”) until a License is awarded to another by law for the provision of the services which are the subject of this License (hereinafter “the Alternative Licensee”), and the proceeding have been completed for transfer of the system according to it, or until a License is awarded to another by law for alternative services; the Service Termination Period will, in any event, be no greater than two years from the date of expiry of the License.
12.2 During the Service Termination Period, and no later than ten (10) months from the day on which a License was awarded to an Alternative Licensee, the Licensee and the Alternative Licensee will enter negotiations for the acquisition of the MRT System at its economic worth and the assignment of rights and obligations of the subscribers to the Alternative Licensee; should the said Licensees not reach complete agreement within ten (10) months as stated above, the price will be determined by an arbitrator appointed by the Chairman of the Chartered Accountants Association, whose decision will be final.
Section B - Changing the Conditions of the License, its Enforcement and Revocation
13. Changing the Conditions of the License
13.1 The Minister may change the conditions of the License, add to them or detract from them, in accordance with the provisions of Paragraph 4 of the Law and, inter alia, if he finds that one of the following exists:
(A) A change has occurred in the suitability of the Licensee to implement the actions and services that are the subject of the License;
(B) A change in the License is required in order to ensure effective and fair competition in the Telecommunication field;
(C) A change in the License is required in order to ensure the Grade of Service provided in accordance with it;
(D) Changes in Telecommunication technology justify modifying the License;
(E) Changes have occurred in the electromagnetic spectrum needs that justify, in the Minister’s opinion, changes in the License;
(F) Considerations of public interest justify modifying the License;
(G) A change in government policy in the telecommunications sector demands a modification of the License;
(H) A change is required in the License by reason of its breach by the Licensee, as set out in Paragraph 15.
13.2 The Minister will act in accordance with his authority, as set out in Paragraph 13.1, after giving the Licensee a reasonable opportunity to voice its claims.
14. Revocation of the License
14.1 The Minister may revoke the License before the end of its period if one or more of the causes set out in Paragraph 6 of the Law exists, or in any one of the following cases:
(A) The Licensee did not disclose required information to the Tender Committee or gave it incorrect information;
(B) The Licensee was required and refused to give the Minister or his appointee required information that is in its possession, and which it had to divulge by virtue of the provisions of this License or by law, or the Licensee gave false information to the Minister or his appointee;
(C) The Licensee has not observed the instructions of the Law, the Ordinance or the regulations therein;
(D) The Licensee has committed a substantial breach of the License conditions and without derogating from the generality of the above, including the following:
(1) The Licensee does not comply with the coverage or quality requirements set out in this License;
(2) The Licensee has not paid all the royalties and frequency fees, or one of these, on the date stipulated in this License;
(E) The Licensee has not commenced provision of services in accordance with the stipulations of this License or has illegally ceased, limited or delayed any one of its services;
(F) The Licensee has not invested the required sums in the establishment and operation of the MRT System at the coverage and quality standards determined by the Ministry in accordance with the written undertaking (Appendix I);
(G) Should one or more of the attributes that made the Licensee fit for participation in the Tender for MRT services or to be a Licensee, cease to exist, including the following:
(1) The Licensee has ceased to be a company registered in Israel;
(2) Cancelled45
(3) The majority of the directors of the company that is the Licensee are not Citizens or Residents of Israel;
(4) The General Manager of the company that is the Licensee or a director therein, has been convicted of an infamous offense and continues to serve in office;
(5) The General Manager of the company that is the Licensee is not a Citizen or Resident of Israel ;
(6) Prior to the expiry of five (5) years from the date of the award of the License, the voting rights of the MRT Operator or of a Controlling Corporation in an MRT Operator (hereinafter, with regard to this clause - “Controlling Corporation”), at the general meeting or the right to appoint a director or general manger in the company that is the Licensee, decreased to less than twenty-five percent (25%); the rate of holdings of an MRT Operator or of a Controlling Corporation will be calculated according to the provisions of Paragraph 23.6; However, the holdings of an MRT Operator or a Controlling Corporation that has direct or indirect holdings in the Licensee will be taken into account, with regard to this clause, only if all of the following exist:
(1) Each body in the chain of holdings is controlling the body held by it as aforesaid, down to the body that directly holds the Licensee;
(2) The rate of holding in the Licensee of the MRT Operator or a Controlling Corporation, either directly or indirectly, will not be less than twenty-five percent (25%);
(3) The MRT Operator undertook to the Licensee to put at its disposal all the information in its possession that is required for the establishment and operation of the MRT System, for the provision of MRT Services, their marketing and sale.
45Amendment No. 31 (7) Subject to what is set out in Clause 9, one of the following exists in the Licensee:
- The Licensee, an Office Holder or Interested Party in the company that is the Licensee or an Office Holder in an Interested Party thereof is an Interested Party in a Competing MRT Operator without obtaining permission to do so from the Minister as set out in Paragraph 23.8, or has not fulfilled one of the conditions included in the permit it obtained from the Minister as stated above;
- An Office Holder, Interested Party or an Office Holder in an Interested Party in the company that is the Licensee is an Office Holder in a Competing MRT Operator or in an Interested Party in a Competing MRT Operator, without having obtained permission to do so from the Minister; as stated in Paragraph 23.2, or has not fulfilled one of the conditions included in the permit it obtained from the Minister as stated above;
(8) If one of the following exists in an Interested Party in the company that is the Licensee, that is a trust fund, an insurance company, an investment company or a pension fund:
- It holds, either directly or indirectly, more than five percent (5%) of any Means of Control in a Competing MRT Operator, without having obtained permission to do so from the Minister;
- It holds, either directly or indirectly, more than five percent (5%) of any Means of Control in a Competing MRT Operator in accordance with a permit from the Minister, and in addition it has a representative or appointee who is an Office Holder in a Competing MRT Operator, unless it has been legally required to do so;
- It holds, either directly or indirectly, more than ten percent (10%) of any Means of Control in a Competing MRT Operator, even if it has received permission to hold up to ten percent (10%) of the said Means of Control;
(8a) If one of the following exists in an Interested Party in a Competing MRT Operator, that is a trust fund, an insurance company, an investment company or a pension fund:
- It holds, either directly or indirectly, more than five percent (5%) of any Means of Control in the Licensee, without having obtained permission to do so from the Minister;
- It holds, either directly or indirectly, more than five percent (5%) of any Means of Control in the Licensee in accordance with a permit from the Minister, and in addition it has a representative or appointee who is an Office Holder in the Licensee, unless it has been legally required to do so;
- It holds, either directly or indirectly, more than ten percent (10%) of any Means of Control in the Licensee, even if it has received permission to hold up to ten percent (10%) of the said Means of Control;
(9) The Licensee, an Office Holder or an Interested Party in the Licensee, or an Office Holder in an Interested Party in the Licensee, controls a Competing MRT Operator, is controlled by a Competing MRT Operator, by an Office Holder or an Interested Party in a Competing MRT Operator, by an Office Holder in an Interested Party in a Competing MRT Operator, or by a person or corporation that controls a Competing MRT Operator;
(H) The Means of Control in the Licensee or control of it have been transferred in contravention of Paragraph 21;
Notwithstanding the above-mentioned, a transfer or purchase of a percentage of the Means of Control in the Licensee, either directly or indirectly, that requires consent in accordance with Articles 21.1 or 21.3 (other than a transfer or purchase that results in a transfer of control), without first receiving the Minister's prior written consent as required according to these articles, shall not constitute a cause to revoke the License if the Minister's consent was given in writing in advance for a public offering of the Tradable Means of Control or for registration for trading of the Tradable Means of Control, on the securities exchange in Israel or overseas, under which the Means of Control in the Licensee may be transferred in a percentage that requires consent in accordance with Articles 21.1 or 21.3 (other than a transfer or purchase that results in a transfer of control), and it shall all be subject to the conditions to be set by the Minister when he gives his consent. The contents of this article are in addition to and do not derogate from the provisions of Article 21.8 of the License. For the purpose of this Article, "Tradable Means of Control"- as defined in Article 21.5 of the License.46
(I) There was an act or omission in the Licensee’s activity that harmed or limited competition in the MRT branch;
(J) A receiver or temporary liquidator was appointed for the company that is the Licensee, an order was issued for its winding-up or it decided to be voluntarily wound-up;
(K) Cancelled;
(L) The Licensee requested revocation of the License.
(M) The Licensee breached on of the provisions in Article 22A.47
14.1 A. With regard to sub-clause 14.1 (e48), limitation of service due to technological circumstances that is implemented after an advance written and reasoned notice was sent to the Director and after its approval by the Director, will not be viewed as an illegal limitation of service.
14.1 B. With regard to sub-clause 14.1 (G) (6), “MRT Operator” is an operator of an MRT system abroad, through which MRT services are provided to at least five hundred thousand (500,000) subscribers.
14.2 Should the Minister consider that the cause of revocation, under the circumstances of the matter, does not require revocation of the License, the Minister will give the Licensee a fair opportunity to correct the act or omission that constitute a cause for revocation.
46 Amendment No. 25 47 Amendment No. 31 48Amendment No. 4 14.3 The Minister will give prior notice to the Licensee regarding his intention of revoking the License, and in the notice will note the cause and enable the Licensee, within a period determined in the notice, to voice its claims regarding the cause of revocation, either in writing or orally, according to circumstances.
14.4 The Minister may invite the Licensee to appear before him and he is permitted to require the Licensee to answer questions, present documents or to provide him with information and documents insofar as this is required for the purpose of clarifying the cause of revocation.
14.5 Should the Licensee be required or invited as stated above, it will fulfill the requirement or respond to the invitation on the set date.
14.6 Should the Licensee not respond, at least twice, to the Minister’s requirement or invitation within the period determined by the Minister in the requirement or invitation, the Minster may revoke the License through a notice sent to the Licensee (hereinafter “Notice of Revocation”).
14.7 In the Notice of Revocation the Minister will determine the date on which revocation of the License will take effect, and he may instruct the Licensee to continue to provide the services in accordance with this License until a License is awarded to another, or until the appointment of a trustee, or until the appointment of a receiver by law for management and operation of the MRT System, as the case may be.
14.8 The Licensee will continue to provide the services up to the date set by the Minister in his notice and will observe the instructions of this License and every instruction given to it by the Minister in this matter.
15. Other Remedies
In addition to his authority to revoke the License as set out in Paragraph 14, the Minister may, if the causes set out in Paragraph 14.1 exist, limit or suspend the License, or change its conditions or foreclose the guarantees given by the Licensee to ensure the fulfillment of the License conditions, wholly or in part; the detailed proceedings in the matter of revocation of the License will be applied, with the necessary changes, to limitation of the License, its suspension, and the foreclosure of the guarantees.
Chapter C: Ownership, Assets and Means of Control
Section A: Limitations in Respect of the Transfer of the License and its Assets
16. Deleted49.
17. Ownership of the MRT System
17.1 The Licensee shall be the owner and operator of the MRT System.
17.2 Notwithstanding Article 17.1, the Licensee may make use of:
(a) physical or wireless transmission lines of another licensee;
(b) the radio infrastructure, that is functioning and operating by way of a Cellular Radio Infrastructure Licensee, in the framework of a usage agreement, as defined in Clause 19.3C, and after receiving the Director General's prior written agreement, and in accordance with the terms determined by the Director General.
50
18. Limits on the Transfer of License Assets
18.1 The Licensee is not allowed to sell, lease or mortgage any of the assets that serve for the implementation of the License (hereinafter: “the License Assets”), unless given the Minister’s prior written consent, in accordance with the terms set by the Minister.
18.2 Without derogating from the generality of what is set out in Paragraph51 18.1, the Minister will give his approval to give title to rights in the License assets to a third party, if he is satisfied that the Licensee has ensured that in any event, the realization of the rights by the third party will not cause any damage to the provision of services according to this License, as long as the Licensee must provide these services according to the provisions of this License.
18.3 Despite what is stated in Paragraph 18.1, the Licensee may mortgage any of the License’s assets in favor of a banking corporation that is legally active in Israel, for the purpose of obtaining bank credit, on condition that advance notice of the intended mortgage was given to the Director, and in the mortgage agreement there is a clause that ensures that realization of the rights by the banking corporation will not cause any damage to the provision of services in accordance with this License; with regard to this clause, “Banking Corporation” - as defined in the Banking Law (Licensing) 1981, with the exception of “External Corporation” as defined in the same Law.
49 Amendment No. 64 50 Amendment No. 83 51 Amendment No. 64
18.4 The provisions of Paragraph 18.1 will not apply to the sale of items of equipment during an upgrading process, including the sale of equipment, as aforesaid, as part of a trade-in.
5218.4A For purposes of sale, lease, mortgage or transfer of the license assets to a Cellular Radio Infrastructure Licensee, whom the Licensee is his client, the provisions of this Article shall not apply.
19. Agreement with another
19.1 In the event that the Licensee wishes to provide any of the services in accordance with the License, wholly or partly, through another party on its behalf, it will request the Director’s approval; the Licensee will append to its request the agreement53 between it and the other party; the provision of this Paragraph will not apply to an agreement between the Licensee and a distributor of MRT Terminal Equipment or whoever acts on behalf of the Licensee for the marketing of its services.
19.2 The Director may approve the request, reject it or make his approval contingent on conditions that must be fulfilled, including the amendment of the agreement; the Director will consider, inter alia, to what extent the terms of the agreement with the other party ensure maintaining a fair competition, the grade of service for the public, the fulfillment of the License provisions and the Licensee’s obligations in accordance with it; the Director will not approve an agreement with another party that contradicts the Licensee’s obligations in accordance with this License.
19.3 The agreement with another party will not detract from the Licensee’s obligations and its responsibility for the implementation of any of the services which are the subject of this License, wholly or partly, according to the provisions of the License, and will not detract from the powers of the Minister, Director, or anyone on their behalf.
Section A1- Mutual Relations with a Cellular Radio Infrastructure Licensee
19A Definitions
19A.1 In this section:
19A.1 "Confidential Commercial Information" - Data regarding the Licensee that is not public, and that relates to one of the following: (1) Amount and volume of telecommunication messages transferred through the network, the kinds thereof and their destinations; (2) Number of subscribers, their classification and characteristics; (3) Network structure, its layout and the technology according to which it operates;
52 Amendment No. 83 53 Amendment No. 41 (4) Plans for the expansion of the network, changes therein and operation of new services therewith; (5) Marketing or other technological plans or activities, the information regarding them was transferred to the Licensee by the MRT licensee, or other business activity, the information regarding which was classified by the MRT licensee as confidential commercial information; (6) Any other information which cannot be legally easily discovered by others, whose confidentiality grants its owners a business advantage over its competitors.
"Passive Component" - The passive elements in the cellular radio center's website, including pole, structure, electricity and air conditioning;
"Active cooperation of an antenna" - Passive cooperation and in addition, cooperation of the antenna or cable feed to the antenna;
"Active Cooperation of a frequency" (MOCN54) - Active cooperation of an antenna, including sharing of radio equipment and frequency that were allotted for use of the MRT licensee;
"Passive Cooperation" - Whole or partial cooperation of a Passive Component in a significant number of cellular radio center's websites between two or more of the MRT licensee;
19B. Cooperation with another mobile telephony communications license owner
19B.1 The Licensee may enter into an agreement with another MRT licensee (hereinafter in this section: "Other Licensee") for the purpose of cooperation ("Cooperation Agreement") in any one of the following options only:
(a) Passive Cooperation Agreement;
(b) Active Cooperation of an Antenna Agreement;
(c) Active Cooperation of a Frequency Agreement (MOCN);
19B.2 Without derogating from the aforementioned in Article 19.3B:
(a) The Licensee may enter into an agreement with other MRT licensee in various cooperation agreements in each of the 2nd, 3rd and 4th Generation networks. Despite the aforementioned:
1) Active Cooperation of a Frequency (MOCN) shall not be approved between two operators.
54 Multi Operator Core Network
2) Active Cooperation of a Frequency (MOCN) in 2nd or 3rd Generation shall be approved only if both cooperating licensee were allocated 4th Generation frequencies and if the cooperating licensee who is not an operator has an Active Cooperation of a Frequency (MOCN) in 4th Generation.
For the purpose of this sub-clause, "Operator" – a licensee who has completely laid out access network in 3rd Generation: Pelephone Communications Ltd., Cellcom Israel Ltd., Partner Communications Company Ltd.;
(b) Cancelled.
19B.3 If the Licensee and the Other Licensee reach a cooperation agreement of the types specified in Article 19.1B, the Licensee shall submit a written request to the Director General no later than thirty days from the date of signature of the Cooperation Agreement (hereinafter in this clause – the "Request"), and shall request his approval of the Cooperation Agreement, and the Request shall include, at least, all of the following:
(a) Details of the Licensee and the Other Licensee;
(b) Type of Cooperation Agreement as stated in Article 19.1B;
(c) Executive summary of the main points of the Cooperation Agreement;
(d) A copy of the Agreement with all of its attachments and appendices, together with an affidavit of an office holder of the Licensee that except for these documents, no agreement exists, in writing or orally, in connection with the Agreement;
(e) An opinion according to which the Agreement meets the most recent "Broadband Access Cooperation of a License Owner for the Provision of MRT Services" policy and the terms of Section A1. The opinion shall include an analysis of the influence of the Cooperation Agreement on the competition in the telecommunications and broadcasting area;
(f) The date scheduled for the commencement of the implementation of the Agreement and its expiration;
19B.4 The Director General may approve the Request, deny it or condition its approval, including amending the Agreement.
19B.5 The Licensee may commence the implementation of the Cooperation Agreement only after the Director General approved the Request of the Licensee and the Other Licensee in writing.
19C Cooperation Agreement and Use Agreement
19C.1 If the Licensee files a request for an Active Cooperation of a Frequency Agreement (MOCN), the Director General shall consider the request, taking into account, inter alia, the existing competition level of MRT services and the potential harm to competition, the existing and expected frequency inventories and the efficiency of use of the frequencies, the survivability and the redundancy of the networks from a national standpoint and ensuring the telecommunication service level over time. 19C.2 The Active Cooperation of a Frequency Agreement (MOCN) shall include the following terms:
(a) Cooperating licensees shall establish a joint corporation, and shall have equal control thereof. The joint corporation shall be required to obtain a cellular radio infrastructure license;
(b) During the entire term of the Cooperation Agreement, the following provisions shall apply to each one of the cooperating licensees in regards to the Passive Component and the radio centers included in the joint access network:
1) In the cellular radio centers – all cooperating licenses shall hold equally;
2) In the Passive Component – each of the cooperating licensees shall have the right to make effective use of all Passive Components in the access network.
In this regard – "Right to make effective use" – indefeasible right to use, during the relevant license period, the Passive Component, resulting from ownership or other source, which shall allow its owners to perform all actions connected to the establishment, existence and operation of cellular radio centers by way of or on the Passive Components.
(c) The Cooperation Agreement expiration mechanism, which ensures the ability of each of the cooperating licensee to continue providing MRT services to its subscribers after said expiration, in accordance with the provisions of its license. The framework of said expiration mechanism shall include provisions which shall arrange for the continued existence of the right to make effective use of the Passive Components in case of termination of the Cooperation Agreement in accordance with the provisions of sub-article (2) and the mutual requirement to allow for Passive Cooperation even after the termination.
19C.3 Without derogating from the aforementioned in Article 19.2C, the Licensee, the Other Licensee and the Cellular Radio Infrastructure Licensee shall enter into a usage agreement between them, which grants the Cellular Radio Infrastructure Licensee an indefeasible right of use (IRU) in the joint access network components, which are not owned by the Cellular Radio Infrastructure Licensee, which specifies the method of use that shall be made with the joint network (hereinafter: the "Usage Agreement").
In this regard, the indefeasible right of use shall be provided for a period not to exceed 10 years, and shall refer to the relevant access network components for the generation which was agreed upon in the Cooperation Agreement.
19C.4 Any change in the Usage Agreement or in the Cooperation Agreement shall be presented to the Director General for approval no later than ten days from the date of signing the change; the Licensee shall forward to the Director General, upon request, a copy of the Usage Agreement or any change therein. 19C.5 The Cooperation Agreement or Usage Agreement (hereinafter in this Article – the "Agreement") shall not limit, directly or indirectly, the Licensee and the Other Licensee from reaching an agreement with an additional licensee or an MRT licensee on another network or from signing another agreement with them, or from causing discrimination in regards to the terms of use of the cellular radio infrastructure.
19C.6 If the Licensee or the Other Licensee shall wish to make use of the radio infrastructure of the Cellular Radio Infrastructure Licensee, it shall contact the licensees who are parties to the agreement in order to formulate a Cooperation Agreement, and shall act as stated in Article 19B.
19C.7 Nothing in the contracting with the Cellular Radio Infrastructure Licensee may derogate from the duties of a licensee and from its responsibilities to supply to its customers any service of the services under this license, in whole or in part, under the provisions of this license.
19C.8 If the parties do not reach an agreement, each party may contact the Ministry in order to resolve the disputes between them in accordance with Section 5 of the Law.
19D Obligation for Structural Separation
19D.1 The Licensee shall maintain structural separation between itself and the Cellular Radio Infrastructure Licensee, as specified below:
(a) Complete separation between its Management and the Management of the cellular radio infrastructure license owner; in this regard – "Management", with the exception of an office holder who is not a director of the Licensee, who is also a director of the Cellular Radio Infrastructure Licensee.
(b) Complete separation between its assets and the assets of the Cellular Radio Infrastructure Licensee, with the exception of the radio infrastructure of the Licensee;
(c) The Licensee shall not employ the employees of the Cellular Radio Infrastructure Licensee, and the Cellular Radio Infrastructure Licensee shall not employ employees of the Licensee;
(d) The Licensee shall not employ anyone who was a Management employee of the Cellular Radio Infrastructure Licensee for one year after the termination of his employment, without the approval of the Director General;
(e) The Licensee shall neither receive nor transfer to the Cellular Radio Infrastructure Licensee Confidential Commercial Information that is not required for the provision of the Cellular Radio Infrastructure Licensee's services to the Licensee. 19D.2 Regarding confidentiality of commercial information, the Licensee shall do as follows:
a) The Licensee shall refrain from transferring Confidential Commercial Information to the Cellular Radio Infrastructure Licensee, except for information required for the provision of the services of the Cellular Radio Infrastructure Licensee to the Licensee;
b) The Licensee shall refrain from transferring Confidential Commercial Information to the Other Licensee, holding the same Cellular Radio Infrastructure Licensee or receives services therefrom;
c) The Licensee shall determine procedures and rules for maintaining Confidentiality of Commercial Information, and for the prevention of its transfer as stated in sub-articles (a) and (b). The procedures shall determine, inter alia, limitations regarding the distribution of the Confidential Commercial Information to the Licensee and the Cellular Radio Infrastructure Licensee, and the access to Confidential Commercial Information by employees who are not supposed to handle it in the framework of their positions.
19D.3 If the Minister becomes aware that there is a real concern to damage to competition in the telecommunications area or to the public interest, he may instruct that the provisions of this chapter, in whole or in part, shall apply to an affiliated company to the Licensee that has a license under the Communications Law.
19D.4 If the Minister becomes aware that in a certain incident, circumstances existed which permitted it, and after he was convinced that there would be no damage to competition in the telecommunications or broadcast area or to the public interest, he may, according to a written request from the Licensee, permit by way of a written approval, reservations to the structural separation obligation set forth in this section or according thereto, and he may determine conditions for it.
Section B: Means of Control - Changes and Limitations
20. Details of the Licensee
20.1 Details regarding the legal entity of the licensee, its incorporation, the parties controlling it, those who have considerable influence over it, interested parties in it, officers in it are listed in Annex A of the license; the licensee shall provide the director annually at the beginning of March, with an updated Annex A.55
20.2 The Licensee will report to the Director in writing about any change in the information included in Appendix A, including any transfer or acquisition of control or of five percent (5%) or more of the Means of Control in the company that is the Licensee, or a change in the appointment of a Director or a General Manager; the same will be reported within fourteen (14) days from the date of the change.
21. Transfer of Means of Control
21.1 A holding of ten percent (10%) or more of any of the Means of Control in the Licensee will not be transferred, either directly or indirectly, either all at once or in parts, unless given the Minister’s prior written consent.
21.2 Any of the said Means of Control, or a part of them, in the Licensee, may not be transferred in any way, if as a result of the transfer, control in the Licensee will be transferred from one person to another, unless given the Minister’s prior written consent.
21.3 No control shall be acquired, either direct or indirect, in the Licensee, and no person, whether on his/her own or together with his/her relative or with those acting with him/her on a regular basis, shall acquire in it ten percent (10%) or more of any of the Means of Control in the Licensee, whether all at once or in parts, unless given the Minister’s prior written consent.
21.4 Deleted56
21.5 57Despite the provisions of sub-clauses 21.1 and 21.3 above, should there occur a transfer or purchase of a percentage of Tradable Means of Control in the Licensee requiring consent under clauses 21.1 and 21.3 (other than a transfer of purchase that results in a transfer of control), without the Minister’s consent having been sought, the Licensee shall report this to the Minister in writing, and shall make an application to the Minister to approve the said transfer or purchase of the Means of Control in the Licensee, within 21 days of the date on which the Licensee became aware of such.
In this Clause 21, “Tradable Means of Control” – Means of Control, including Global or American Depository Shares (GDR’s or ADR’s), or similar certificates, registered for trading on the securities exchange in Israel or overseas, and offered to the public by prospectus, or held by the public in Israel or overseas.
55 Amendment No. 41 56 Amendment No. 52 57 Amendment No. 3 21.6 Neither the entry into an underwriting agreement relating to the issue or sale of securities to the public, the registration for trading on the securities exchange in Israel or overseas, nor the deposit or registration of securities with a registration company or with a depository agent or a custodian for the purpose of registration of GDRs or ADRs or similar certificates relating to the issue or sale of securities to the public shall in and of themselves be considered as a transfer of Means of Control in the Licensee58.
21.7 (a) Irregular Holdings shall be noted in the Licensee’s members register (the list of shareholders) stating the fact that they are irregular, immediately upon the Licensee’s becoming aware of this, and a notice of theregistration shall be given by the Licensee to the holder of such Irregular Holding and to the Minister.
(b) Irregular Holdings, noted as aforesaid in clause 21.7(a), shall not provide the holder with any rights, and shall be “dormant shares” as defined in Section 308 of the Companies Law 5759-1999, expect in the case of the receipt of a dividend or any other distribution to shareholders (especially the right to participate in an allotment of rights calculated on the basis of holdings of Means of Control in the Licensee, although holdings accumulated as aforesaid shall also be considered as Irregular Holdings), and therefore no action or claim of the activation of a right by virtue of the Irregular Holdings shall have any force, except in the case of the receipt of a dividend or any other distribution as aforesaid.
Without derogating form the generality of the above:
(1) A shareholder who takes part in a vote during a meeting of shareholders shall advise the Licensee prior to the vote, or in the case of documentary voting on the voting document, whether his holdings in the Licensee or his voting require consent under clauses 21 and 23 of the License or not; where a shareholder does not so advise, he may not vote and his vote shall not count.
(2) No director of the Licensee shall be appointed, elected or transferred from office by virtue of an Irregular Holding; should a director be appointed, elected or transferred from office as aforesaid, the said appointment, election or transfer, as the case may be, shall be of no effect.
(3) Irregular Holdings shall not provide voting rights in the general meeting;
For the purposes of this clause: “Irregular Holdings” – the holding of Tradable Means of Control without the Minister’s consent as required under clause 23, and all holdings of a person holding Tradable Means of Control acting contrary to the provisions of clause 24; for so long as the Minister’s consent under clause 21 has been sought but not yet granted, or whilst there is a situation of breach of the provisions of clauses 23 or 24.
58 Amendment No. 4 (c) The provisions of clause 21.7 shall be included in the Articles of Association of the Licensee, including the provisions of clause 21.9, mutatis mutandis.
21.8 For so long as the Articles of Association of the Licensee provide as set out in clause 21.7, and the Licensee acts in accordance with the provisions of clauses 21.5 and 21.7, and for so long as none of the holdings of 59Founding Shareholders or their Substitutes reduces to less than 6061 2662% of all Means of Control in the Licensee immediately prior to the listing of the shares for trade, and for so long as the Articles of Association of the Licensee provide that a majority of the voting power in the general meeting of the Licensee may appoint all members of the Board of Directors of the Licensee, other than external directors required by any law and/or the relevant Exchange Rules, the Irregular Holdings shall not, in and of themselves, give rise to a cause for the cancellation of the Licensee.
'For the purpose of this article: "Founding Shareholders or their Substitutes"- Matbit Telecommunications Systems Ltd., Advent Investment Pte Limited, Matav Investments Ltd and Tapuz Cellular Systems limited Partnership as well as any other entity that one of them has transferred the Means of Control in the Licensee to, with the Minister's consent, before 4.7.2004 (each of the above entities shall be termed "Founding Shareholder"), as well as any other entity that a Founding Shareholder will transfer Means of Control in the Licensee to after 4.7.2004, provided that the Minister gave his written consent that the transferree be considered for this matter as the Founding Shareholder's substitute from the date to be determined by the Minister, including anyone that is an Israel Entity as defined in Article 22A.2, that purchased Means of Control from the Licensee and received the Minister's approval to be considered a founding shareholder or their substitute from the date set by the Minister63. Such consent under this article does not exempt the Licensee from the obligation to receive the Minister's consent for every transfer of the Means of Control in the Licensee that requires the Minister's consent in accordance with any other article in the License.64
21.9 The provisions of clauses 21.5 through 21.8 shall not apply to the founding shareholders or their substitutes.65.
22. Placing a Charge on Means of Control
Any shareholder in the company that holds the License, or a shareholder in an Interested Party in the same company, is not allowed to encumber his/her shares, in a way that the realization of the charge would cause a change in the ownership in ten percent (10%) or more of any of the Means of Control in the Licensee, unless the charge agreement includes a constraint, according to which the charge cannot be realized without prior consent, in writing, by the Minister.
59 Amendment No. 25 60 Amendment No. 9 61 Amendment No. 28 62Amendment No. 31 63 Amendment No. 31 64 Amendment No. 25 65 Amendment No. 31
22A. Israeli Requirement and Holdings of Founding Shareholders or their Substitutes66
22A.1 The total cumulative holdings of the "Founding Shareholders or their Substitutes", as defined in Article 21.8, (including anyone that is an “Israeli Entity” as defined in Article 22.2A below, that purchased Means of Control from the Licensee and received the Minister’s approval to be considered a founding shareholder or their substitute from the date set by the Minister), and are bound by an agreement for the fulfillment of the provisions of Article 22A of the License (in this Article they will all be considered “Founding Shareholders or their Substitutes”) shall not be reduced to less than 26% of each of the Means of Control in the Licensee.
22A.2 The total cumulative holdings of "Israeli Entities", one or more, that are considered as one of the Founding Shareholders or their Substitutes, from the total holdings of Founding Shareholders or their Substitutes as set forth in Article 22A.1 above, shall not be reduced at all times to less than 5% of the total issued share capital and from each of the Means of Control in the Licensee. For this matter, the issued share capital of the Licensee shall be calculated by deducting the number of “Dormant Shares” held by the Licensee.
In this Article-
"Israeli Entity"- for an individual-an Israeli citizen or resident of Israel, For a corporation- a corporation that was incorporated in Israel and an individual that is a citizen and a resident of Israel, controls the corporation either directly or indirectly, as long as the indirect control shall be only through a corporation that was incorporated in Israel, one or more. However, for the matter of indirect holdings, the Prime Minister and the Minister of Communications may approve holdings through a corporation that has not been incorporated in Israel, as long as the corporation does not directly hold shares in the Licensee, and only if they are convinced that this will not derogate from the provisions of this article. For this matter, “Israeli citizen”- as defined in the Nationality Law, 5712-1952; “resident”-as defined in the Inhabitants Registry Law, 5725-1965.
For this matter, "Dormant Shares"- as defined in Article 308 of the Companies Law, 5759-1999.
22A.3 At least one tenth (10%) of the members of the Board of Directors of the Licensee shall be appointed by the Israeli Entities as set forth in Article 22A.2. Notwithstanding the above- mentioned, for this matter- if the Board of Directors of the Licensee shall consist of up to 14 members – at least one director shall be appointed by the Israeli entities as set forth in Article 22.2A above, if the Board of Directors of the Licensee shall consist of between 15 and 24 members-at least 2 directors shall be appointed by the Israeli entities as set forth in Article 22.2A above and so on and so forth.
66 Amendment No. 31-Amendment No. 31 will come into effect upon completion of all of the obligations set forth in article 22A and no later than 30 June 2005, in accordance with the Ministry of Communications document 62/05-4031 dated 13 March 2005
22A.4 The Licensee's Board of Directors shall appoint from among its members that have security clearance and security compatibility to be determined by the General Security Service (hereinafter: “ Directors with Clearance”) a committee to be designated "the Committee for Security Matters", or CSM.
The CSM shall consist of at least 4 Directors with Clearance including at least one External Director. Security matters shall be discussed, subject to Article 22A.5, solely by the CSM. A resolution that was adopted or an action that was taken by the CSM , shall have the same effect as a resolution that was adopted or an action that was taken by the Board of Directors and shall be discussed by the Board of Directors only if necessary in accordance with Article 22A.5 and subject to Article 22A.5.
In this article-“security matters”-as defined in the Bezeq Order (Determination of Essential Service Provided by “Bezeq”, the Israeli Telecommunications Company Ltd), 5757-1997, as of March 9, 2005.
22A.5 Security matters that the Board of Directors or the Audit Committee of the Licensee shall be required to consider in accordance with the mandatory provisions of the Companies Law, 5759-1999, or in accordance with the mandatory provisions of any other law that applies to the Licensee shall be discussed, if they need to be discussed by the Board of Directors or the Audit Committee, only in the presence of Directors with Clearance. Directors that do not have security clearance shall not be allowed to participate in this Board of Directors or Audit Committee meeting and shall not be entitled to receive information or to review documents that relate to this matter. The legal quorum for such meetings shall include only Directors with Clearance.
The Licensee may set out in its Articles of Association that an Office Holder, who in the capacity of his position or based on the provisions of the law or the Articles of Association, should have received information or participate in security matter meetings and this was denied him due to Article 22A.5, will be released from any liability for any claim of breach of duty of care towards the Licensee, if the breach of duty of care was a result of his or her inability to participate in the meetings or receive information.
22A.6 The shareholders at a general meeting shall not be entitled to assume, delegate, transfer or exercise any of the authorities granted to another organ in the company, regarding security matters
22A.7 (a) The Minister shall appoint an observer for the Board of Directors and committee meetings, that has security clearance and security compatibility that will be determined by the General Security Services.
(b) The observer shall be a government employee, qualified to serve as a director, in accordance with Chapter C of the Government Companies Law, 5735-1975. (c) In addition, and without derogating from any duty imposed on him by any law, the observer shall be bound by confidentiality towards the Licensee, except as the matter may be required to fulfill his responsibilities as an observer. The observer shall not act as an observer or in any other capacity for any entity that deals with the provision of telecommunication services and directly competes with the Licensee, and shall refrain from any conflict of interest between his position as an observer and between the Licensee, excluding conflicts of interest that result from his being a government employee that is fulfilling his responsibilities as an observer with the Licensee. The observer shall undertake towards the Licensee not to serve as an observer or an office holder, and not to fulfill a position or be employed, directly or indirectly by any entity that directly competes with the Licensee or has a conflict of interest with the Licensee, excluding a conflict of interest that results from his being a government employee that is fulfilling his responsibilities as an observer with the Licensee throughout the duration of his position as an observer with the Licensee and for eighteen months after he completes this term.
In any case of a dispute regarding a conflict of interest of the observer, the matter shall be decided by the State Attorney General or a person on his behalf.
(d) Notices to Board of Director and committee meetings, including the CSM, shall be sent to the observer and he shall be entitled to participate as an observer in each such meeting.
(e) The observer's entitlement to receive information from the Licensee, shall be the same as a director. If the Licensee believes that certain information that is sensitive business information is not required by the observer in order to fulfill his duties, the Licensee may delay delivery of such information to the observer and shall inform him accordingly. If the observer believes that he should receive such information, the matter shall be decided by the head of the General Security Services.
(f) If the observer believes that the Licensee adopted or is about to adopt a resolution regarding security matters, contrary to the provisions of the License, contrary to Article 13 of the Law or contrary to the provisions of Article 11 of the General Security Services Law, 5762-2002, he shall immediately notify the Licensee in writing. Such a notice shall be sent to the chairman of the Board of Directors and to the chairman of the CSM and adequate time shall be given, under the circumstances of the case, to remedy the breach or to change the resolution, if possible.
22A.8 The provisions of Article 22A of the License shall be adopted in the Articles of Association of the Licensee.
Section C: Cross-Ownership and Conflict of Interests
23. Prohibition of Cross-Ownership
23.1 The Licensee, an Office Holder or an Interested Party in the Licensee, as well as an Office Holder in an Interested Party in the Licensee, shall not hold, either directly or indirectly, five percent (5%) or more of any Means of Control in a Competing MRT Operator, and shall not serve as an Office Holder in a Competing MRT Operator or in an Interested Party in a Competing MRT Operator; for this matter, “Holding” includes holding as an agent.
23.2 Notwithstanding the provisions of Paragraph 23.1, the Minister may, based upon written request, permit an Office Holder in the Licensee to serve as an Office Holder in an Interested Party in a Competing MRT Operator, or permit an Office Holder in an Interested Party in the Licensee to serve as an Office Holder in a Competing MRT Operator or in an Interested Party in a Competing MRT Operator, if he is satisfied, that this will not harm the competition in MRT Services; the Minister may condition the granting of such permit on conditions that the Office Holder must fulfill for prevention of harm to the competition as aforesaid.
23.3 Notwithstanding the provisions of Paragraph 23.1, an Interested Party in the Licensee, which is a trust fund, an insurance company, an investment company or a pension fund, may hold up to ten percent (10%) of the Means of Control in a Competing MRT Operator, and an Interested Party in a Competing MRT Operator, which is a trust fund, an insurance company, an investment company or a pension fund, may hold up to ten percent (10%) of the Means of Control in the Licensee, provided it does not have a representative or an appointee on its behalf among the Office Holders of a Competing MRT Operator or of the Licensee, as the case may be, unless it is required to do so by law.
23.4 The Licensee, an Office Holder or an Interested Party in the Licensee, as well as an Office Holder in an Interested Party in the Licensee, will not control a Competing MRT Operator, and will not cause it, by any act or omission, to be controlled by a Competing MRT Operator or by an Office Holder or an Interested Party in a Competing MRT Operator, or by an Office Holder in an Interested Party in a Competing MRT Operator, or by a person or corporation that controls a Competing MRT Operator.
23.5 The rate of indirect holding in a corporation will be a product of the percentage of holdings in each stage of the chain of ownership, subject to what is set out in Paragraph 23.6; for example:
(A) ‘A’ holds 40% in Company ‘B’;
(B) Company ‘B’ holds 40% in Company ‘C’;
(C) Company ‘C’ holds 25% in Company ‘D’;
(D) Therefore, Company ‘A’ holds, indirectly, 4% of Company ‘D’. 23.6 For the matter of this Paragraph and Paragraphs 14.1 (G) (6), (7), (8), (8a), (9) and 21.4, if a certain body (hereinafter: “the Controlling Body”) controls another body that has holdings, directly or indirectly, in the Licensee (hereinafter: “the Controlled Body”), the Controlling Body, and also any other body controlled by the Controlling Body, will be attributed with the rate of holdings in the Licensee that the Controlled Body has, directly or indirectly; according to the following examples:
A. Direct holdings:
(1) ‘A’ holds 50% in Company ‘B’, and controls it;
(2) Company ‘B’ holds 50% in Company ‘C’, and controls it;
(3) Company ‘C’ holds 10% in the Licensee and does not control it;
(4) Therefore, notwithstanding that ‘A’s’ holdings in the Licensee in accordance with the instructions of Paragraph 5.6 are 2.5%, ‘A’ and also any body controlled by ‘A’ will be deemed as an Interested Party holding 10% in the Licensee.
B. Indirect holdings:
(1) ‘A’ holds 50% of Company ‘B’ and controls it;
(2) Company ‘B’ holds 40% of Company ‘C’ and controls it;
(3) Company ‘C’ holds 40% of Company ‘D’ and does not control it;
(4) Company ‘D’ holds 40% of the Licensee and does not control it;
(5) Therefore, ‘A’ and any body controlled by ‘A’ will be regarded as having a holding in the Licensee at the rate of holdings of Company ‘C’ in the Licensee, which is holdings of 16% (according to the method set out in Paragraph 23.5 for the calculation of the rate of indirect holdings in the absence of control), and in this manner, ‘A’ and any body controlled by ‘A’ is an Interested Party in the Licensee.
23.7 If a certain body has indirect holding in the Licensee, through two or more Interested Parties, then for the purpose of its definition as an Interested Party, and for the purpose of determining the rate of holding with regard to this Paragraph, the greatest indirect rate of holding will be taken into account, and also any rate of holding that derives from the chain of holdings through which the said holding body is attributed with the holdings of corporations controlled by it in accordance with the provisions of Paragraph 23.6; the rates of holdings that derive from two or more chains that will be taken into account as stated above, will be cumulative for the purpose of calculating the rate of holdings.
23.8 The Minister may, in response to a written request, permit an Interested Party in the Licensee to hold, either directly or indirectly, five percent (5%) or more in any of the Means of Control of a Competing MRT Operator, if the Minister is satisfied that this will not harm competition in the MRT field; 67the Minister may condition the granting of the said permit on a condition that the Interested Party in the Licensee or competing MRT Operator is an Interested Party merely by virtue of the provisions of Article 23.6 .
67 Amendment No. 10
24.1 Prohibition of Conflict of interests
The Licensee, any body in which the Licensee is an Interested Party, an Office Holder in the Licensee or an Interested Party in the company holding the License or an Office Holder in an Interested Party therein, will not be party to any agreement, arrangement or understanding with a Competing MRT Operator, or an Interested Party or an Office Holder in it, or an Office Holder in an Interested Party in a Competing MRT Operator, or any other body in which a Competing MRT Operator is an Interested Party, which are intended to or might reduce or harm competition in anything that pertains to MRT Services, MRT Terminal Equipment or any other Telecommunications Services.
24.268 Without derogating from the aforementioned in Article 24.1, the Licensee may reach a Cooperation Agreement as set forth in Article 19.1B.
68 Amendment No. 83
Chapter D: Establishment of the MRT System and its Operation
Section A: Establishment of the System
25. Definition
In this part: “Milestones”- Stages in the establishment of the MRT System, according to the timetable specified in the Engineering Plan - Appendix B to the License.
26. Establishment according to the Engineering Plan
26.1 In all matters pertaining to the establishment of the MRT System (in this Paragraph: “the System”) and its operation, including the technical quality of its various components, the structure of the System and manner of its establishment, the Licensee will fulfill what is set out in the Engineering Plan - Appendix B of the Second Annex to the License, in accordance with the instructions in the Annexes to this License; in case of contradiction between the provisions of the Engineering Plan and the provisions of the License and the Annexes to the License, the License provisions shall override the provisions of the Annexes to the License, and the provisions of the First Annex shall override the provisions of the Second Annex to the License.
26.2 The Licensee will follow all the specifications of the Ministry of Communications and the standards related to the System, which were set out by standardization organizations in Israel and abroad as well as by other international organizations, both in the field of telecommunications and wireless and in any other field related to the establishment and operation of the System.
26A69 Operation Approval
26A.1 The Licensee shall contact the Director General in writing for the receipt of his approval to commence the provision of 4th Generation services (hereinafter – "Operation Approval").
The Licensee may commence the provision of 4th Generation services only after receiving Operation Approval from the Director General.
26B70 Obligation to Provide 4th Generation Service
26B.1 If the License has not begun providing 4th Generation Services within 12 months from the determining date, as stated in Article 2.1(b)(2)(a) to Appendix E, the frequencies allocation that it received for the provision of this service shall expire, and the license fees paid due to the award of the 4th Generation Tender shall not be returned.
The expiration of the frequencies allocation as stated shall be considered a change of the Cooperation Agreement or change of the Usage Agreement, as applicable.
69 Amendment No. 83 70 Amendment No. 83
27. Implementation Stages and Timetable
27.1 The rate of establishment of the MRT System, the milestones for its establishment and the date of the commencement of service provision in the various regions of the State, will be in accordance with the timetable set out in the Engineering Plan - Appendix B of the Second Annex to the License.
27.2 The Licensee may not deviate from the timetable unless permitted to do so by the Director, provided the Licensee requested the Director in writing to receive the latter’s permission immediately after the Licensee became aware that there are difficulties preventing it from complying with the original timetable; delay in signing agreements with a third party or in receiving a permit from the planning and construction authorities, will be deemed reasonable causes for receiving the Director’s permission to deviate from the timetable, only if the Director has been satisfied that the Licensee has taken every reasonable step in the prevailing circumstances, in order to reach an agreement with a third party or to receive permit from the planning and construction authorities.
27.3 The Director may approve the Licensee’s request to deviate from the timetable, wholly or partly, and to make his approval contingent on certain conditions; the Director may authorize a deviation with respect to a certain milestone, provided that the Licensee will undertake to make up the delay in the planned rate of establishment within the next milestone.
28. Change of Plans during the Establishment
28.1 A Licensee may not deviate from the Engineering Plan unless permitted to do so by the Director according to the provisions of this Paragraph; however, locating a Cellular Radio Base at a site which is different from the site specified in the Engineering Plan will not be deemed as deviation if done within the Search Area; in this Paragraph, “Search Area” means an area defined in the Engineering Plan, at which the establishment of a Cellular Radio Base was planned, at a specific site in the area, and regarding which it was determined in the Engineering Plan that there might be a need to locate the base at another site in that area.
28.2 Should the Licensee realize, during the establishment of the MRT System, that there is a need to deviate from the Engineering Plan, the Licensee will approach the Director in writing in order to receive the latter’s approval to the change in the plan; in its approach, the Licensee will specify in detail the substance and nature of the requested change and the reasons for it; the Licensee will append to the request the revised plan that it proposes.
28.3 The Director may reject the request or approve it, wholly or partly. The Director also may make his approval contingent on certain conditions, as long as such conditions are necessary in order to maintain the quality of the System and its performance standard. The Director will decide on the request and advise the Licensee of his decision, all within a reasonable period of time.
29. Use of Infrastructures and their Construction
29.1 The Licensee may, for the purpose of establishment of the MRT System and its operation, and subject to any law, establish, maintain and operate physical or wireless transmission links, provided the said transmission links will serve only for the following:
(A) Connection between the Cellular Radio Bases that comprise part of the Licensee’s MRT System;
(B) Connection between the Licensee’s Cellular Radio Bases and its MRT Exchanges;
(C) Connection between the MRT Exchanges themselves;
(D)71 Connection between a component of the MRT system solely owned by the Licensee and a mutual component of the MRT system.
29.2 For the purpose of connection as specified in Paragraph 29.1, the Licensee also may make use of physical or wireless transmission links of the Bezeq Corporation or of another Licensee or franchise holder who was lawfully authorized to provide infrastructure services as aforesaid.
29.3 In order to remove all doubt, it is hereby made clear that the use of transmission links established by the Licensee is only for the purpose of operating an MRT System as set out in Paragraph 29.1, unless permitted by the Minister, by License, to make additional use of the same, and in accordance with the terms stipulated by the Minister.
29.4 The Minister will consider providing the Licensee with a permit to establish, by itself or by means of another party on its behalf, transmission links for connecting between the Licensee’s MRT exchanges and the Telecommunication Networks of other General License Holders, if he or she finds that one of the following has transpired:
(A) The Bezeq Corporation and other domestic operators have unreasonably delayed the installation of these facilities;
(B) The Bezeq Corporation and other domestic operators have set out unreasonable or discriminatory conditions for the installation of these facilities;
(C) The Minister is of the opinion that the interest in promoting competition in Telecommunications Services obliges him to do so.
30. Connection to other Telecommunications Systems
30.1 72 The Licensee shall act in order to effect the Interconnection of the Network with any other Public Telecommunications Network operating in the area in which the law, jurisdiction and administration of the State of Israel apply (including settlements, military sites and military installations in Judea, Samaria and the Gaza Strip), and including to any Wireline Public Telecommunications Network, International Telecommunications System and the MRT System of another MRT operator.
71 Amendment No. 83 72 Amendment No. 14 30.2 The Interconnection between the Network and the Public Telecommunications Network of another licensee shall be effected in such a way as to enable the following:
(a) Transfer of telecommunications messages between Terminal Equipment connected to the Network and Terminal Equipment connected to the other Public Telecommunications Network;
(b) Proper and orderly provision of services by the Licensee to the subscribers of another licensee, and provision of services by the other licensee to subscribers of the Licensee.
30.3 Interconnection may be effected directly or indirectly, via the Public Telecommunications Network of another general licensee, provided that it allows for the provisions of clause 30.2.
30.4 In an Interconnection between the Network and a Wireline Public Telecommunications Network, the Licensee shall act to set up Interface points between the two Networks, for every type of service (infrastructure, transmission and data communications, telephony), with at least three main Transfer Switches; unless the Director has determined otherwise based upon a written application from the Licensee; the setting up of the above Interface points shall be effected under an agreement between the Licensee and the Domestic Operator; such an agreement shall contain, inter alia, the technical, operational and commercial particulars of the connection, and the number and location of connections.
30.5 In an Interconnection between the Network and an International Telecommunications System, the Licensee shall act in accordance with the provisions of Appendix J to the License.
30A. Rules regarding Effecting of Interconnection
The Licensee shall act to effect the Interconnection subject to all of the following:
(a) The Licensee shall ensure that the technical and operational standards of the Network match the requirements for connection to the Public Telecommunications Network of the Domestic Operators, the other MRT operators and the international operators (hereinafter: “an Other Operator”), that the operations of the Network be properly integrated with the operations of the Public Telecommunications Network of the Other Operator and that the Interconnection shall not harm the proper operation of these systems or proper service to their subscribers; (b) The Licensee shall provide the Interconnection service on equal terms to every Other Operator and shall avoid any discrimination in effecting such Interconnection, including in respect of:
(1) The supply of infrastructure installations and network connection services;
(2) the availability of connection facilities;
(3) methods, quality and durability of the connection;
(4) switching alterations and adjustments to installations , protocols and Network Interface points;
(5) payments for Iinterconnections;
(6) Billing and collection arrangements and transfer of information to Subscribers;
(7) commercial terms for effecting Interconnection;
(8) provision of information regarding the Network and changes therein which relate to Interconnection;
(c) The Licensee shall make available to the Other Operator any essential information that the Other Operator requires in order to provide its services via the Licensee’s facilities; such information shall be provided subject to any law regarding protection of privacy or commercial confidentiality; where the parties do not reach an agreement as to the nature and scope of the essential information, the Minister shall rule on the matter;
(d) The Licensee shall provide the Other Operator with information on planned changes to its Network, which might affect Interconnection with the Public Telecommunications Network of the Other Operator, or Interconnection between the Public Telecommunications Networks of the Other Operators; the Licensee shall supply the said information in such a manner as to allow the Other Operator to be reasonably prepared for the implementation of the said changes;
(e) For the purposes of sub-clauses (c) and (d), the Licensee may make the provision of information to the Other Operator conditional upon execution of a reasonable confidentiality agreement, intended to protect the rights of the Licensee under any law, including commercial secrets, intellectual property rights and the like, relevant to the information regarding the change in the Network that is to be delivered to the Other Operator;
(f) The conditions for Interconnection between the Network and the Public Telecommunications Network of an Other Operator shall be arranged by an agreement between the Licensee and the Other Operator; where the parties fail to reach an agreement, the Minister shall rule on the matter;
(g) (1) The Licensee shall allow its Subscribers to receive all of the services offered to them by the Other Operator, and may allow the subscribers of the Other Operator to receive all of the services from the Licensee, provided that receipt of such services is possible under any law. (2) The Director may order the Licensee to allow subscribers of another licensee to receive the services given by the Licensee , provided that the receipt of such services as aforesaid is technically and legally possible.
(3) Notwithstanding the provisions of paragraph (1), the Director may, upon a written application from the Licensee, exempt the Licensee from the obligation of providing its Subscribers with the possibility of receiving services from the Other Operator for technical, economic or other justifiable reasons.
(h) The Licensee shall provide the Director with a signed copy of any agreement between the Licensee and the Other Operator regarding Interconnection;
(i) The Licensee shall provide the Director, upon demand, with any information provided to the Other Operator pursuant to sub-clauses (c) and (d), and a copy of any confidentiality agreement pursuant sub-clause (e);
(j) The Licensee shall act in accordance with any other instructions that the Minister may prescribe.
30B. Payment for Traffic Completion and Interconnection
Where the Minister has not prescribed payment for Interconnection or payment deriving from Interconnection, the Licensee may charge a reasonable and non-discriminatory sum for these.
30C. Prohibition Against Delaying Interconnection
The Minister shall give the Licensee a reasonable opportunity to make claims regarding the Minister’s intention to instruct the Licensee regarding the manner of effecting Interconnection and the scope thereof, activities, services and Accompanying Services for effecting Interconnection, and payment for Interconnection; where the Minister has instructed the Licensee in respect of such matters, the Licensee shall not delay Interconnection to the Network in any manner, and shall fulfill its obligations in accordance with the instructions of the Minister, in good faith and properly, on the date prescribed for such and in full cooperation.
30D. Provision of Possibility of Use
30D.1 The Minister may instruct the Licensee regarding the provision of the possibility of use of its Telecommunications Installation in accordance with his powers under section 5 of the Law.
30D.2 The Licensee shall allow another licensee, in accordance with the instructions of the Minister, to provide Value Added Services via the Network; the Licensee shall ensure reasonable and equal conditions for any other licensee, in respect of the supply of Value Added Services by the other licensee to the Licensee’s subscribers, including in respect of the matters set out in clause 30A, mutatis mutandis. 30D.3 For the purpose of provision of the possibility of Use, the provisions of clauses 30A through 30C shall apply, mutatis mutandis.
30E. Infrastructure Services to an Affiliated Company
30E.1 The Licensee shall avoid giving preference to a licensee that is an Affiliated Company over any other licensee, in the provision of Infrastructure Services, in terms of either payment or service, in terms of the conditions or availability of the service, or in any other manner.
30E.2 (a) Upon the written request of the Licensee, the Director may permit limitations for the Licensee on the provisions of clause 30E.1 in respect of another licensee or broadcast licensee which is an Affiliated Company, provided that the following conditions apply:
(1) such other licensee or Franchisee is not a Substantial Operator; (2) the Director is of the opinion that the giving of such approval shall not substantially harm competition in the field of telecommunications
(b) Limitations as aforesaid in sub-clause (a) might permit the Licensee to provide the Affiliated Company with Use of its Telecommunications Installations under preferred conditions and may be limited by time or any other condition.
(c) In considering the permit under this clause, the Director shall take into account the existence of a valid agreement, executed prior to Amendment No. 14 of this License, between the Licensee and an Affiliated Company, as aforesaid, inter alia regarding limitation of the permit by time or other conditions.
30E.3 In this clause, “Affiliated Company”, “Subsidiary” and “Substantial Operator” – as defined in the Telecommunications Regulations, (Proceedings and Conditions for Receipt of a General License for the Provision of Domestic Wireline Telecommunications Services) 5760-2000.
30F. Numbering Plan
30F.1 The Licensee shall act in accordance with the Numbering Plan, and in accordance with the instructions of the Director regarding the activation and implementation of the Numbering Plan.
30F.2 Should the Director give instructions regarding number portability such that every subscriber of another MRT licensee shall be able to become a subscriber of the Licensee or receive services from the Licensee without altering his number, and vice versa, the Licensee shall integrate facilities in its Public Telecommunications Network that will allow for the implementation of such feature, on the date and in the manner to be prescribed by the Director. 31. Report on Establishment Work
31.1 The Licensee will submit to the Director, during the entire establishment period of the MRT System, quarterly reports which will comprise the establishment work that was carried out during the period covered by each report, according to the Milestones and timetables in the Engineering Plan; for the matter of this Paragraph, “the Establishment Period” is the period of forty eight (48) months from the date of License award or until the date of completion of the Establishment of the System to its full deployment according to the Engineering Plan - the earlier of the two. 73During the erection period, this report shall be integrated into the outline engineering report, as set forth in Article 104.1(e).
31.2 The reports will include comparison of the actual implementation of the plans against planning, as of the date of each report, and explanations of any deviation or change in the implementation as compared to the design.
31.3 Each report will be submitted in three (3) copies in a format as instructed by the Director, bearing a date and signed by the Licensee or whoever was authorized by it particularly for this purpose.
31.4 The Director may require the Licensee to prepare special reports as well as redraft any report that was submitted to him, or complete it.
32. Submission of Information and Documents
32.1 The Licensee will submit to the Director, on his request, any information and document on the implementation of the establishment work on the MRT System, at the date and in the format and manner as instructed by the Director.
32.2 For the matter of this Paragraph and Paragraph 33, “a document” includes any information stored in a computer or in an information database.
33. Supervision of Establishment Work
33.1 The Director may supervise personally, or through another person acting on his behalf, the actions taken by the Licensee to carry out the establishment work. In order to carry out the supervision, the Director may enter, at any reasonable time, the work sites, facilities of the MRT System and the Licensee’s offices, in order to conduct measurement and tests and to examine any plan or document pertaining to the implementation of the establishment work.
33.2 The Licensee will cooperate with the Director in everything that pertains to the conducting of supervision of the establishment work, and without derogating from the generality of the above, will allow him to enter the work site and its installations, allow examination of any document, plan and specifications and provide him with any required information that the Director may request.
34. Repair of Faults and Defects
34.1 The Director may advise the Licensee in writing of faults, defects and deviations that he found in the establishment work of the MRT System, on the basis of reports submitted by the Licensee, documents and information that it provided the Director, or on the basis of measurement and tests that he conducted.
73 Amendment No. 71
34.2 Should the Licensee receive notification as set out in Paragraph 34.1, it will notify the Director, within fourteen (14) days from the date on which it was notified of the above, of its response to the notifications and the actions that it has taken or is about to take in order to remedy the faults, defects or deviations.
35. Safety and Security Precautions and Prevention of Hazards
35.1 The Licensee will carry out the establishment works while taking adequate safety precautions in order to prevent accidents to people and damage to property. It will refrain from causing disturbances and hazards to the public in the work area, and if required to conduct excavation at the site, it will make every effort to prevent damages to underground Systems, including Telecommunication Networks. For this purpose, it will ensure that it obtains every permit required by any law, including permit for excavation works according to Section 53B of the Law.
35.2 On completion of the establishment work, the Licensee will make sure that the work site is clean and restored to its previous condition.
36. Cancelled.
37. Crossing Electricity Lines and Telecommunication Systems
Where electricity lines or electric installations exist before the installation of the MRT System, the Licensee will be subject to the obligations according to the Telecommunication and Electricity Regulations (Proximity of and Crossing Between Telecommunication Lines and Electricity Lines), 1986.
38. Discovery of Antiquities and Preservation of Sites
38.1 Antiquities as interpreted by the Antiquities Law, 1978, which will be uncovered at a site where establishment work is conducted, are State assets, and the Licensee will take adequate precautions in order to avoid causing damage to them.
38.2 The Licensee will advise the Director of the Antiquities Authority of the discovery of an antiquity within fifteen (15) days of the date of discovery of the antiquity, and will comply with all instructions by the Authority Director in all matters pertaining to the manner of handling the antiquity.
38.3 During the establishment work, the Licensee will refrain, as far as possible, from causing damage to sites of historic or national value, tourist sites and landscape.
38.4 The Licensee will refrain, as far as possible, from causing damage to structures and trees in the sites where the establishment works are conducted. 39. Powers pertaining to Real Estate
39.1 The Minister may, upon request from the Licensee, grant it the powers set out in Chapter F of the Law, wholly or partly, subject to the provisions of Paragraph 39.2.
39.2 The Licensee will specify in its request the sites in which it requires powers as aforesaid, the scope of the required powers and the reasons for the request, including actions it has taken to find alternative sites without the need of powers in accordance with Chapter F of the Law.
39.3 If the Minister is satisfied that the Licensee should be granted powers in accordance with Chapter F of the Law, the Minister will publish his decision in “Reshumot”, the Official Gazette.
Section B: Equipment Tests and Installation Approvals
40. Compatibility Tests
The Director may determine equipment items that are not to be installed in the MRT System before undergoing compatibility tests; for the matter of this paragraph, “Compatibility” - as implied by the provisions of Paragraph 41; should the Director decide as aforesaid, the items will not be installed before a compatibility test is conducted on them.
41. Responsibility for Compatibility
The Licensee is responsible for ensuring that equipment installed in the MRT System meets at least the condition of technical compatibility to the properties specified in the manufacturer’s specifications relevant to the same equipment item, that were appended to the Engineering Plan.
42. Performance Testing Program, and its Approval
42.1 The Licensee will provide the Director, no later than 30 days before notifying of its end of establishment according to Paragraph 43, with an up-to-date, detailed testing program, for conducting the performance tests, related to the part of the MRT System that it wishes to operate (hereinafter: “Detailed Testing Program”).
42.2 The Licensee will present to the Director the Detailed Testing Program; the Director may require the Licensee, within fifteen (15) days from the said presentation, to change the Detailed Testing Program or to complete it, if he deems it necessary for a full and accurate implementation of the performance testing, and the Licensee will carry out the tests as required by the Director.
43. Notice of Establishment Completion
When the Licensee completes the establishment of an exchange or a Cellular Radio Base in any area in a manner that allows to start providing MRT Services through it, the Licensee will advise the Director of the same in writing, in the format as instructed by the Director, complete with the results of the detailed tests that indicate the success of the establishment and operation.
44. Fitness and Operation Conditions
44.1 The Licensee must meet the following requirements and conditions within six (6) months from the date of License award, prior to the operation of the system and the provision of service to subscribers in return for payment:
(A) Agreement with an equipment manufacturer - the Licensee has valid agreements with a manufacturer of MRT System equipment and MRT Terminal Equipment, including:
(1) A know-how agreement which ensures that all know-how required for the establishment, operation and maintenance of the equipment and system will be at its disposal;
(2) An agreement providing for supply of spare parts for the System equipment for a period of at least seven (7) years;
(3) An agreement providing for technical support and software upgrades in the System components for a period of at least seven (7) years;
(4) An agreement ensuring the supply of technical literature and full documentation of the System equipment, including upgrades;
(B) Workshop and test equipment - the Licensee is operating an authorized workshop, or has a valid agreement with an authorized workshop, for conducting tests and repairs of the MRT Systems equipment; the workshop will include professional testing equipment for conducting the tests and repairs, including mobile testing equipment;
(C) Spare parts - the Licensee maintains and runs a spare part warehouse for the MRT Systems equipment according to the recommendations of the equipment manufacturers;
(D) Maintenance System - the Licensee maintains by itself or through another an efficient maintenance System, including maintenance personnel, vehicles and means of communication, which ensures an orderly on-going operation of the System and allows taking care of any fault within the response time required in this License, and also allows - in any event of a serious fault in the MRT System, causing radio interference or massive disconnection of subscribers, or constituting a safety hazard - to repair the fault within four (4) hours;
(E) Control System - the Licensee itself maintains and operates a System of remote control that allows it to gauge System performances and the load on its components, including interconnections with other Telecommunication Networks, and make sure that these operate properly;
(F) Means of communication - in the exchanges at the operations centers and in the service and maintenance centers, means of communication were installed, such as a wireless set, a telephone or a mobile telephone.
(G) Security - the Licensee has met the requirements of the Security System, in accordance with the provisions of Paragraph 66.2, to an operation standard that satisfies the Director.
44.2 The Licensee will provide the Director, within seven (7) days before the first activation of the System, with certificates and documents indicating that it meets the requirements and terms set out in Paragraph 44.1; if the Director does not respond within five (5) working days from the date of delivery of the said documents, the Licensee will activate the MRT System and connect subscribers to it; if the Director instructs the Licensee, according to the findings in the documents, to change or repair the System, the Licensee will carry out the required change or repair and provide the Director with a certificate of implementation, and if the Director does not respond within three (3) working days, the Licensee may activate the System as aforesaid.
Section C: Use of Frequencies
45. Frequency Allocation
45.1 The Licensee may operate the Cellular Radio Bases of the MRT System while using the frequency bands as specified below:
(A) Frequency bands that were exclusively allocated for the use of the Licensee in the territory of the State of Israel:
902.2 MHz through to 910.2 MHz, and 947.2 MHz through to 955.2 MHz;
(B) Frequency bands that were not exclusively allocated for the use of the Licensee, according to rules and limitations that will be determined by the Director:
910.2 MHz through to 912.2 MHz, and 955.2 MHz through to 957.2 MHz
74(B1) Frequency bands that have been non-exclusively been allocated for its use as of February 25, 2010, in accordance with the rules and limitations that will be set by the Director: 912.6 MHz to 915 MHz and 957.6 MHz to 960 MHz75.
76(C) Frequency bands allocated exclusively for the Licensee’s use as specified below :
(1) From 1 February 2002 to 1 January 2004, the following bands shall be allocated:
1732 to 1738.4 MHz, and the matching domain 1827 to 1833.4MHz; 1937 to 1942 MHz, and the matching domain 2127 to 2132 MHz;
(2) As of 1 January 2004, the following bands shall be allocated:
1730 to 1740 MHz and the matching domain 1825 to 1835 MHz; 1940 to 1950 MHz and the matching domain 2130 to 2140 MHz;
(3) As of 1 January 2005, the frequency domain 1910 to 1915 MHz shall be allocated.
(4) Notwithstanding the aforesaid, if the Licensee requests to postpone the date of the beginning of use of the bands set out in sub-clauses (1) to (3) or part of them, to a later date, the Director may suspend the band allocation until a date to be decided upon.
45.2 The Licensee may operate the Cellular Radio Bases of the MRT System while using additional frequency bands, if they are allocated by the Director, in accordance with the rules and limitations which will be determined.
45.3 The Licensee may select a frequency band narrower than the one stated above, within the framework of the frequency bands specified in Paragraphs 45.1 and 45.2.
74 Amendment No. 68 75 These frequency bands have been used by the Licensee since 1999. 76 Amendment No. 14
45.4 The Director may, after the elapse of four (4) years from the date of the License award, reduce without compensation the frequency range in which the Licensee is permitted to operate its Cellular Radio Bases as specified above in Paragraph 45.1, if he or she realizes that a said reduction will bring about a better utilization of the frequency spectrum in Israel, considering the extent of frequency utilization by the Licensee, the number of its subscribers and the average traffic per subscriber, in comparison with the number of Subscribers and the average traffic per Subscriber of other MRT Systems. The Director will not decide to reduce the range of frequencies as aforesaid unless he has given the Licensee opportunity to voice its arguments.
45.5 The Director may limit the Licensee to operating certain frequencies in limited geographic areas and/or operating part of the frequencies in parallel to additional service providers and in coordination with them, in accordance with the Director’s instructions.
46. Constraint on the Use of Frequencies
46.1 The Licensee will make use of the frequencies allocated to it as stated in Paragraph 45 for the sole purpose of providing services in accordance with this License.
46.2 77Without derogating from the aforementioned in Articles 45 and 46.1, and in accordance with the terms of the allocation provided to the other MRT licensee, the Licensee may make use of the frequencies allocated to the other MRT licensee in addition to the aforementioned in Article 45, provided that the frequencies serve as cellular radio centers of the Licensee through the cellular radio infrastructure licensee that provides it with its services.
47. Safety in Using Frequencies, and the Prevention of Interference
47.1 The Licensee will establish the MRT System and operate it in a manner that will ensure that each of its components does not emit radiation prohibited by the Pharmaceutical Regulations (Radioactive Elements and Their Products), 1980, and will do everything necessary, if required, to receive a permit in accordance with the said regulations; in this matter, the Licensee will act, inter alia, as follows:
a) The Licensee will coordinate its activity with the official in charge of the environmental radiation, in the Ministry of the Environment (hereinafter: “the Official”), and will carry out his or her instructions;
b) The Licensee will submit to the Official, before the construction of each site, a risk estimate report; the site will only be constructed after it receives the approval of the Official; after operating the site, the Licensee will carry out measurements in accordance with the Official’s instructions; a site which will not meet the Official’s requirements will not be operated;
c) The Licensee will bear its relative share of the costs of preparation of a Country-wide MRT Installation Master Plan, in accordance with the provisions of the Law of Planning and Construction, 1965, jointly with the other MRT Operators.
77 Amendment No. 83
47.2 The Licensee will coordinate the use of frequencies with the Director, who will base his guidelines, inter alia, on the national emergency plan or a special situation plan in the home front.
47.3 The Licensee will submit to the Director, at least 60 days before the operation of the Cellular Radio Bases, a detailed up-to-date plan of operation of the Cellular Radio Bases, of the radio links and of the expected use of frequencies; the plan will include, inter alia, the transmission and reception frequencies, gain and height of the antennas and transmission outputs; the Licensee will advise the Director of the actual implementation of the plan within seven (7) days from the date of operation; the Licensee will submit to the Director, during the month of January each year, an up-to-date report on the operation and use as aforesaid; the Director may require the Licensee, for reasons that will be recorded, to submit to him/her, within five (5) days an up-to-date report on the operation of Cellular Radio Bases, radio links and use of frequencies, as aforesaid.
47.4 The Licensee will establish the MRT System and operate it in a manner that will prevent interference with other telecommunication and wireless Systems that are operating lawfully; without derogating from the generality of the aforesaid, the Licensee will act in this matter, inter alia, as follows:
a) Before operating any Cellular Radio Base, the Licensee will conduct tests and measurements in order to avoid electromagnetic interference;
b) In the event of discovering that electromagnetic interference is expected, or if electromagnetic interference is discovered during operation, the Licensee will act, immediately and no later than 24 hours from discovering the above, to coordinate a solution that will prevent this interference and prevent its recurrence; failing to find a solution, the Licensee will apply in writing to the Director or his or her appointee in order to find a reasonable solution for the problem;
c) The Licensee will cease the operation of any MRT System component that causes interference to another wireless System that operates lawfully, and will not reactivate it without the Director’s permission; the Director may require from any of the parties - from the Licensee as well as from the owner of another wireless system - to make changes in the operation of the equipment or the use of frequencies, or to cease broadcasting on specific frequencies, in the entire country or in a particular region;
d) The Licensee will comply with all of the Director’s requirements regarding the handling of interference and coordination with other operators, in Israel, in the territories of the Palestinian Authority and in neighboring countries, will submit to the Director any information required for this purpose, will carry out electromagnetic measurements in accordance with the Director’s requirements, and will refrain from using frequencies that will be defined in sites determined by the Director; the Licensee will operate within the limits instructed by the Director regarding transmission in certain frequencies in certain sites, and the imposing of certain constraints regarding the height, type and direction of antennas; the coordination as aforesaid will be carried out by the Licensee, on its expense and under its responsibility, both in accordance with special instructions by the Director and in accordance with the instructions of international conventions and agreements to which Israel is a signatory. 47.5 The award of this License, as well as the approval of the Engineering Plan, shall not be deemed as providing protection against harmonies from other radiating bodies, whether operating lawfully or unlawfully, or spurious radiations from other radiating bodies, whether operating lawfully or unlawfully, or protection against other radiating bodies operating in frequency ranges identical to the frequency ranges that were allocated to the Licensee outside the territory of the State or in a territory over which the State has no control, however, the Director will make a reasonable effort to find a suitable solution for the required protection.
48. 78Preparation to ensure the functional continuity during an emergency
48.1 The Licensee will appoint a functionary (including a first deputy and a second deputy) that will be responsible during an emergency for maintaining contact with the Ministry; The Licensee shall provide the Director, once a year, on January 1st, the details of the functionary and his deputies, as well as their contact details.
48.2 The Licensee will be prepared to ensure the functional continuity during an emergency, as set forth in Appendix D- " "Preparation to ensure the functional continuity during an emergency".
78 Amendment No. 82
Section D: Tests and Maintenance79
49. Definitions
In this part:
“Periodic Test”- Test of the network or any part of it, that is conducted in accordance with the License provisions, at fixed intervals and at least annually;
“Special Test” - Test of the network or any part of it, conducted due to a maintenance or repair activity, following an electromagnetic interference, a malfunction, complaint review technological change, modification of the Engineering plan; etc.
“Routine Test”- Testing of the network or any part of it, conducted on a regular basis.
50. Execution of Tests
50.1 The licensee shall carry out periodic tests of the MRT system, and shall submit the results of the test upon the director’s request within 30 days from the day of the request.
50.2 The licensee shall establish and operate an inspection system for constant monitoring of the network’s performance and its intactness and shall conduct on a regular basis routine tests of the network or any part of it, as needed.
50.3 The licensee shall conduct routine tests regarding the quality of service as detailed in Annex E, and the relevent standards of the ITU-T, and shall provide the results of the tests upon the director’s request, within 30 days from the day of the request.
50.4 The director may instruct the licensee to conduct a special test; the licensee shall perform the said test in a manner and at a time to be advised by the director and shall submit the results to the director.
50.5 The director or anyone else authorized on his or her behalf shall be allowed to perform the test themselves, if in their opinion it is required, the licensee shall allow the director or anyone else authorized on his or her behalf, after prior coordination, access to installations and equipment and shall put at their disposal their testing equipment and professional manpower employed by the licensee.
51. Test, Fault and Maintenance Log
51.1 The licensee shall maintain a test, fault and maintenance log (hereinafter – “maintenance log”), in which details of the faults and tests of the network shall be recorded.
79 Amendment No. 41
51.2 The licensee shall keep the maintenance log, shall allow the director or anyone authorized on his or her behalf to see the log at any time, to check it, copy it in any manner and to pass it to the director upon his demand.
52. Repair of Faults and Defects
52.1 The director may, after giving the licensee sufficent opportunity under the circumstances to present its arguments, notify the licensee in writing of faults and defects that he found and that harm the grade of service for subscribers, the level of survivability and back up of the network, damage to the level of security or interference with the other systems that operate properly, based on tracking the network’s performance, including through subscriber complaints, tests he carried out or based on test reports, documents and information provided to him by the licensee.
52.2 The director may instruct the licensee of the dates that the defects and malfunctions must be repaired.
52.3 If the licensee receives such notification, it must notify the director within the time set forth in the director’s notice of the repair of the defects and malfunctions, detailed as per the director’s request.
53. deleted
54. deleted Chapter E - Provision of MRT Services to Subscribers
Section A - Agreement with Subscribers
8055. The subscriber agreement
55.1 The licensee shall prepare a format for a subscriber agreement that it intends to offer its subscribers, and shall submit it to the director upon his demand.
55.2 The terms of the subscriber agreement shall not contradict, explicitly or implicitly the provisions of any law or the license; the aforesaid is not meant to prevent changes to the provisions of the subscriber agreement, that benefit the subscriber as compared to the provisions of the law or the license.
55.3 The subscriber agreement shall be in writing and shall be in a clear and easy manner to read and understand, and shall state clearly any condition or restriction regarding the subscriber’s right to terminate the subscriber agreement or regarding the licensee’s duties towards the subscriber; any stipulation in the subscriber agreement shall be stated clearly and not only by reference. For this article- “writing”-including an electronic document that can be saved and reconstructed by the subscriber.
55.4 The subscriber agreement shall clearly include, among other things, the following:
a) The first part of the engagement agreement must clearly and precisely specify the principal details of the tariffs and services plan pursuant to the engagement agreement (hereinafter – “the Plan Basics”). If the engagement agreement includes one type of services, the Licensee shall be allowed to specify the Plan Basics on a maximum of two pages. If the agreement includes a number of types of services (fixed-line telephone, mobile telephone, international services, internet, etc.), then, subject to that stated above, the Licensee shall be able to add one page for each additional type of service. The Plan Basics document must be printed, without any handwritten alterations or additions, apart from that stated in clause (1), and all as specified hereunder:81
(1) The name of the Licensee or its logo, the details of the Licensee's representative that executed the agreement, the date and mode of execution of the transaction,82 the subscriber's details including his name, I.D. number, type of subscriber,83 address, e-mail address,84 telephone number that the agreement pertains to, an additional telephone number of the subscriber to where notices regarding the usage amount of a services85 plan as set forth in article 75D and regarding disconnection of a Dormant Subscriber, as stated in clause 72.a.,86 will be sent from the Licensee87 and a description of Goods,88 if included in the agreement; notwithstanding the beginning of section (a) the aforementioned details in that sub-section , except for the Licensee's name or logo, can be handwritten;
80Amendment No. 41-shall become effective no later than 30.4.2007 81 Amendment No. 87 82 A transaction at a service station of the Licensee or through peddling, as this term is defined in the Consumer Protection Law, 5741 – 1981, or a transaction via telephone conversation or a transaction via the internet. Amendment No. 87. 83 Business Subscriber or Split Business Subscriber or Non-Business Subscriber. Amendment No. 87 84 Amendment No. 87 85 Amendment No. 87
(2) The commitment period, if one exists, and the termination date. For this sub-section, "commitment"-as defined in section 56.1A;
(3) All of the tariffs according to which the Licensee bills the subscriber for the services that it asked to receive when executing the engagement, including video call services and multimedia messages, and the rate of any fixed payment or one-time payment, including a fixed payment or one-time payment that is other than within the scope of a telecommunications service, including connection fees, as this term is defined in clause 74.1(a), SIM card fees, as this term is defined in clause 74.1(a1) and plan switching fees.
Insofar as the Licensee is not charging for connection fees or SIM card fees or plan switching fees, this must be stated accordingly.
Insofar as the engagement agreement includes international services, such as a minutes package or plan for calls abroad, the Licensee must specify its rates, the quota of minutes allotted in it, the three-digit international access code that must be dialed, the countries included in it, the type of targets in those countries (fixed-line, mobile) and the tariff for exceeding the quota in the plan.89
(3a)90 For cellular internet browsing packages as defined in section 75D-the unit tariff for the service not included in the package shall be displayed next to the chart in the same values as those in the chart;
(3b) The quota of service units set by the Licensee for the service or for the bundle of services (“Quota of Units”), and the maximum duration of a call, if any.
(3c) If the Licensee provides a service to subscribers that is given at a discount or for free for a defined period (“Benefit”), and subsequently, at full price, or if a credit is given to subscribers for terminal equipment that subscribers delivered to the Licensee, then the Licensee must specify the following in the Plan Basics:
(1) the monthly sum of the Benefit/credit;
(2) the duration of the period that the Benefit/credit is given;
(3) the type of date from which the period of the Benefit/credit shall begin to be counted;91
86 Amendment No. 87 87 Amendment No. 87 88 Amendment No. 87 89 Amendment No. 87 90 Amendment No. 87 91 For example: as of the date the plan comes into effect, as of the date that the subscriber activates the SIMcard.
(4) the tariff for the service upon the expiration of the Benefit.
That stated above shall also apply when at issue is a Benefit being given within the scope of the tariff plan, and not necessarily for a particular service included in a plan.
(3d) If a subscriber switches from one tariff plan to another, and the Licensee issues the new Plan Basics to the subscriber, the Plan Basics must also include the effective date of the new plan.
(3e) Mode of provision of a cellular data service after the volume of the cellular data package has been fully utilized – suspension of the service or a slowdown of the speed, without any payment and without additional charge, until the end of the billing period or an allotment of additional paid packages, at the subscriber’s choice on the execution date of the engagement. If the Licensee chose to slow down the speed, the maximum data download speed must be specified in the Plan Basics.
(3f) Mode of provision of a voice and message service after the monthly Quota of Units for these services has been fully utilized – suspension of service until the end of the billing period or continuing to provide the services and charging the subscriber according to tariffs set by the Licensee in the Plan.92
(4) A description of all Goods purchased or rented at the time of execution of the engagement and their inclusive price and, insofar as payment in installments for the Goods was agreed between the subscriber and the Licensee – the sum of each payment. Insofar as the Goods were given as a gift, this must be expressly stated;93
(5) Information about the cancellation of any Benefit due to a switch to another tariff plan;94
(6) The calculation method of the amount that the subscriber will be required to pay for breaching the agreement as defined in article 56.1A;
(7) For a business subscriber-information regarding the increase of tariffs during the commitment period, if such a possibility exists as part of the subscriber agreement conditions, including the date and amount of the tariff increase;
(8) Information regarding the balance of payment 95 for equipment purchased from the Licensee, in a previous agreement;
(9) The Licensee's commitment to pay to the subscriber of another MRT licensee that became its subscriber, the payment that the said subscriber will be required to pay to the other MRT licensee for breach of this commitment to the other MRT operator and the distribution manner of said payment.
For this matter-"commitment"-as defined in article 56.1A;
92 Amendment No. 87 93 Amendment No. 87 94 Amendment No. 87 95 Amendment No. 87 (10) The subscriber’s declaration that it read the Plan Basics document and received it at the time of execution of the agreement. The details of the representative on behalf of the Licensee who executed the engagement must be specified in the body of the declaration and the subscriber’s original signature must appear at the end of the Plan Basics.96
(11) 97With regard to sub-section (a) (1) to (10)- "subscriber"- whoever has signed a subscriber agreement with a Licensee for the receipt of MRT services for no more than twenty five telephone numbers except for Pre-Paid subscribers.
(12) A Split Business Subscriber must sign the Plan Basics.
(13) The Licensee shall not include additional information or details in the Plan Basics beyond that specified in this clause, unless at issue are data in values of NIS or NIS per unit of consumption, which could have a direct impact on the height of the subscriber’s monthly bill.
(14) The tariffs for all of the services and the payments, as specified in subclauses (3), (3b), (3c), (4) and (5) must be presented in a table with two columns – “description of the service/Benefit/credit/Goods/payment” and “tariff for the service/sum of the Benefit/credit/payment.”98
(a1)99 (1) a separate page, printed, upon which the subscriber will be required to mark his choice regarding the accessibility of each phone number that the agreement refers to, services, as detailed in annex E 2 (hereinafter-"service access form" or "form") 100and to sign at the bottom of the form . The form shall be attached to the Plan Basics;101
(2). A new subscriber that did not mark its choice with regard to a particular service, whether blocked or open, in the place designated for this in the form, shall be blocked from receiving that service. A new subscriber that did not sign at the bottom of the form shall be blocked from all services appearing on the form. In this clause, “new subscriber” – a subscriber that engaged with the Licensee after 15 Iyar 5777 (May 11, 2017).102
96 Amendment No. 87 97 Amendment No, 58 98 Amendment No. 87 99 Amendment No. 57-shall become effective on September 13, 2011 100 Amendment No. 58 101 Amendment No. 87 102 Amendment No. 87
(3) A subscriber may request from the Licensee at any time, in writing or orally as a human response only,103 to change its access104 to the services detailed in the form (hereinafter in this section-"subscriber's request"). A first change shall be done free of charge. The Licensee shall execute the subscriber's request only after he has identified the subscriber. The Licensee shall retain the request, as stated, in its possession and make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the submission date of the request.105 The subscriber's request shall be executed within 106one working day 107 from the date of receipt of the request.
(4) The Licensee shall include in the Telephone Bill following the subscriber's request a notice regarding the execution of the request and the date of the execution. The Licensee shall retain the Telephone Bill, as stated, in its possession and make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the preparation date of the Bill;108
(5) 109The Licensee shall include the form with the two (2) immediate Telephone Bills that will be sent after September 13, 2011, to a subscriber that is not a new subscriber.
(6) (a)110 111A subscriber that is not a new subscriber that did not submit his preferences regarding the form to the Licensee by Sept 13, 2011, shall be blocked from receiving the services detailed in section 3 of the form, within seven (7) working days from the said date;
(b)112 113Notwithstanding, a subscriber who is not a new subscriber, that does not use the services set forth in section 3 of the form as of November 1, 2011 and did not relay his response to the licensee with respect to the form by December 1, 2011, the licensee may block the subscriber from receiving the said services as of December 1, 2011;
(c)114 115a subscriber who is not a new subscriber, who relays his response to the licensee with respect to the form, shall be blocked or open for the receipt of the services in accordance with his request in the form, within one working day after receipt of the request;
103 Amendment No. 87 104 Amendment No. 87 105 Amendment No. 87 106 Amendment No. 58 107 Amendment No. 61 108 Amendment No. 87 109 Amendment No. 58 110 Amendment No. 87 111 Amendment No. 58 112 Amendment No. 87 113 Amendment No. 62 114 Amendment No. 87 115 Amendment No. 61
(d)116 a subscriber that relayed his preferences in the form to the Licensee and did not mark his choice and signed next to the service that appears on the form as set forth in sub-section (1), shall be blocked from receiving that service;
(e) The Licensee shall block the access to the services being provided pursuant to clause 2(e) in the service access form in relation to any existing subscriber that did not expressly choose, when completing the form, the option “open” to these services, and this, within seven (7) workdays of 15 Iyar 5777 (May 11, 2017).117
(6a) The Licensee shall notify the subscriber about the blocking in the first Telephone Bill after the blocking. The Licensee shall retain the Telephone Bill, as stated, in its possession and make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the preparation date of the Bill.118
(6b) If the subscriber marked its choice on the service access form, then the Licensee must act according to the subscriber’s choice immediately after the form has been delivered to it.
(6c) A subscriber shall be required to complete a new service access form with every switch from one tariff plan to another, only if its existing form is not in the format presented in Appendix E.2.119
(7) The Licensee shall publish the form on its internet site within seven (7) working days from 120September 13, 2011.
(7a) If the Director ordered an amendment to the version of the service access form, the Licensee must publish the updated service access form on its website within the timeframe specified by the Director on the signing date of the license amendment.121
(8)122 For the purpose of sub-section (a1)(1) until (6)-"subscriber"-except for a subscriber in a pre-paid plan. Notwithstanding the mentioned, the Licensee shall block services in accordance with a pre-paid subscriber's request, if the request was received from the telephone number that the request pertains to or the said subscriber presented to the Licensee the handset using the number that the request pertains to, or in any other manner that satisfies the Licensee.
116 Amendment No. 87 117 Amendment No. 87 118 Amendment No. 87 119 Amendment No. 87 120 Amendment No. 58 121 Amendment No. 87 122 Amendment No. 58
(9) Insofar as at issue is a Split Business Subscriber, only he shall complete and sign the service access form, and only he is allowed to amend it.123
(a2)124 The service conditions for the subscriber, including gauges of quality of service to customers and subscribers as set forth in article 2 in Annex E;
(b) The disconnection conditions of the licensee’s services or the conditions for complete disconnection;125
(c) The service tariffs of the licensee that the subsciber joined updated to the day of the agreement, including the date and conditions for the termination of the tariff plan;
(d) The limitation regarding the amount of interest for late payment, linkage differentials and collection expenses as set forth in article 80.3;
(e) The conditions for changing the tariff of a service that the subscriber has joined, as set forth in article 78.1;
(f) The details set forth in articles 61 and 61A regardingOmbudsman126;
(g) A condition that states that in case of a contradiction between the provisions regarding the tariffs and the service packages that are detailed in the agreement and the provisions of the license regarding this matter, the provisions of the license shall prevail;
(h) A notice regarding the director’s authority to instruct the licensee to change the subscriber agreement, and clarification that the subscriber’s signing a subscriber agreement with the licensee constitutes agreement to said changes.127
55.5 128In an agreement in the presence of the Licensee's representative and the subscriber, the Licensee shall act as follows:
(a) The Licensee’s representative must perform a reliable identification of the Applicant pursuant to the procedure prescribed by the Licensee. The Licensee shall retain in its possession a copy of an identification certificate of the Applicant and a copy of an identification certificate of the payer of the Bill, which were issued to the Licensee’s representative at the time of execution of the engagement.129
(a1) 130Before signing the agreement, the representative shall present the Applicant131 with a printed copy of the subscriber agreement and shall allow him to review it;
123 Amendment No. 87 124 Amendment No. 57 125 Amendment No. 58 126 Amendment No. 58 127 Amendment No. 58 128 Amendment No. 57-shall become effective September 13, 2011. 129 Amendment No. 87 130 Amendment No. 87 131 Amendment No. 87 (b) Upon signing the agreement, the applicant and Licensee representative shall sign the originally copy of the subscriber agreement that was presented for the applicant's review. After the said signature the Licensee representative shall give the subscriber a copy of the subscriber agreement upon which the Licensee representative's and applicant's original signatures appear;
(c) After execution of the aforesaid in sub-section (a) and (b), the Licensee representative may ask the subscriber to sign an additional copy of the subscriber agreement identical to the one originally signed, by using electronic means;
(d) The Licensee shall keep a signed copy of the subscriber agreement and make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the date of the engagement.132
(e) If the subscriber requests to make changes to the agreement conditions, including a request to replace an existing plan with a new plan133, to receive additional services, to expand a service, 134 or to join a service package-the subscriber shall receive at the time of the change, a printed notice that bears the Licensee's name or logo, which shall specify the request submission date, the135 details of the change executed are listed, the date they become effective and the full name of the Licensee representative and the subscriber and their original signatures. The Licensee is not permitted to make any change, as stated, including replacement of an existing plan with a new plan, without receiving the express consent of the subscriber as stated above.
The Licensee shall retain the signed notice, as stated, in its possession and make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the submission date of the request.136
55.6 cancelled137
55.7 138Notwithstanding the afore-mentioned in Article 55.5, the Licensee may have a subscriber sign a subscriber agreement also by a computerized graphic signature, instead of an original signature, and for this matter the provisions of Appendix E shall apply instead of Article 55.5.
For this matter, "computerized graphic signature"-a signature that is digitally maintained as a graphic file."
13955A Remote Sale Transaction
55A.1 In a remote sale transaction, as this term is defined in section 14.C. of the Consumer Protection Law, 5741 – 1981, which is being transacted via a telephone conversation, the Licensee shall act as follows:
(a) The Licensee shall record the telephone conversation held between the Applicant and the Licensee’s representative.
132 Amendment No. 87 133 Amendment No. 87 134 Amendment No. 87 135 Amendment No. 87 136 Amendment No. 87 137 Amendment No. 87 138 Amendment No. 69 139 Amendment No. 57-shall become effective September 13, 2011
(b) During the sale conversation, and before the Applicant expresses his consent to engage in an agreement with the Licensee, the Licensee’s representative must ask for the Applicant’s consent to send him the Plan Basics via electronic mail or SMS or facsimile, and the service access form, and must inform him that he must confirm in writing that he is accepting the terms of the engagement agreement as a precondition to it coming into effect. Insofar as the Applicant expressly states that he is not interested in receiving the said documents in one of the three said ways during the sale conversation, then the Licensee shall be released from having to send them to the Applicant when conducting the sale conversation, and these shall be sent to him, together with the rest of the provisions of the engagement terms document, on the transaction execution date. If the Applicant asked to receive the said documents via one of the ways specified above, the Licensee’s representative must send them to him in the manner requested during the sale conversation.
(c) In a service access form sent via electronic mail or SMS, every service must be computer-marked as “blocked” or as “open,” as the Applicant chose during the said telephone conversation.
(d) The electronic mail message or the SMS will ask the Applicant to confirm the execution of the transaction and the choices marked in the service access form. The Applicant must expressly confirm the terms of the transaction, without any handwritten stipulations or qualifications or changes in relation to the terms in the engagement terms document, either via return electronic mail message or return SMS, which includes his full name and ID number.
(e) If the Applicant asked to receive the Plan Basics and the service access form via facsimile, the Licensee’s representative shall send the said documents via facsimile, according to number given to the Licensee’s representative during the conversation.
The Applicant must expressly confirm the terms of the transaction, without any written stipulations or qualifications or changes in relation to the terms in the said documents, in his handwriting, his marking and his signature on the Plan Basics and on the service access form, and he must send the two said documents via facsimile to the facsimile number given to him by the Licensee’s representative during the conversation between them.
The Licensee shall send the rest of the provisions of the engagement terms document via regular post to the Applicant, on the transaction execution date.
(f) A remote sale transaction via telephone shall be completed and shall come into effect and the Licensee shall be allowed to charge the Applicant pursuant to its terms, only after the Licensee has received the reply notice from the Applicant via electronic mail or SMS confirming the signing of the engagement agreement and the said documents via facsimile, being duly marked and signed. (g) The Licensee shall retain the following in its possession:
(1) the recording of the telephone conversation between the Applicant and the Licensee’s representative;
(2) the electronic mail message or the SMS that the Licensee sent to the Applicant, including the Plan Basics and the service access form attached thereto;
(3) the electronic mail message or the SMS confirming the execution of the transaction that the Applicant sent to the Licensee, as its response to the electronic mail message or the SMS that the Licensee sent to the Applicant, being presented consecutively;
(4) if the transaction was executed via facsimile, the Licensee shall retain the Plan Basics bearing the Applicant’s handwritten signature and the service access form bearing the Applicant’s handwritten markings and signature, in its possession;
(5) the rest of the provisions of the engagement terms document, updated to the agreement signing date with the Applicant.
(h) The Licensee shall make the recordings and the documents specified in clause (g) available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the effective date of the transaction.
(i) The rules specified in this clause shall also apply when at issue is the execution of a change in an existing plan or a replacement of an existing plan with a new plan.
For the purposes of this clause, “change” – the receipt of an additional service, the expansion of a service, subscribing to a service package.
The Licensee is not allowed to make any change, including a replacement of an existing plan with a new plan, without receiving the subscriber’s express consent, in the manner specified in clause 60.6(b).140
(j)141 142Notwithstanding that stated, if a subscriber requests to make changes that do not entail an extension of the subscriber's commitment period or creating said period, the Licensee shall include in the first telephone bill after the request date a notice in which all of the details set forth in sub-section (b) are detailed, except for the name of the Licensee's representative. For this sub-section, "commitment"-as defined in Article 56.1A of the License".
140 Amendment No. 87 141 Amendment No. 87 142 Amendment No. 58 55A.2 In a remote sale transaction, as this term is defined in section 14.C of the Consumer Protection Law, 5741 – 1981, via the internet, the Licensee shall act as follows:
(a) In its advertisement of a tariff plan on its website, the Licensee must clearly include all of the details specified in subclauses 55.4(a2) through 55.4(h), and the Plan Basics and the service access form.
(b) During the registration process for a tariff plan, as stated, the Licensee must include a presentation of the Plan Basics to the Applicant and a box that the Applicant must mark before completing his registration, as stated, whereby marking that box shall constitute a declaration that he read the information included in the Plan Basics. Insofar as the Applicant shall not mark the box as stated, it must not be possible to complete registration.
(c) As part of the tariff plan registration process, as stated, the Licensee must include an online service access form that the Applicant can mark, and retrieve at any time, and change his choices on it as he wishes.”143
(d) The Licensee shall send a copy of the engagement terms document to the subscriber who executed a “remote sale” transaction via the internet, immediately after executing the transaction. A copy of the engagement agreement signed between the subscriber and the Licensee must be sent to the subscriber via electronic mail message, which shall include the engagement agreement as an attached file.
(e) The Licensee must retain the engagement terms document, as stated, in its possession, and make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the transaction execution date by the subscriber.
(f) The rules specified in this clause shall also apply when at issue is the execution of a change in an existing plan or a replacement of an existing plan with a new plan.
For the purposes of this clause, “change” – the receipt of an additional service, the expansion of a service, subscribing to a service package.
The Licensee is not allowed to make any change, including a replacement of an existing plan with a new plan, without receiving the subscriber’s express consent, in the manner specified in clause 60.6(b).144
56. 145If the Licensee publishes on its internet website a tariff plan, including tariff plans that include the purchase of MRT equipment, the said publication shall also include the subscriber agreement conditions regarding that tariff plan, including the details on the "main plan details page.
56A146. The Commitment Period in the Subscriber Agreement
56A.1 If the Licensee signs a Subscriber Agreement with a Subscriber that is not a Business Subscriber, that includes a commitment, the commitment period shall not exceed eighteen (18) months; For this article, "commitment of a Subscriber to meet the conditions regarding the scope of consumption of services, payment amount or payment conditions during the defined period, for which not meeting those conditions during that period entails a payment, including the return of a benefit or an exit fee.
143 Amendment No. 87 144 Amendment No. 87 145 Amendment No. 57-shall become effective September 13, 2011 146 Amendment No. 45
56A.2 If the Licensee offers a Subscriber that is not a Business Subscriber, to sign a Subscriber Agreement that includes a commitment, the Licensee shall offer the Subscriber a subscriber agreement that does not include a commitment, that offers a reasonable alternative to the agreements that includes commitments. In this respect, a Subscriber Agreement that includes a "pre-paid plan" will not be considered a reasonable alternative to a Subscriber Agreement that includes a commitment. 147The Licensee shall publish on its internet website the subscriber agreement that does not include a commitment, including "the main plan details page" of the said agreement.
56A.3 If the Director concludes that the Licensee has breached section 56A.2, he may instruct the Licensee to change the conditions of a Subscriber Agreement that does not include a commitment, without derogating from any other authority set forth in the License or by law. In this respect, the Director will examine, among other issues, the number of subscribers of the Licensee that have signed agreements without commitments.
57. deleted
58. deleted
59. The Obligation to Connect Applicants and the Prohibition of Conditional Agreement
59.1 Should the Licensee fulfill the conditions regarding the operation of the MRT System as stated in Paragraph 44.2, the Licensee will connect any applicant to the MRT System no later than the date determined in the Subscriber Agreement with the Subscriber unless the Director has given his approval to the Licensee not to connect an applicant for reason which he considers justifiable.
59.2 Subject to the provisions of Paragraph 60.2, the Licensee may not condition the connection of an applicant, the provision of services or determining of tariffs, by unreasonable conditions that are discriminatory or unfair, and without derogating from the generality of the above:
(A) The Licensee is not permitted to obligate a Subscriber to purchase Terminal Equipment from it or from its agent.
(B) The Licensee is not permitted to obligate the Subscriber to receive from it maintenance service or insurance for the Terminal Equipment in his or her possession.
(C) The Licensee is not permitted to limit supply of spare parts for Terminal Equipment that was purchased from it or from its agent, to Subscribers or to another provider of maintenance services.
147 Amendment No, 57
Section B - Grade of Service for Subscribers
60. Obligation of Maintaining Service
60.1 The Licensee will offer its Subscribers the entire services detailed in the First Annex, in accordance with the conditions specified in the Annex, and will maintain its entire services throughout all days of the year during all the hours of the day and night, both in peacetime and in times of emergency, subject to Paragraph 48, in accordance with the technical requirements and the requirements regarding the quality of service, in an orderly and normal manner and of a quality that will not be inferior to the criteria of service quality specified in the First Annex to the License and in Appendix E of the Second Annex to the License; in case of contradiction between the First Annex and Appendix E of the Second Annex to the License, the provisions of Appendix E of the Second Annex will prevail.
60.2 148 Without derogating from the provisions of clause 75.3, the Licensee shall provide MRT Services and the Services Package, as defined in clause 73A, to every person so requesting, on equal and non-discriminatory terms, and at a non-discriminatory tariff.
60.3 Should the Director find that the Services Package might harm competition or consumers, he shall give notice of such to the Licensee noting the date on which the Licensee is to cease offering the Services Package to its subscribers.
60.4 If the Licensee provides any MRT Service to any person or body in return for payment, the service shall be available to every Subscriber in the entire coverage area of the system, while meeting the minimum requirements regarding quality of service, without discrimination, within 24 months of the commencement of provision of the service in return for payment.
60.5 Upon written application from the Licensee, the Director may permit the Licensee limitations on the provisions of clause 60.4, after being convinced that there is a real difficulty in supplying the service to all who request it, and that certain characteristics of the service give special and extraordinary grounds and justification for such.
60.6 (a) The Licensee shall not provide and shall not expand, whether for a consideration or for no consideration, any of its services that the subscriber has not expressly asked to receive or expand, apart from a service being provided for free to all subscribers, and it shall not enable the provision or expansion of a service by a service-provider that the subscriber has not expressly asked to receive from the Licensee or to expand.
For the purposes of this clause, “service-provider” – whoever provides a service through the network, and the payment in respect of the service is paid through the Telephone Bill.149
150(b) An express request shall be submitted in one of the following ways151:
(1) A signed document by the subscriber that is sent to the Licensee;
148 Amendment No. 14 149 Amendment No. 87 150 Amendment No. 57-shall become effective September 13, 2011 151 Amendment No. 87 (2) An electronic mail sent by the subscriber to the Licensee;
(3) A telephone call between the subscriber and the Licensee representative;
(4) An SMS sent by the subscriber to the Licensee;
(5) 152Service order on the Licensee's website or content provider. A service order shall be done in accordance with the provisions of Annex F of the License;
(6) Internet chat calls with a representative of the Licensee;153
(c) The Licensee shall retain the documentation, as stated, in its possession and shall make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the date of the subscriber’s express request.154
For this matter-"documentation"- For sub-section (b)(1)-a copy of the document; For sub-section (b)(2)-a copy of the electronic mail; For sub-section (b)(3)-a recording of the telephone call; For sub-section (b)(4)-a copy of the subscriber's telephone bill that lists under the "call details", the details of the SMS sent by the subscriber and a printout of its contents as received in the Licensee’s system;155
For purposes of sub-section (b)(5)-156 a Log from the short message service center (SMSC) of the Licensee in which the sending of the 2 SMS from the Licensee to the subscriber are documented, as part of the procedure of ordering a service. If the service was ordered on the Licensee's website or cellular portal by using a user code and password as set forth in section 1.3 of Appendix F of the License-the Log from the internet server that indicates the execution of the service order procedure and the Log In of typing the user code and password by the subscriber.
For the purposes of clause (b)(6) – a printout of the calls via internet.157
Notes taken by the Licensee representative in the Licensee's information systems does not constitute documentation.
60.7 158The Licensee is not allowed to collect payment from the subscriber for a service or an expansion thereof159 unless it has documentation regarding the subscriber's explicit request to receive the service or the expansion thereof.160
60.8 161If the subscriber is charged for a service or for an expansion of a service162 and notifies the Licensee that he did not request the service or an expansion thereof,163 the Licensee shall refund him the entire sum of that was charged for the service or the expansion thereof,164 if the Licensee does not have the documentation regarding the subscriber's explicit request to receive the service or an expansion thereof.165 The manner of handling the subscriber's complaints granting the refund shall be executed in accordance with the provisions regarding "overcharging" detailed in article 83A of the license."
152 Amendment No. 60 153 Amendment No. 87 154 Amendment No. 87 155 Amendment No. 87 156 Amendment No. 60 157 Amendment No. 87 158 Amendment No, 57 159 Amendment No. 87 160 Amendment No. 87 161 Amendment No. 57-shall become effective September 13, 2011 162 Amendment No. 87 163 Amendment No. 87 164 Amendment No. 87 165 Amendment No. 87 61. Ombudsman
61.1 The Ombudsman shall be directly subordinate to the CEO of the Licensee or to the board of directors, including to one of the board committees.
61.2 Subject to the provisions of clause 61A, relating to the settlement of disputes, the roles and authorities of the Ombudsman shall be as follows:
(a) to clarify complaints of subscribers and Applicants concerning the Licensee’s services;
(b) to clarify complaints of subscribers concerning Bills that the Licensee submitted to them and to decide them;
(c) to clarify disagreements arising between the Licensee and a subscriber concerning the interpretation or execution of the engagement agreement and to decide them.
61.3 The Licensee must display a link called “Ombudsman” on its website’s home page, in a conspicuous way and location.166 Pressing on the said link must lead to a target page that specifies the roles and authorities of the Ombudsman, and details for four (4) options for sending a complaint to him as follows:
(a) ordinary post;
(b) electronic mail address;
(c) online form on the Licensee’s website, to which various types of files may be attached;
(d) facsimile.
61.4 The Licensee must specify the roles and authorities of the Ombudsman in every Bill that it submits to a subscriber, and the address, facsimile number and electronic mail address through which a subscriber can sent a written complaint to him.
61.5 The Licensee must specify on its website and in every Bill that it submits to a subscriber, the details that a subscriber must complete in a complaint that it intends to send with reference to each of the four (4) options specified above.
166 A link entitled “contact us” shall not be deemed a substitute for the said link. 61.6 If a complaint is sent to the Ombudsman via electronic mail or using an online form, an automatic notice acknowledging its receipt must be sent to the subscriber, immediately after receiving the complaint. The acknowledgement notice must include the number assigned to the complaint in the Licensee’s system, the date of receipt of the complaint, the contents of the complaint as sent by the subscriber and the deadline by which a written response to the complaint shall be sent.
61.7 The Licensee must retain a copy of the complaint and of the written response sent to the subscriber in its possession, and make them available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the date of receipt of the complaint and of the date the response was sent.167
61A. Dispute Settlement
61A.1 The subscriber agreement shall state that all disagreements that arise between the Licensee and a subscriber, regarding the interpretation or implementation of the subscriber agreement, shall be assigned to arbitration to the Licensee's Ombudsman.168
61A.2. The subscriber agreement shall state that an application to the Ombudsman169 in accordance with article 61.1A, shall not:
(a) prevent the subscriber from bringing the matter before the appropriate court;
(b) derogate from the authority of the Licensee to act in accordance with the provisions of article 72 regarding termination or complete termination as a result of a breach of the subscriber agreement.
62. Obligation of Maintenance
62.1 The Licensee is responsible for the maintenance of the MRT System.
62.2 Should the Subscriber purchase MRT Terminal Equipment from the Licensee or its agents, and the purchase agreement should include maintenance services, the Licensee will be responsible for maintaining the above mentioned Terminal Equipment, however the Licensee will not be responsible for maintaining Terminal Equipment which was purchased, as stated, after the maintenance period undertaken by the manufacturer, unless otherwise agreed between it and the Subscriber; should the maintenance services include insurance services, the insurance service will be provided after receipt of the permits required by any law.
62.3 Should the Subscriber use, for the reception of MRT Service, MRT Terminal Equipment which was not purchased from the Licensee or its agents, the Licensee will not be obliged to maintain this Terminal Equipment, however the Licensee may enter into an agreement with the Subscriber for the provision of maintenance services for this said Equipment as well.
62.4 For the matter of maintenance obligation, as aforesaid, this should also mean the provision of spare parts and accessories for Terminal Equipment, including Terminal Equipment of the models offered to the public by the Licensee or its agents, even if the Licensee does not provide repair services for those models.
167 Amendment No. 87 168 Amendment No. 87 169 Amendment No. 87
63.170 Call Center
63.1 The Licensee shall operate a staffed call center for the receipt of calls of its Subscribers, in addition the Licensee shall apply additional means that will allow its Subscribers to contact it in order to receive information and to make inquiries, as set forth in Appendix E of the License.
63.2 The Call Center will be staffed by a skilled and professional employee team, with the necessary qualifications to handle the calls. Should a call be received regarding a fault which caused complete cessation of the Subscriber MRT services, the said team will act immediately to locate the fault and will begin taking measures to immediately repair the fault.
63.3 The Licensee shall detail in the maintenance diary the details of the fault as set forth in Article 63.2 and the steps taken to rectify the fault, all as set forth in Article 51."
64. Terminal Equipment
64.1 The Licensee will submit to the Director the specifications of the Terminal Equipment which are compatible with the MRT Network, and will assist, in accordance with the Director’s requirements, in converting them to Israeli standards or the Ministry’s standards, or to standards and specifications as aforesaid; the Director will present requirements which differ from those of European standards only for the purpose of adapting the specifications of the Licensee to Israeli standards, to the standards of the Ministry, in order to integrate the Hebrew language, to prevent interferences to other systems and interferences from other systems, and in order to achieve compatibility with the Telecommunication Networks in Israel.
64.2 The Licensee will carry out, free of charge, tests to verify that the Terminal Equipment meets the specifications of the MRT Network, in accordance with the Director’s requirements; testing of Terminal Equipment as aforesaid will be finished within fourteen (14) days from the date of the Director’s requirement.
64.3 The Licensee may sell or lease its Subscribers MRT Terminal Equipment for connection to the MRT Network, provided all the following are fulfilled:
(a) The Licensee has notified the Subscriber that he or she is entitled to purchase MRT Terminal Equipment both from any authorized dealer in Israel and from an overseas dealer, where the Equipment manufacturer confirmed that the Equipment is similar in its features and options to the Terminal Equipment marketed by the Licensee, and that the Subscriber is not obliged to purchase the Equipment from the Licensee in order to receive MRT Services;
(b) The Licensee will not make the provision of maintenance services for MRT Terminal Equipment conditional to obtaining MRT Services from it, and will inform the Subscriber that he or she may receive Maintenance Service for Terminal Equipment from any person, including Terminal Equipment purchased or leased from the Licensee.
170 Amendment No. 55
(c) During a sale conversation through a telephone conversation for the purchase or rental of MRT Terminal Equipment, without a transaction being transacted with an Applicant for the purchase of MRT services (hereinafter – “Purchase Agreement”), and before the Applicant expresses his consent to engage in a Purchase Agreement with the Licensee, the Licensee’s representative must ask for the Applicant’s consent to send him a printed Purchase Agreement via electronic mail or SMS or facsimile, without any handwritten changes, and bearing the Licensee’s logo, which provides a detailed description of the Terminal Equipment and the inclusive price and, insofar as payment in instalments for the Terminal Equipment was agreed upon between the purchaser and the Licensee – the number of payments and the rate of each payment, and which includes the date of the execution of the sale conversation and the details of the purchaser and of the Licensee’s representative, who must inform the purchaser that he must confirm in writing that he is accepting the terms of the Purchase Agreement as a precondition to it coming into effect. Insofar as the Applicant expressly states that he is not interested in receiving the said document in one of the three said ways during the sale conversation, then the Licensee shall be released from having to send it to the Applicant when conducting the sale conversation, and it shall be sent to him on the transaction execution date. If the Applicant asked to receive the said document via one of the ways specified above, the Licensee’s representative must send it to him in the manner requested.
The Licensee shall retain a copy of the Purchase Agreement in its possession, and shall make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the transaction execution date.
The Licensee shall record, in addition, the telephone conversation held with the Applicant, and shall make the recording available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the transaction execution date.
(d) A notice shall be sent to the Applicant asking the Applicant to confirm the execution of the transaction. The Applicant must expressly confirm the terms of the transaction, without any handwritten stipulations or qualifications or changes in relation to the terms of the Purchase Agreement, either via return electronic mail message or return SMS or facsimile, which includes his full name and ID number.
The Licensee shall retain a copy of the purchaser’s confirmation in its possession, and shall make it available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the transaction execution date.
(e) Immediately after the Applicant sends his confirmation, as stated, the Licensee shall send him a document pursuant to the law171 in the mode by which the Purchase Agreement was sent to him.
171 A tax invoice/receipt (f) When executing a transaction for the purchase of MRT Terminal Equipment in the presence of both parties, without executing a transaction for the purchase of MRT Services, and before the Applicant expresses his consent to engage in a Purchase Agreement with the Licensee, the Licensee’s representative must submit a printed copy of the Purchase Agreement to the Applicant and enable him to peruse it.
When executing the transaction, the Applicant and the Licensee’s representative must sign the Purchase Agreement submitted to the Applicant for his perusal by original signature.
After signing, as stated, the Licensee’s representative must deliver the Purchase Agreement to the Applicant bearing the original signatures of the Licensee’s representative and the Applicant, as well as the document specified in subclause (e).
After completing all that stated in this subclause, the Licensee’s representative may obtain the Applicant’s signature on a Purchase Agreement identical to the one signed with original signatures, while using electronic means.
The Licensee shall retain a copy of the Purchase Agreement and the document specified in subclause (e) in its possession, and shall make them available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the transaction execution date.
The Licensee’s representative must perform a reliable identification of the Applicant pursuant to the procedure prescribed by the Licensee. The Licensee shall retain in its possession a copy of an identification certificate of the Applicant and a copy of an identification certificate of the payer of the Bill, which were issued to the Licensee’s representative at the time of execution of the engagement.
(g) Insofar as the subscriber and the Licensee agreed on payment in instalments for Goods that the subscriber purchased or rented from it, and the subscriber breached the engagement agreement before paying all of the payments for the said Goods, but rectified the breach within forty-five (45) days of the date the Licensee notified the subscriber of the breach, then the Licensee is not allowed to collect the balance of the payments from the subscriber for the Goods in a single payment, and the payment in instalments shall continue as agreed upon between the subscriber and the Licensee ab initio.172
17364A Cancelled.
17465. Public Emergency Services
65.1 175The Licensee will enable, at any time and free of charge, all its Subscribers free and rapid access to public emergency services, such as: Magen David Adom, the Israel Police Force and the Fire Department..
172 Amendment 87 174 Amendment No. 87 175 Amendment No. 19 17665.2 The Licensee shall enable the public emergency service centers177 to indentify the telephone number of a subscriber that dials them178, free of charge and at any time, including a subscriber with an unlisted number, a subscriber that implemented barring a call and a subscriber that dials from a private switchboard, effective 5 April 2007 (hereinafter-"the commencement date");
The Licensee may implement the aforesaid through a licensee that routes the call to the public emergency service center.
No later than 2 days179 from the commencement date, the Licensee shall notify all its subscribers, in writing, and in a clear manner, that as of the commencement date, the subscriber's number will be identifiable by the public emergency service centers, and shall also notify in writing all subscribers that request an "unlisted number"-that the number will not be unlisted for calls made to the public emergency service centers.
18065A. Blocking Service for Harassing Subscribers
65A.1 Notwithstanding the above-mentioned in Article 65.1, the Licensee shall block access to public emergency services for Harassing Subscribers; if the access to public emergency services only is not technically possible, the Licensee shall block the Harassing Subscriber’s access to all MRT services. For this Article, “Harassing Subscriber”- a subscriber that calls a certain public emergency service, without a justified reason, more than 10 times during one day, through Terminal Equipment in his possession.
65A.2 Notice regarding a Harassing Subscriber shall be given in writing to the Licensee by a senior employee of a public emergency service (“the Employee”), verified by an affidavit signed by the Employee (“the Complaint”). The Complaint shall include, among other details, the name of the Harassing Subscriber, his phone number, as far as these details are known to the complainant, as well as details of the times of the calls of the Harassing Subscriber and the content of the calls that indicates that the calls were made without a justifiable reason. If the Complaint does not include the Harassing Subscriber’s phone number, the Licensee shall act in a reasonable manner to identify the Harassing Subscriber based on the details in the Complaint.
65A.3 The Licensee shall block the Harassing Subscriber’s access to the emergency services as set forth in Article 65A.1, after giving the Harassing Subscriber prior notice. The notice shall be given 3 working days before blocking the service, in one of the following manners:
a. A call from the Licensee’s service center to the Terminal Equipment of the subscriber;
b. Sending an SMS to the Terminal Equipment of the Subscriber;
176 Amendment No. 40 177 Israel Police-100, Magen David Adom-101 and the Fire Department-102 178 Excluding a subscriber whose terminal equipment allows him to dial emergency centers only, for example a handset without a SIM card on a GSM network. 179 Amendment No. 42 180 Amendment No. 19 c. Sending a registered letter to the Subscriber; except a Pre-Paid subscriber whose address is unknown.
65A.4 Blocking service, to a Harassing Subscriber that is a Pre-Paid subscriber whose address is unknown, shall be done no later than 24 hours from the receipt of the Complaint or identification as set forth in Article 65A.2.
65A.5 Notwithstanding the above-mentioned in Article 65A.1, the Licensee shall not block a subscriber’s access to the public emergency services, if the circumstances of the calls made, based on the explanation the subscriber provides to the Licensee show that. there was a justification for the calls and he should not be deemed a Harassing Subscriber; The Licensee shall provide the Director with the reasons for not blocking access for the Harassing Subscriber within 10 working days from receipt of the Complaint or identification as set forth in Article 65A.2
65A.6 If the Licensee blocks the Harassing Subscriber’s access to the emergency calls as set out above, he may collect from the subscriber all charges and may also be entitled to collect from him payment to remove the blockage.
65A.7 The Licensee is permitted to remove the blockage after the Harassing Subscriber provides him with a written undertaking that he will not repeat the harassment in the future.
65A.8 The Licensee shall record the manner of identification of the Harassing Subscriber, manner of notifying the Harassing Subscriber or alternatively where notice was not given to the Harassing Subscriber, the reason for not giving notice; In addition, he shall record the manner in which the blockage was removed.
65A.9 The Licensee shall provide details in the Harassing and Subscriber Report, as set forth in Article 104.4 (i)181 , of the number of Harassing Subscribers whose access to the public emergency services or to all MRT services, has been blocked based on this Article, as well as the number of subscribers whose blockage has been removed and the number of subscribers whose access was not blocked based on this Article and the reasons for that.
18265B. Personal Message Service
65B.1 The Licensee shall provide a personal message service (in this section, the Service"), at all times and free of charge, to all its subscribers, including to the subscribers of another licensee, users of handsets that support the Service (thereinafter in this section the "Subscribers"), and in accordance with the "personal service" service file. In this section:
"Another Licensee" – another MRT licensee that receives service through national roaming or an MVNO that receives service through a hosting agreement on a licensee's network;
181 Amendment No. 41 182 Amendment No. 73 "Personal Message" – a message, warning and short explanation of the security forces that is sent immediately, selectively and focused to subscribers with MRT handsets that support the use of the cell broadcast ("CB") technology.
"Security Forces" – representatives of the Ministry of Defense and Home Front Command that are responsible for personal message system;
"Service File "Personal Message" – a service file approved by the Director, including amendments that will be executed in the service file;
65B.2 In order to execute the above mentioned in Article 65B.1, the licensee shall act as set forth in the First Appendix and in the service file regarding this service and as follows:
a) Adaption of the network and its components so that it will support the provision of the personal message service, excluding the network components that operate under the iDEN or CDMA technology;
b) Assistance and resource allocation to execute the access of the personal message service of the Security Forces to the network;
c) Operation and maintenance of the Service components in the network, in accordance with written directions that will be presented to the Security Forces; without derogating from the aforesaid, the Security Forces may instruct the Licensee to change the said instructions, however this will not derogate from the Licensee's responsibility to repair and access the network;
d) The execution of technical trials to examine the integration between the system and the network and the exercise of the network and system operation, in accordance with the instructions of the Office and the Security Forces.
65B.3 The Licensee shall report to the Security Forces any gap in the ability to supply the Service and will act to restore the ability as soon as possible, in accordance with the written operation instructions that it will formulate and present to the Security Forces.
Without derogating from the aforesaid, the Security Forces may instruct the licensees to change the operation instructions if they find them to be lacking, however this provision does not limit the responsibility of the aforesaid licensee.
65B.4 The Licensee shall notify the Security Forces in advance of any change to the network that may affect availability for provision of the Service.
65B.5 The Licensee may not make commercial use of the CB characteristic without the Security Forces' prior knowledge of at least 30 days before operating the Service and the Security Forces may notify him in writing within 15 days of their objection to the provision of the service or conditions for providing the said Service. In this case, the Licensee will not operate the Service or will only be able to operate it in accordance with the conditions determined by the Security Forces, according to the merits.
The aforesaid does not detract from the License's obligation to receive the Director's approval to the said service.
65B.6 The Licensee will assist in launching the Service for its subscribers in all of the following manners:
a) By written publicity on the company's website;
b) By direct mail to subscribers through the monthly bills upon launch of the Service;
c) 183By providing a response to subscriber inquiries to choose the necessary specifications on his handset; for cellular handset models that were not marketed by the License, the License will make a reasonable effort to give its subscribers an answer;
d) The Licensee will allow the Security Forces to reasonably use its existing distribution channels in order to notify the subscribers of the Service.
66. Protection of Subscriber Privacy 184
66.1 Without derogating from the provisions of the Law, the Secret Monitoring Law, 5739-1979, the Protection of Privacy Law, 5741-1981, or any other law regarding protection of the privacy of a person, the Licensee shall not be entitled to listen to the telephone or any other communication of a Subscriber without the Subscriber's written consent, other than for the purpose of quality control of the service or the prevention of fraud.
66.2 Subject to the provisions of clause 66A, the Licensee, its employees, agents and any person acting on its behalf shall not be entitled to disclose lists or documents containing the name and address of a Subscriber or any other information regarding a Subscriber, including account details, call traffic, times and destinations to any person other than the Subscriber or a person authorized by the Subscriber for such.
66.3 Notwithstanding the provisions of clause 66.2, the Licensee may do the following:
(a) provide details of the Subscriber to another licensee for the purpose of collection of monies owing from the Subscriber for services provided to it via the Network, provided that the details so provided are essential for the purpose of collecting money and accounting and that the other licensee has undertaken to maintain the privacy of the Subscribers;
(b) provide the details of a Subscriber, to the extent that such details are in its possession, to another person under any power at law.
66A 185Services to the Security Forces
66A.1 The Licensee shall supply special services to the Security Forces, as set out in the Security Appendix (Confidential) attached to this License as Appendix K.
66A.2 The Licensee shall allow the Security Forces, as identified by the Director in writing, to exercise, subject to any law, their powers in respect of any telecommunications operation under the License, and shall be responsible for ensuring the existence, proper operation and technical adaptability of the equipment and infrastructure required to enable such performance, all in coordination with the Security Forces and as set out in Appendix K; the Security Forces shall bear payment under the provisions of section 13 of the Law.
183 Amendment No. 79 184 Amendment No. 14 185 Amendment No. 3 66A.3 The Licensee shall be exempt from the obligation to indemnify the State under the provisions of clause 91.2 of the License and/or under any law, for the provision of the special services to the Security Forces.
66B. Security Provisions
66B.1 The Licensee shall appoint a security officer in accordance with the provisions of the Security Arrangements in Public Bodies Law, 5758-1998, and shall strictly adhere to the security provisions set out in Annex L to the License.
66B.2 The Licensee shall set out appropriate provisions in its foundation documents and regulations and shall act so that no person shall be appointed to act in a position or role set out in Annex L to this License unless he meets the following conditions:
(a) he is an Israeli citizen, as defined in the Citizenship Law, 5712-1952, and a resident of Israel;
(b) he has been given a security clearance from the General Security Services, under which there is nothing to prevent his so acting.
66B.3 The Licensee shall act to keep the activities of the Security Services confidential and shall act in accordance with the security instructions of such Security Services, including with regard to the appropriate security classification for Officer and persons with roles at the Licensee and the classification of information regarding the activities relating to the Security Services.
66B.4 The Licensee shall take such steps as are required in order to protect the system, components of the system, and the databases serving for the provision of services, operation and control of the system against the activities of unauthorized persons, under the provisions set out in Annex L of this License.
67. Subscribers’ Bills186
67.1 The bill the Licensee will present to the Subscriber will be clear, concise, legible and comprehensible; the bill will include precise details of the components of the required payments in accordance with the types of payments and the rules detailed in Chapter F.
67.2 187Cancelled
67.3 The Licensee is entitled to collect payments for its services from the Subscriber through another party, including through the Bezeq Corporation.
67.4 (a) Without derogating from all other provisions of the License regarding the manner in which the Subscriber's bill shall be set out and the method of billing, the Licenseeshall act in accordance with the Israeli Standard 5262, that concerns the credibility of the charge and full disclosure in phone bills (hereinafter in this article – "theStandard").
186 Amendment No. 14 187 Amendment No. 57 (b) Cancelled.188
(c) Despite the aforesaid in sub-section (a)-
(1) With regard to the provisions of section 2.2.2 of the Standard, the rounding of numbers method shall beimplemented in accordance with the following:
((a)) An amount in a bill will be rounded to the nearest number that ends with two digits after the decimal point of the Shekel, and an amount that ends with five tenths of an Agora (three digits after the decimal point), shall be rounded up.
((b)) An amount for payment of a single call shall be rounded to the nearest amount that ends with two189 digits after the decimal point of the Shekel, and an amount that ends with five tenths190 of an Agora (three191 digits after the decimal point), shall be rounded up.
(2) Cancelled.192
(3) The price of a phone call (voice) that includes a Variable Tariff, shall be presented in a bill to a subscriber as the average price per minute, that shall be calculated in accordance with the amount for payment for that call, divided by the total sum of minutes of the call.
In this section, "Variable Tariff"- a tariff that changes during the course of the call based on different parameters, for example, a tariff that is reduced based on the higher the usage or a variable tariff as a result of changing from "peak time" to "off peak time" during the course of the call or vice versa.
(4) In addition to the provisions at the end of section 2.2.4 of the Standard regarding the Basket of Services, the bill shall include a detailed list of the services that are included in the basket as well as the total tariff to be paid for the basket.
In this section, "Basket of Services"-a number of services that are marketed to a subscriber as a package in exchange for an all inclusive tariff (and without detailing the payment for each individual service).
188 Amendment 87 189 Amendment 87 190 Amendment 87 191 Amendment 87 192 Amendment 87
(d) (1) Chapter B of the Standard regarding full disclosure in phone bills shall become effective no later than Friday, 18 Tishrei, 5766 (14.10.2005).
(2) Chapter C of the Standard regarding the credibility of the charge shall become effective no later than Sunday, 15 Tevet 5766 (14.1.2006).193
19467.5 A bill that is sent to a Non-Business Subscriber shall be in the format set forth in Annex E1 (hereinafter for this Article- "Bill Format for a Non-Business Subscriber and for a Split Business Subscriber"195).
19667.5A A bill submitted to a business subscriber shall include the details set forth in sub-sections 9B (1) to 9B (4) in Appendix E1 of the License." In this section "business subscriber"-except for the subscribers detailed in sub-sections (b) and (d) of the definition of "business subscriber" in article 1 of the License.
67.6 A Business Subscriber may request that the Licensee send him a telephone bill in a Non-Business Subscriber Format (hereinafter in this Article-"Request"). If the subscriber makes such a request, the Licensee shall begin sending him bills in accordance with said format, no later than two bill periods from the date of the Request. The Licensee shall publish bi- annually, a notice in the telephone bill sent to Business Subscribers, that the Business Subscribers may request that the Licensee format their telephone bill in accordance with the Non- Business Subscriber Bill Format. 197In addition, a business subscriber may request from the Licensee details in writing regarding the calculation manner of a "one time charge". The Licensee shall submit to the business subscriber the said details in writing regarding a "one time charge", within thirty (30) days of the date that the subscriber requested the matter from customer services or from the Ombudsman.198
67.7 The subscriber shall receive the Bill, at its choice, via one of the following modes:
(a) regular post;
(b) electronic mail with an attached file;
(c) SMS with an attached link;
(d) the Licensee’s website;
(e) other electronic means at the choice of the Licensee.
The Licensee must present the five (5) said modes for the subscriber’s choice on the service access form. If the subscriber does not select one of the modes, then the Bill must be sent to him by regular post. The subscriber may change the mode for receiving the Bill at any time, by way of an oral or written request.
193 Amendment No. 33 194 Amendment No. 50 195 Amendment 87 196 Amendment No. 57 197 Amendment No. 57 198 Amendment 87 The Licensee must document the subscriber’s request, as stated, and make this documentation available for delivery or forwarding to the Director, at his request, and this, within five (5) workdays of the submission of the request.
If the subscriber submitted his request during the first half of the billing period, then the Licensee shall send him the Bill immediately following the date of his request in the mode selected by the subscriber. Otherwise, the Licensee shall send the subscriber the Bill in the mode selected by the subscriber after the upcoming Bill.
The Licensee is not allowed to demand any payment from the subscriber for issuing the Bill, which includes “itemized calls” either regularly or on a one-time basis, and sending it to him, at his request, through electronic means. The Licensee may demand reasonable payment in respect of “itemized calls” from any particular date, which was sent to the subscriber at his request regularly or on a one-time basis, only in the event that the Bill was received by the subscriber as specified in subclause (a).199
67.8 200If the payment detailed in the telephone bill is done by debit bank payment or credit card, the said payment shall not be done before 201ten (10)202 days have passed from the date that the telephone bill was sent to the subscriber.
67.9 203In relation to subscribers receiving their Bills via regular post, the Licensee may act as follows in relation to the sending of Bills:
(a) The Licensee shall send a separate letter to every such subscriber by regular post or via electronic mail message, asking the subscriber to choose, within thirty days (30) of the date the letter or the message was sent, the way by which his monthly Bill will be sent to him, out of the following ways:
(1) regular post;
(2) electronic mail with an attached file;
(3) SMS with an attached link;
(4) the Licensee’s website;
(5) other electronic means at the choice of the Licensee.
(b) The Licensee must enable every subscriber, as stated, to respond to the letter to him via regular post, without payment, and via electronic mail and facsimile.
(c) The Licensee is obligated to operate at least two electronic means out of that specified above in subclause (a).
199 Amendment No. 87 200 Amendment No. 57 201 Amendment No. 58 202 Amendment No. 87 203 Amendment No. 87 (d) The Licensee must specify in its letter to a Business Subscriber and to a Split Business Subscriber, in a framed notice, in boldface and at a font size of at least 16, that, insofar as it shall not choose the mode by which it shall receive the Bill, the Bill shall be sent to it in the mode to be decided by the Licensee, and this, without derogating from the provisions of section 13.B.(a) of the Consumer Protection Law, 5741 – 1981.
(e) The Licensee must specify in the notice to a Non-business Subscriber, in a framed notice, in boldface and at a font size of at least 16, that, insofar as he shall not choose the mode by which he shall receive the Bill, the Bill shall be sent to him by regular post.
(f) The Licensee is not allowed to send the Bill by way of an SMS to Terminal Equipment that is blocked to the receipt of SMSs and to Terminal Equipment that is not a smartphone.
(g) The Licensee is not allowed to change the mode of sending the Bill to a Non-business Subscriber who did not respond to the request that the Licensee sent to him.
(h) If the mode of sending the Bill to a subscriber was changed, the Licensee shall send a notice to the subscriber before sending the first Bill in the new mode, by way of SMS, which informs it of the details of the change. Any subscriber blocked from receiving SMSs must receive the said message in the Bill following the execution of the change.204
20567A. Information Service for Telephone Number Enquiries206
67A.1 Without derogating from the aforesaid in Article 66, the Licensee shall provide, either by itself or through another on its behalf, an information service for the enquiry of telephone numbers of all subscribers of land line operators or MRT operators, except for classified subscribers (hereinafter- "information service"), as follows:
(a) for the general public and cost free, through an internet site that will provide the service;
(b) for its subscribers, at a reasonable cost, through a telephone center to which the the access will be provided by a network access code to be determined by the Director;
(c) the information service shall be provided by all of the above methods based on the same information features that the subscriber will provide when he requests the service.
67A.2 Cancelled.207
204 Amendment No. 87 205 Amendment No, 14 206 Amendment No. 38 207 Amendment No. 87 67A.3 In addition to the above-mentioned in clause 67A.1208, the Licensee may offer, at a reasonable price, either by itself or another on its behalf, an information service, through any other method, including a national access code or through a short message system service (SMS).
67A.4 For the execution of the aforesaid in Article 67A.1 and 67A.3:
(a) The Licensee may approach any database of a line operator or MRT operator (hereinafter in this article – "another licensee") with a question, or receive information from a database of another licensee through any other method and with the consent of the other licensee, all subject to the obligation regarding protection of the subscriber's privacy;
(b) For the provision of the information service by another licensee in accordance with its general license, the Licensee shall allow any other licensee access to the Licensee's database;
(c) The Licensee shall reguarly update the database, so that every name, address or telephone number of a subscriber that has been added, changed or removed, shall be updated in the database within one working day after the implementation of the update in the Licensee's system for the provision of telephone services.
For this Article- "database"- a pool of data that includes the name, address and telephone number of every subscriber that is not classified, including a subscriber that is a business.
67A.5 (a) The Licensee shall obtain the consent of every new subscriber in order to include their details in the database; if the subscriber consents to the aforesaid, the Licensee shall include the subscriber's details in the database.
(b) The Licensee shall comply at no cost with every subscriber's initial request to remain classifed.
In this Article, "new subscriber" –a subscriber that registered with the Licensee after the commencement date as set forth in Article 67A.7 below.
67A.6 (a) The conditions for the provision of information service to enquire about telephone numbers in accordance with Article 67A shall be determined by the Licensee, provided that they are fair and non discriminatory, including presentation of the data to those requesting the service; the service shall be provided twenty four (24) hours a day, every day of the year, except for Yom Kippur; in this Article, "presentation of the data"- if the answer to a question of a person requesting the service consists of a number of different data, the data shall be presented in a coincidental manner;
(b) Cancelled.209
208 Amendment No. 87 209 Amendment No. 87 (c) Information service for telephone number enquiries as set forth in Article 67A.1 (b) and Information Service through a telephone center to which the access shall be provided by a national access code as set forth in Article 67A.3 shall meet the following service standards:
(1) at any time, except in cases of heavy traffic of calls requesting the service210, the amount of callers that will receive service shall not be less than 90%;
(2) the average waiting period of a caller until the start of receiving service211 shall not exceed 30 seconds;
(3) the maximum waiting period of a caller until the start of receiving service shall not exceed 60 seconds.
67A.7 Article 67A shall become effective on 8 February 2007 excluding Article 67A.1 (a) that will become effective on 15 March 2007 ("commencement date") but excluding Article 67A.2.212
67A.8 The Licensee, either itself or through another, including together with another licensee, shall publish any information service for telephone number enquiries that is being provided by the Licensee at no cost (hereinafter - “free information service");213 the publication shall include at least the following:
(a) an internet site of the Licensee;
(b) every Telephone Bill of the subscriber.214
(c) at least four (4) times during the first year after the commencement date, the Licensee shall publish large and prominent advertisements in at least 3 of the most common newspapers in Hebrew and the most common newspaper in Arabic, English and Russian as well as in the most common financial newspaper; these advertisments shall not include any other information. The first publication regarding cost free information services shall be in the above detailed newspapers, except for the financial newspaper, which shall be on the first Friday after the commencement date or the following one and in the financial newspaper on the first Tuesday after the commencement date of the following one.
Without derogating from the above-mentioned, the Minister may instruct the Licensee regarding the manner and format for the publication of the information services.
67B. Deleted215
210 Busy Hour Call Attempts 211 Start of receiving service-an answer by a telephone operator or by the IVR system that requests the information from the caller in order to locate the requested telephone number etc. 212 Amendment No. 42 213 Amendment No. 87 214 Amendment No. 87 215 Amendment No. 41
67C. Service File
21667C.1 If the licensee wishes to activate a service that is included in the list of services listed in the First Appendix and titled “future”, it shall notify the director in writing no later than thirty (30) days before the date it intends to begin supplying the service.
67C.2 If the licensee wishes to activate a new service that is not included in the list of services listed in the First Appendix that it intends to supply to any of their service receipiants, it shall notify the directorin writing no later than thirty (30) days before the the date it intends to begin supplying the new service.
67C.3 The director shall notify the licensee within thirty (30) days of receipt of the notice of the licensee as set forth in Articles 67C.1 and 67C.2, if it is allowed to begin supplying the service or if it needs to submit a service file for the director’s approval, as a condition for beginning the service.
67C.4 The licensee shall submit a service file for the director’s approval upon his demand; if the licensee shall not submit a service file uponthe director’s demand, or if the director does not approve the service file, the licensee shall not begin supplying the service.
67C.5 The director’s decision regarding the service file submitted to him shall be given within sixty (60) days from the day that the licensee submitted to the director all the required documents and information for the approval of the service file. In special cases, the director may extend the dates set forth in this article, in a written and detailed notice to the licensee.
67C.6 The director may require the licensee to submit for his approval a service file for an existing service, that does not require a service file, and he may also require the licensee to submit for his approval a new service file for a service for which a service file has already been approved.
67C.7 The service file shall be submitted to the director in a format and at a time set forth by the director and shall include ,among other things, provisions regarding the following:the name of the service, a detailed description of the service and the supply method, the service tariff,an engineering description, and all in accordance with the First Appendix; the director may advise of additional details that should be included in the service file.
67C.8 If the service file is approved, the licensee shall supply the service in accordance with the conditions of the approved file and the approved service file shall be considered an integral part of the license.
67C.9 The licensee shall publish the approved service file, with the details and in a manner set forth by the director, and the director may publish it himself, as long as he does not do so until after the licensee begins supplying the service. The notice to the public shall not include information that are trade secrets, that have been noted by the licensee and attached as a separate annex marked as trade secrets to the service file.
216 Amendment No. 41 67C.10 Each new service file that the licensee shall begin supplying in accordance with this article, will be considered part of the First Appendix; the director shall update the Appendix from time to time.
67.11C The provisions of this article shall apply with the necessary changes for tests by means of the network of the licensee.
67D217 Adult Voice Services
Adult Voice Services provided through the Network, shall be done in accordance with the provisions of Annex "M", in the Second Supplement .
For the purpose of this Article-
"Adult Voice Services"- as defined in Article 1 in Annex M, in the Second Supplement.
67D.1218 Premium Service
21967D1.1 The Licensee may provide Premium Services in one of the following manners:
a) Premium Service, for which the payment is charged according to the Premium Tariff and is collected through the Telephone Bill shall be provided in accordance with the provisions of Appendix N.
b) Premium Service, for which the payment is charged according to the Regular Tariff (hereinafter in this sub-section "the Service") will be provided as follows:
1) As an internal network service through a network access code220;
2) By dialing a Fixed-line telephone number to which the access will be possible for each subscriber of the subscriber of a General Licensee.
For this article,
"Fixed-line telephone number"- a number format of geographic numbers and national fixed line numbers or number format star 4 digits (*XXXX), in accordance with that defined in the numbering plan221.
"Premium Service" and "Premium Tariff" as defined in Appendix N
22267E National Roaming
67E.1 The Licensee shall supply National Roaming services through its network to a Roaming Licensee to the Roaming Licensee's subscribers to the network of the host operator, as detailed below.
217 Amendment No. 22 218 Amendment No. 75 219 Amendment No. 76, 80 220 "Network access code" as defined in the numbering plan. 221 For example numbers in the format 03-XXXXXXX and 07Z-xxxxxxx or *XXXX 222 Amendment No. 59 67E2. Preparation of the Licensee
The Licensee shall prepare for the execution of National Roaming in accordance with the following:
a) The provisions of Appendix X in the Second Annex;
b) The provisions of the law and the license regarding enabling use of its network and particularly Articles 30 through 30C, with the necessary changes.
67E.3 Operational arrangement
a) If the Roaming Licensee shall notify the Licensee in writing, after notifying the Minister that it did not reach an agreement with any of the existing Licensees regarding the conditions for the provision of roaming services as set forth in Article 5B(b)(1) of the Law, that it has chosen that Licensee for the receipt of National Roaming services (in this section "the notice"), the Licensee and the roaming operator shall provide the Minister with the engineering and operational details that they have agreed upon between themselves regarding the implementation of National Roaming ("operational arrangement"), within three months from the date the notice is sent. In addition, the said operators shall include the required engineering and operational details in order to maintain National Roaming that were not included in the operational arrangement, due to disagreements, if there are any;
b) Issues that are not agreed upon, as set forth in sub-section (a) above, if there are any, shall be decided by the Director. The directions of the Director for this matter shall form an integral part of the operational arrangement.
67E.4 Commencement date of National Roaming implementation
The host Licensee shall begin providing National Roaming services in accordance with the operational arrangement no later than three months from the date that the Roaming Licensee presented to the host Licensee the Minister's confirmation as set forth in section 5B(b)(2) of the Law.
67F. International Roaming Service through the Network of the MRT Operator in the Neighboring Country
67F.1 The Licensee shall act so that in an area in which there is reception that allows the initiation of a proper call, from the network as well as from the network of the MRT operator in the neighboring country, the subscriber shall receive MRT service through the network. The Licensee shall perform the action itself without requiring any action on behalf of the subscriber. 67F.2 The Licensee shall block the possibility of the subscriber to receive international roaming service through the network of the MRT operator in the neighboring country ("the Service"), unless the subscriber explicitly requested to receive the Service, and after it was explained to him that as part of receipt of the Service, the handset in his possession may roam in the area of the border with the neighboring country, involuntarily, onto the network of the neighboring country, and that he was advised of the tariffs for the Service; if the subscriber requests to receive the said Service-
a) The Licensee shall explain to him how he may manually select, through the handset in his possession, the MRT network from which he will receive service;
b) The Licensee shall allow the subscriber to select whether to block access for receipt of data communications service through the MRT network of the neighboring country.
67F.3 In this section, "neighboring country"-Jordan and Egypt;
"Proper call"- a call that takes place in accordance with the minimal reception definitions set in the international standards according to which the network operates.
67G Offensive sites and content223
67G.1 The Licensee shall notify its subscribers with respect to offensive sites and content as defined in section 4i of the law, as set forth in section 4i(b)(1) of the law; said notification shall be done in the manner set forth in section 4i(c) of the law.
67G.2 The Licensee shall notify its subscribers with respect to the existence of internet content that is unsuitable for children and teenagers (for example pornographic sites), and will include a list of ways in which the access to such content by children and teenagers can be blocked; said notification shall be done in the manner set forth in section 4i(c) of the law.
67G.3 The Licensee shall offer its subscribers, in all of the ways set forth in section 4i(c) of the law, an effective service for filtering offensive sites and offensive content at no extra cost to the payment that he charges for the internet access service, and all as set forth in section 4i(d) of the law, as long as the said service shall be based on an analysis of the information and not a "black list" of only sites.
223 Amendment No. 65
Section C - Suspension or Disconnection of Service and Termination of an Engagement224
68. Definitions
“Termination of Service” - permanent disconnection of any of the Licensee’s services to all of the subscribers;
“Suspension of Service” - temporary halting of any of the Licensee’s services or of all of the Licensee’s services, which are being provided to a subscriber;
“Disconnection of Service” - Permanent disconnection of any of the Licensee’s services, which are being provided to a subscriber;
“Termination of an Engagement” - Disconnection of all of the Licensee’s services being provided to a subscriber, and termination of the engagement agreement with him.225
69. Prohibition of Suspension or Disconnection of Service
The Licensee is not entitled to suspend or disconnect MRT Services and other services, which the Licensee is obliged to provide in accordance with this License, unless that which is stated in this part, or that stated in Paragraph 48 exists.
69A. Prohibition of Termination of Service
The Licensee is not allowed to terminate MRT Services and other services that the Licensee is obligated to provide pursuant to this License, unless that stated in this part or that stated in clause 48 have been fulfilled.
224 Amendment No. 87 225 Amendment No. 87 69B. Suspension of Service at the Subscriber’s Request
69B.1 A subscriber may request from the Licensee to suspend service in respect of all of the Licensee’s services, once a year, for a period of not less than thirty (30) days and not more than ninety (90) days.
69B.2 A subscriber may submit a request to suspend a service in the following ways:
(a) in writing, including by way of ordinary post, facsimile, electronic mail or online form on the Licensee’s website, to which various types of files may be attached, and the Licensee may enable the submission of a request by way of internet chat calls;
(b) orally, during a call to the telephone call center or at a service station of the Licensee;
69B.3 The Licensee must document the subscriber’s request and make this documentation available for delivery or forwarding to the Director, upon his request, and this, within five (5) workdays of the submission date of the request.
69B.4 The Licensee shall carry out a suspension of service, disconnection of service or termination of engagement by no later than one workday after the day on which the request was submitted; if the subscriber indicated a future date in its request for executing the suspension of service, disconnection of service or termination of engagement, the Licensee shall carry out the request on the date specified by the subscriber.
69B.5 The Licensee must document in its information systems the date and time of the execution of the subscriber’s request.
69B.6 If a suspension of service was executed for a subscriber, the Licensee shall resume the provision of the service by no later than one workday after the day on which the subscriber’s request was submitted, unless the subscriber requested a later date for resuming the provision of the service.
69B.7 If the subscriber requested a suspension of service for all of the Licensee’s services, the Licensee shall save the subscriber’s telephone number for him throughout the entire period of the suspension, and shall not transfer it to another party.
69B.8 The Licensee is not allowed to collect payment from the subscriber for suspension of service, for resuming the provision thereof, and is not allowed to collect payment from the subscriber for the period of the suspension of all of its services.
69B.9 After the provision of the service was resumed for the subscriber, the Licensee shall charge the subscriber according to the plan tariffs and conditions, pursuant whereto the subscriber had been charged prior to the suspension of the service, unless the plan tariff and rates were changed for all subscribers to that plan during the period of the suspension of service. 69C. Disconnection of Service at the Subscriber’s Request
69C.1 A subscriber may request disconnection of service from the Licensee; the subscriber may submit its request in writing or orally, as stated in clause 69B.2.
69C.2 The provisions of the above clauses 69B.3 through 69B.5 shall apply to a disconnection at a subscriber’s request, and the Licensee is not allowed to collect payment from the subscriber for disconnection of the service.
69D. Termination of an Engagement at the Subscriber’s Request
69D.1 A subscriber may notify the Licensee of termination of the engagement between them; the subscriber may deliver its notice in writing or orally, as stated in clause 69B.2.
69D.2 The provisions of the above clauses 69B.3 through 69B.5 shall apply to termination of an engagement at the subscriber’s request.
69D.3 The Licensee shall send notice to the subscriber about the termination of the engagement within two workdays of the date of the subscriber’s request to carry out the termination of the engagement. The notice must include, inter alia, the date of execution of the termination of the engagement and the deadline for sending the last final Bill, which relates to the last billing period of his being a subscriber of the Licensee (“Final Bill”).
69D.4 A subscriber who terminated the engagement with the Licensee must receive a Final Bill on the closest possible date, and by no later than two months after the termination date of the engagement.
The Final Bill must specify the execution date of the termination of the engagement and it must bear the heading “Final Bill.”
69D.5 That stated in this clause in no way derogates from a termination of engagement by way of number portability, according to a numbering plan relating to number portability – consolidated version, of 22.8.2005, inclusive of amendments thereto.
69E. Saving the Telephone Number upon Termination of an Engagement
69E.1 If a termination of an engagement between the Licensee and a subscriber was executed, whether at the initiative of the Licensee or at the subscriber’s initiative, the Licensee shall save the telephone number for the subscriber, at no charge and without any conditions or restrictions, and shall not deliver it to another party and shall not return it to the pool of numbers designated for allotment, either of the Licensee or of another licensee that had initially allotted it, and this, for a period of fourteen (14) days after the termination date of the engagement.
69E.2 If the subscriber asked to retrieve his telephone number within the said timeframe, the Licensee shall carry out the subscriber’s request immediately, and it is allowed to charge the subscriber for the timeframe between the termination of the engagement and its resumption with that same telephone number that was returned to him, according to the terms of the tariff plan he had subscribed to prior to the execution of the termination of the engagement, and to continue to charge him pursuant to the terms of the said tariff plan. 69F. Suspension or Disconnection of Service or Termination of an Engagement – General Provisions
69F.1 The Licensee must display a link called “Suspending/Disconnecting of Service”226 on the home page of its website, in a conspicuous manner and location, the pressing of which will redirect to the following three possibilities:
(a) suspension of service;
(b) disconnection of service;
(c) termination of an engagement.
69F.2 The Licensee shall display the following details in each of the three said possibilities:
(a) brief explanation of the selected possibility;
(b) the modes of communication for the purpose of submitting a request in each of the said possibilities, including the telephone number, address, facsimile number, electronic mail address, the online form and internet chat calls, insofar as the Licensee chose this possibility, through which a subscriber can submit such a request;
(c) the details that the subscriber must specify in his request, including the telephone number relevant to the request, the subscriber’s ID number, the last four (4) digits of the means of payment, electronic mail address, insofar as the subscriber uses electronic mail for the purpose of submitting his request, and the subscriber’s specified date for carrying out his request;
(d) the date of execution of the subscriber’s request, the termination date of the billing in the Telephone Bill and the deadline for sending a Final Bill to the subscriber in the instance of termination of an engagement.
69F.3 The Licensee shall publish on every Telephone Bill, the telephone number, address, facsimile number and electronic mail address through which the subscriber can submit requests as stated.
69F.4 If the subscriber submitted his request via electronic mail, the Licensee shall send, immediately upon receiving the request, a reply electronic mail notice acknowledging the receipt of the request. The notice shall include the number assigned to the subscriber’s request in the Licensee’s system, the receipt date of the request, and the contents of the request as sent by the subscriber.
69F.5 If the subscriber submitted his request via online form, the Licensee shall display on the device screen through which the online form was sent (computer or compatible MRT Terminal Equipment) a notice acknowledging receipt of the request; the notice shall contain the details specified in clause 69F.4.
226 A link called “contact us” shall not be deemed a substitute for the said link. 69F.6 If the subscriber’s request, which was submitted via online form, included one of the details specified in subclause 69F.2(c) and it is erroneous, the Licensee shall mark the erroneous detail on the online form and the subscriber shall be requested to resubmit his request with the correct detail.227
70. Cancelled228
71. Cancelled229
71A.230 Blocking of MRT Terminal Equipment and Services Due to Theft or Loss231
71A.1 The Licensee shall retain the IMEI – International Mobile Equipment Identity number in its MRT System that the subscriber is using, apart from MRT Terminal Equipment operating with iDen technology (hereinafter in this clause – “Terminal Equipment”).232
71A.2 If the subscriber notified the Licensee that his Terminal Equipment has been stolen or lost, the Licensee shall perform the following:
(a) During the conversation with the subscriber when delivering his notice as stated, the Licensee shall take action to reliably identify the subscriber.
(b) The Licensee shall raise the possibility to the subscriber of immediately filing a complaint at a police station about the theft or loss of the Terminal Equipment.
(c) The Licensee shall request an alternate telephone number from the subscriber through which contact can be made with him.
(d) The Licensee shall immediately perform a “suspension of service” at no charge for all of the services being provided for consumption, including international services, by blocking the subscriber’s SIM card, apart from incoming calls, if the subscriber asked to not block these calls, immediately upon receiving the notice about the theft or loss of the Terminal Equipment, and shall notify the subscriber of this.
(e) Notwithstanding that stated, the Licensee shall perform a “suspension of service” at no charge for all of the MRT services being provided to the subscriber, including incoming calls, after three (3) days have elapsed since the receipt date of the notice regarding the theft or loss of the Terminal Equipment.
227 Amendment No. 87 228 Amendment No. 87 229 Amendment No. 87 230 Amendment No. 46 231 Amendment No. 87 232 Amendment No. 87
(f) If the subscriber notified of the theft or loss of the Terminal Equipment while he is located abroad and is receiving international roaming services, the Licensee shall immediately perform and at no charge “suspension of service” for all of the MRT services being provided to the subscriber, by blocking the subscriber’s SIMcard, including with regard to incoming calls, unless the subscriber asked to not block these calls.
(g) The Licensee shall block the Terminal Equipment at no charge, by blocking the IMEI number of the said equipment, as last received in the Licensee’s MRT System, and this, immediately after twelve (12) hours have elapsed since the time of the subscriber’s notice about the theft or loss of the Terminal Equipment. The Licensee shall advise the subscriber, when receiving his notice about the theft or loss of the Terminal Equipment, that the blocking of the Terminal Equipment by blocking his IMEI number, shall be carried out at the time as stated.
(h) The Licensee shall immediately remove and at no charge, the blocking from the Terminal Equipment, according to the request of an authorized party; “authorized party” for the purposes of this clause is a police officer who received authorization from a police officer at the rank of brigadier-general to contact the Licensee and to instruct him about removal of the blocking. The Licensee shall mark in its information system, using a special marketing, Terminal Equipment for which an “authorized party” requested removal of blocking, but shall not disclose any information about removal of the blocking, as stated.
(i) The Licensee shall again block the Terminal Equipment after authorized to do so by the “authorized party.”
(j) The Licensee shall resume the provision of all of the services to the subscriber immediately upon delivering a new SIM card to the subscriber.
(k) The Licensee shall specify in the subscriber’s Telephone Bill immediately after the date it received the subscriber’s notice about the theft or loss of the Terminal Equipment, or in the following Telephone Bill, the date and time of the subscriber’s report, the date and time of the suspension of the MRT Services to the said Terminal Equipment, as specified in clauses 71A.2.(d) through 71A.2.(f), and the date and time of the execution of the blocking of the Terminal Equipment, in the event that the equipment was not found.
(l) The Licensee must retain documentation of the Telephone Bill, which includes the said notices, and make this documentation available for delivery or forwarding to the Director, upon his request, and this, within five (5) workdays of the production of the Bill.
(m) On a daily basis, the Licensee shall forward a computer file to all MRT Operators, including MRT Operators on another network, and to “the authorized party,” which includes information about any Terminal Equipment, the IMEI number of which it has blocked on that day, about any Terminal Equipment for which the blocking of the IMEI number has been removed on that day at the subscriber’s request, about any Terminal Equipment for which the blocking of the IMEI number has been removed on that day at the request of “the authorized party,” and about any Terminal Equipment, the IMEI number of which has been reblocked, with the approval of “the authorized party,” after the blocking thereof had been removed earlier at its request. The Licensee shall forward the said computer file daily, by 23:00, in relation to all Terminal Equipment that was blocked or unblocked as stated up until 23:00. (n) On a daily basis and by 24:00, the Licensee shall update the list of Terminal Equipment in its information system that it blocked on that day and, by 24:00, shall update the list of Terminal Equipment that were blocked by other MRT Operators on that day, and for which a report about them were delivered to it by way of computer files sent to it by other MRT Operators. The list must include the following details in relation to each piece of Terminal Equipment:
(1) its IMEI number;
(2) name of the manufacturer;
(3) model of the Terminal Equipment;
(4) blocking date and time;
(5) name of the Licensee that ordered the blocking.
(o) The Licensee shall at all times enable the performance of a search on its website according to the IMEI number of the Terminal Equipment, when the IMEI number has been blocked due to a notice of theft or loss.
(p) The Licensee shall retain an updated list in its possession with the details as specified in subclause (n) of all Terminal Equipment that has been blocked, and deliver or forward it to the Director, upon his request. The said list must be identical at all of the MRT Operators.
(q) The Licensee shall publish the following information on its website:
(1) recommended actions that subscribers should take if their Terminal Equipment is stolen or lost, including:
((a)) setting a password to prevent use of the Terminal Equipment by any unauthorized person;
((b)) installing applications in the Terminal Equipment, insofar as at issue is a smartphone, which enables identifying the location of the Terminal Equipment, and enables remote blocking of access to information in it, or deletion thereof; ((c)) performing backs up of vital information to a computer or through cloud services, such as: photos, videos, lists of contacts and e-mail messages.
(2) actions that subscribers should take once they realize that their Terminal Equipment has been stolen or is lost.233
71A.3 The Licensee shall provide the details of terminal equipment it has blocked, to any other MRT licensee, no later than one working day after the execution set forth in Article 71A.2.
71A.4234 (a) The Licensee is not allowed to supply MRT services to terminal equipment it or another MRT licensee has blocked.
235(b) Notwithstanding the above-mentioned in Article 71A.2 and sub-section (a), if the blocking of the identification number will cause termination of service for other terminal equipment with the same identification number, the Licensee may choose to not perform the said blocking.
71A.5 The Licensee shall cancel the blocking to the terminal equipment it has blocked, after receipt of a request 236from the subscriber; the cancellation of the blocking shall be done no later than one working day after the Licensee has verified the credibility of the request, unless the subscriber has specifically noted another later date. 237
71A.6 The Licensee shall publish its obligations to all its subscribers regarding the possibility of blocking MRT terminal equipment, the methods for recording the identification number of the terminal equipment with the Licensee and the application process for the blocking; the publication shall be done in one of the following manners:
(a) in the subscriber agreement;
(b) on the Licensee's website
(c) in a separate information page that will be attached to the monthly subscriber invoice, by30 January 2009238.
71A.7 The Licensee shall detail in a bi-annual report, the number of blocked identification numbers and the amount of indentification numbers for which blocking was removed as well as the amount of identification numbers that were not blocked in accordance with this article and the reasons for it.
72. Termination or Disconnection of Service Due to Breach of Agreement
72.1 The Licensee is entitled to terminate or disconnect service to a Subscriber if one of following exists:
(A) The Subscriber did not pay a payment which he or she owes for the Service he or she has received, on the date determined for payment, in his or her Subscriber Agreement with the Licensee;
233 Amendment No. 87 234 Amendment No. 47 235 Amendment No. 47 236 Amendment No. 48 237 Amendment No. 48 238 Amendment No. 48 (B) The Subscriber breached a condition in the Subscriber Agreement between him or her and the Licensee, which has been determined a fundamental condition;
(C) The Subscriber has unlawfully used or has permitted another party to unlawfully use the Terminal Equipment in his or her possession.
72.2 The Service of a Subscriber will be terminated or disconnected in the events specified in Paragraph 72.1(a )and 72.1(b) only after the Licensee has given the Subscriber notice in writing no less than ten (10) days prior to the expected termination or disconnection; it will be written in the notice that the Subscriber is granted the opportunity, within a reasonable time that will be determined in the notice, to correct the act or omission for which the Service will be terminated or disconnected.
72.3 Notwithstanding that stated in Paragraph 72.2, the Licensee is entitled to suspend239 the Subscriber’s service without notice should one of the following occur:
(A) The Subscriber did not pay his or her bill of payment he or she was billed for the third time during a period of twelve (12) months for MRT Services on the date determined in the payment notice;
(B) There is reasonable concern about an act of fraud through the Terminal Equipment of the Subscriber or though the features of the Terminal Equipment;
(C) Cancelled240.
72.4 The Licensee may suspend241 Service of the Subscriber if it is evident that the Terminal Equipment in the possession of the Subscriber, through which the Subscriber attains MRT Services, causes interference in the provision of MRT Services to other Subscribers or interference to the activities of the MRT Network, provided the Licensee gave the Subscriber notice in writing no less than twenty one (21) days before the expected suspension242 date; in the notice, the cause of the expected suspension243 will be specified and the fact that the Subscriber is granted an opportunity, within the time framework that will be determined in the notice, to repair the Terminal Equipment in a manner which will prevent the said interference.
72.5 Insofar as the Licensee suspends service for all of its services, due to a subscriber’s breach of agreement, the Licensee shall stop collecting a monthly or other fixed periodic payment from the subscriber of the date of the suspension of service, as stated, and this, until the provision of all services is resumed; during the billing period in which the service was suspended as stated, the Licensee shall collect a fixed payment from the subscriber according to that specified in clause 74.3(c) or according to that specified in clause 74.3(d), as relevant.244
239 Amendment 87 240 Amendment 87 241 Amendment 87 242 Amendment 87 243 Amendment 87 244 Amendment 87 72A.245 Disconnection of Service246 to Dormant Subscribers
72A.1 The Licensee is allowed to disconnect service to a dormant subscriber.247 If the Licensee wishes to disconnect248 service to a dormant subscriber, it must give the dormant subscriber prior notice of this intention as set forth below (hereinafter, in this Article "notice"). The service disconnection249 date shall not be less than thirty (30) working days after the date the notice is sent.
72A.2 The Licensee shall specify in the notice, the telephone number to which it intends to disconnect250 from service.
72A.3 The notice to a dormant subscriber shall be done as follows:
(a) For a subscriber whose name and address are known to the Licensee, in any of the following ways-
(1) by a letter sent by regular mail;
(2) by 2 short messages (SMS) that should be sent to the dormant subscriber in intervals of at least two weeks between messages;
(b) For a subscriber whose name and address are unknown to the Licensee-by four SMSs that should be sent to the dormant subscriber in intervals of at least one week between messages;
(c) Notwithstanding the above-mentioned in Article (a)(2) and (b), if the subscriber's terminal equipment does not support the receipt of SMSs, the Licensee shall send the subscriber voice messages instead of SMSs, if the subscriber's terminal equipment supports the receipt of voice messages.
(d) The Licensee shall retain documentation of the sending of the notice to a dormant subscriber as follows:
(1) a copy of the letter sent via ordinary post;
(2) a printout of the log from the short message service center (SMSC), as specified in clause 60.6(c).251
72A.4 The Licensee shall not disconnect252 service to a dormant subscriber to whom a message was sent if the dormant subscriber notified the Licensee that he does not wish to disconnect from 253 services. The subscriber may send such a message either by telephone or in writing including by facsimile or electronic e-mail;
245 Amendment No. 46 246 Amendment 87 247 Amendment 87 248 Amendment 87 249 Amendment 87 250 Amendment 87 251 Amendment 87 252 Amendment 87 253 Amendment 87
Notwithstanding the aforesaid, the Licensee may disconnect254 service to a dormant subscriber that notified the Licensee that he is not interested in disconnecting from255 services, after sending the subscriber at least two messages, as set forth in Article 72A.3 (a) and 72A.5 (a), and, in the second message, the Licensee notified the subscriber that if, within one year of the second message, the subscriber will not use the MRT service, service will be disconnected256 to the subscriber, and will not have to send another notification.
72A.5 The Licensee shall not be allowed to send a subscriber an additional notice regarding its request to disconnect257 service, except after one year of the date when the previous notice was sent to the subscriber.
72A.6 The Licensee shall save the telephone number of the dormant subscriber to whom service was disconnected258 for at least four (4)259 months free of charge,260 from the date of disconnection261 of service termination, before returning the number to the telephone number pool of the Licensee itself or be returned to another MRT licensee that originally allocated the telephone number to the dormant subscriber. If, during this period, a written request is received from the dormant subscriber to renew the service, the Licensee shall renew the service under identical conditions to those that applied before service was disconnected,262 free of charge.
72A.7 In the event of disconnection263 of service to a dormant Prepaid subscriber, that has a remaining balance, the Licensee shall refund the dormant subscriber for the remaining balance within 30 days after receipt of a written request from the dormant subscriber that proves that he is the owner of the line to which service was disconnected,264 if the request is received by the Licensee no later than six months after the service disconnection265 date.
72B Disconnection of a Service due to Recovery of the Network during a Malfunction266
72.1B The Licensee may disconnect or temporarily limit services that it is obliged to provide, in order to allow a quick recovery of the network at the time of a significant malfunction.
For this matter- "significant malfunction" – a malfunction that causes the disconnection of service to 10% of the subscribers or to at least 100,000 subscribers, the lower of the two.
254 Amendment 87 255 Amendment 87 256 Amendment 87 257 Amendment 87 258 Amendment 87 259 Amendment 87 260 Amendment 87 261 Amendment 87 262 Amendment 87 263 Amendment 87 264 Amendment 87 265 Amendment 87 266 Amendment No. 66 In this section, "subscriber" – including a subscriber of an MRT licensee in another network and a subscriber of a roaming licensee that use the network.
72.2B The Licensee shall submit for the Director's approval, a procedure and a detailed engineering process for the recovery of the network in case of a significant malfunction ("the procedure") within 15 days from the date of signature of this amendment.
72.3B During a significant malfunction the Licensee shall act in accordance with the procedure that was submitted to the Director or approved by the Director, the later of the two.
72.4B The procedure should include, inter alia, an initiated disconnection of services to subscribers that were not directly affected by the significant malfunction that shall begin no more than two hours after identification of the significant malfunction; this is in order to reduce the burden and the controlled reinstatement of regular and proper service.
72.5B The procedure shall allow, as much as possible, preferability for regular and proper services for the security forces, public emergency services and hospitals, as will be decided by the Director.
73. Disconnection of Service due to Maintenance Procedures
73.1 The Licensee may temporarily disconnect or limit services which it is obliged to provide, if the requirement to execute vital actions of maintenance or if establishment of MRT Network obliges this (hereinafter “Disconnection due to Maintenance”), provided all the following exist:
(A) Duration of Disconnection due to Maintenance does not exceed twelve (12) consecutive hours;
(B) The number of Disconnections due to Maintenance does not exceed two (2) during one year;
(C) Cancelled267
73.2 The Director may require the Licensee to present a detailed explanation of the conditions which oblige Disconnection due to Maintenance, and the Director may require the Licensee to postpone the said Disconnection if he or she finds, after considering the Licensee’s arguments, that vital public interest obliges the said postponement.
73.3 Should it be required, due to the necessity to perform vital actions of maintenance or construction in the MRT System, to disconnect service for a duration of over twelve (12) hours, the Licensee will request a prior approval of the Director; the request will specify the required maintenance actions and the actions taken by the Licensee in order to expedite these actions and to reduce as much as possible the duration of Disconnection of Service.
267 Amendment No. 5 73.4 Cancelled.
73.5 Should Disconnection or limitation of service be required urgently for the purpose of vital and immediate activities, the Licensee will inform the Director immediately, including by telephone, telegram or facsimile message, about the urgent Disconnection or limitation; the Licensee will inform its Subscribers about urgent Disconnection or limitation as stated above as early as possible, including through the MRT System public address service insofar as this is possible, and also through the public media.
73.6 Notwithstanding that stated in Paragraph 73.1, the Licensee is not obliged to notify the Director or its Subscribers as to Disconnection due to Maintenance if the following exist, and that the stated Disconnection will not be counted in the count of Disconnections that is binding under Paragraph 73.1(b):
(A) The duration of the Disconnection due to Maintenance does not exceed half an hour;
(B) Disconnection due to Maintenance, as stated, occurs between 24.00 Saturday night and 0500 on the following Sunday morning.
Chapter F - Payment for Services
Section A - General
26873A. Definitions
In this Chapter:
“Air time” - the time during which a Subscriber receives MRT services, whether the communication was initiated by the Subscriber or by another;
"Air time unit"269- a time unit of no more than 12 seconds however as of 5 Tevet 5769 (1 January 2009) a time unit of 1 second.
“Basked of services” - a number of services marketed to the Subscriber in a package, for which a tariff has been set as prescribed in clause 75.2;
“Public shall include an International Communications System;
Telecommunications
Network”
“Payment for Call Completion”
a payment made by the initiator of a call, which commences at the Terminal Equipment connected to one Public Telecommunications Network and terminates at another Public Telecommunications Network or at Terminal Equipment connected to such a Public Telecommunications Network for the completion of the call on the other Public Telecommunications Network.
74. Types of Payments
74.1 270The Licensee shall be allowed to collect payments from its Subscribers for MRT Services, as follows:
(a) one-time installation fees for the connection of mobile or hand-held Terminal Equipment in the possession of the Subscriber, to the MRT Network, 271(hereinafter: “Connection Fees”);
(a1) SIM card fee – a one-time payment for a SIM card (SIM);272
(b) a fixed monthly273 payment;
(c) payment for Air Time as specified in clause 75.10;
(d) payment for Call Completion as specified in clause 75A;
268 Amendment No. 5 269 Amendment No. 29 270 Amendment No. 56 271 Amendment No. 87 272 Amendment No. 87 273 Amendment No. 56 (e) Payment for Basic Services, Accompanying Services and Value Added Services, as specified in the First Annex to the License.
74.2274 The Licensee shall not be allowed to collect from a subscriber:
(a) Payment for initiating a call;
(b) Minimum payment for a call;
(c) 275276
74.3277 The Licensee shall collect payments from a subscriber in accordance with the following:
(a) In a One-time Transaction the payment for the services that are to be provided shall be executed by Pre-paid; the Licensee shall be allowed to collect all of the payment for this type of transaction retroactively.
(b) In an Ongoing Transaction the payment for the services that were provided shall be executed by Post-paid, however the Licensee shall be allowed to collect Pre-paid payment in an Ongoing Transaction, if the subscriber requests this, provided that the payment shall be executed in cash using vouchers that will be issued to the subscriber by the Licensee.
(c) In a transaction as specified in subclause (b), in which a monthly or other fixed periodic payment is collected from the subscriber for a bundle of services, in respect of the billing period during which an engagement was terminated or all services were suspended at the subscriber’s request, including when porting a number, the Licensee shall charge the subscriber, as the fixed payment as stated, according to the higher of the following:
(1) The ratio between the number of days from the start of the billing period until the termination of the engagement or the suspension date, as stated, on the date defined by the subscriber in his request, or until a maximum of one workday after the submission date of his request to terminate an engagement or to suspend all of the Licensee’s services, insofar as the subscriber did not define a date for terminating the engagement or for the suspension, as stated, and the inclusive number of days in the billing period;
(2) The higher ratio between the services included in the bundle of services and the number of units of the service consumed since the beginning of the billing period up until the termination date of the engagement or the suspension date, as stated, on the date defined by the subscriber in his request, or until a maximum of one workday after the submission date of his request to terminate an engagement or to suspend all of the Licensee’s services, insofar as the subscriber did not define a date for terminating the engagement or for the suspension, as stated, and the number of units allocated for the billing period.
274 Amendment No. 56 275 Amendment No. 57 276 Amendment No.84 277 Amendment No. 84
(d) In a transaction as specified in subclause (b), in which a monthly or other fixed periodic payment is collected from the subscriber without a bundle of services, the Licensee shall charge the subscriber the fixed payment as stated, in respect of the billing period during which an engagement was terminated or all of its services were suspended at the subscriber’s request, including when porting a number, according to that specified in clause 74.3(c)(1).
(e) In a transaction as specified in subclause (b), in which a monthly or other fixed periodic payment is collected from the subscriber, the Licensee is not allowed to collect any payment from the subscriber for the timeframe before the activation of the SIMcard.
(f) In a transaction as specified in subclause (b), in which a monthly or other fixed periodic payment is collected from the subscriber, as a result of a subscriber’s switch from one tariff plan to another tariff plan, the Licensee shall charge the subscriber, as the fixed payment as stated, for the period as of the start of the billing period until the transaction execution date,278 according to the tariffs in the previous tariff plan, according to that specified in clause 74.3(c) or according to that specified in clause 74.3(d), as the case may be, while, for the period subsequent to the transaction execution date and until the end of the billing period, according to the ratio between the number of days from the day after the transaction execution date and until the end of the billing period, and the inclusive number of days in the billing period, according to the tariffs in the new tariff plan.
278 Amendment No. 87 Section B - Tariff Changes
75. Setting the Tariffs and their Rates
75.1 The Licensee shall set tariffs for every service and Basket of Services which it provides to its Subscribers, and may determine the manner in which tariffs are to be linked to the index. The Licensee shall notify the Director of the amount of each tariff prior to its coming into effect.
75.2 The Licensee may set Baskets Of Services according to the classes of services including in the Basket, periods of time, or any other method. The Licensee may set a separate tariff for each of the services included in the basket, or may set an all-inclusive tariff.
75.3 The Licensee shall offer each Basket Of Services on equal terms and under a uniform tariff according to classes of Subscriber; for the purposes of this clause “class of Subscribers” – a group of Subscribers the characteristics of which give reasonable grounds to justify its being distinguished from another group . .
75.4 The Licensee shall allow each Subscriber to change, without discrimination, from one Basket Of Services to another Basket Of Services which it is offered at that time. The Licensee shall include a provision to this effect in its service contract with the Subscribers. In the context of this provision, it may prescribe dates available for such change and may prescribe conditions, including payment, for effecting the change.
75.5 279If the Licensee enters into an agreement with a Subscriber regarding a service or basket of services that includes a commitment as defined in Article 56A.1 (the "Commitment Period"), the following provisions shall apply, except for a Business Subscriber:
(a) The agreement conditions, except for the tariffs of the agreement, shall be final, known and set out in advance for the entire Commitment Period;
(b) The tariff for each service shall be set in the agreement, shall be constant and set out in New Shekels for the entire Commitment Period;
For this article, "constant"-each tariff before V.A.T. that the Subscriber must pay as set out on the day of the agreement, shall not be raised during the Commitment Period. Notwithstanding the aforesaid, the Licensee may supply it services to Subscribers at lower tariffs than those set out beforehand in the subscriber agreement during a limited time period, to all it Subscribers or to a certain type of subscribers.
(c) The Licensee shall include provisions in accordance with the above-mentioned in the subscriber agreement.
75.6 The Licensee shall not make contracting with a Subscriber, or changing a subscriber from one Basked Of Services to another, conditional on the purchase of Added Value Services or Terminal Equipment from it.
279 Amendment No. 47 75.7 Cancelled.280
75.8 (a) The Licensee may not collect any payment from a Subscriber for a call not initiated by the Subscriber (hereinafter: an “Uninitiated Call”).
(b) Notwithstanding the provisions of sub-clause (a), the Licensee may collect payment from the Subscriber for an Uninitiated Call in the following Cases:
(1) the call is transferred to the Subscriber via a roaming service;
(2) it is a collect call to which the Subscriber has agreed;
(3) a call made by dialing a number with a special access code for a free of charge service for the person initiating the call, that was allotted to the Subscriber in accordance with an agreement with him281;
(4) Deleted282
283(c) The Licensee may charge a Subscriber, that initiates a charged call for services or for the following access codes, a charge that does not exceed the tariff that the Licensee charges the Subscriber for a call to a fixed line network:
1) Partially toll free service calls284
2) Business speed dial service285
(d) 286for a call to an international destination, the Licensee can only receive the payment imposed on the international operator that is set forth in the interconnect regulations.
287 288 75.9 (a) Deleted
1 Amendment No. 16 Effect- Article 75.9 shall take effect as of 15.12.02 2 Amendment No. 54
75.10 The manner of determining payments for Air Time shall be as follows:
(a) The payment for Air Time shall be determined according to Air time unit289 ; for the purpose of calculating the payment, part of a Unit Of Air Time shall be deemed to be a full Unit of Air Time.
280 Amendment No. 87 281 Amendment No.54 282 Amendment No. 49 283 Amendment No. 49 284 In accordance with the service file "partially toll free calls" (1-700 service). 285 In accordance with the Director's provisions "speed dial for businesses-star and four digits", dated 4 may 2008. 286 Amendment No, 53 287 Amendment No. 16 Effect- Article 75.9 shall take effect as of 15.12.02 288 Amendment No. 54 289 Amendment No. 29 (b) The payment for any airtime unit, at least for the duration of the first minute of the call, shall be constant;290
(c) For the purpose of payment, the duration of the call shall be from the time of establishing the connection between the Subscriber initiating the call (hereinafter: the “Calling Subscriber”) and the Subscriber receiving the call, until the time of terminating the call, which is the time that an instruction given to end the communication is received from the Calling Subscriber or the Subscriber receiving the call; the period of time spent in establishing the connection, until the time in which the contact is in fact established, and the period of time in disconnecting, from the moment an instruction is received to terminate the communication up until actual disconnection, are not included in the calculation of the duration of the call.
For the purpose of this sub-clause, a Subscriber receiving a call includes voicemail.
291"Voice Mail"- a device or mechanism that is part of the MRT system, that is meant to allow the calling Subscriber to leave a voice message for the receiving Subscriber.
(d)292 For a call that is transferred to Voice Mail, the Licensee shall play an introductory recorded message to the calling Subscriber, that is at least 2 seconds long (in this sub-section- "a message"), and will allow the calling Subscriber, in accordance with his choice, to disconnect the call without a charge, in the course of the Message, or within a reasonable amount of time that will not be less than 1 second after its termination ("reasonable time"). In this case, the timing of the execution of the call with the receiving Subscriber shall be as set forth in sub-section (c) above, as occuring after a reasonable time.
The Message text shall be "the call is being transferred to voice mail" and it shall be played in a clear manner and a reasonable pace.
In this sub-section, "a call that is transferred to voice mail"- except for a call that originated in the International Bezek system.
29375.11 (a) In this article:
"Limited Package"- a package of minutes that is limited to a number of minutes, in accordance with the subscriber's plan.
"Unlimited Package"- an unlimited package of minutes for which the subscriber pays.
"Free of Charge Number"- a phone number that is determined that a call to it from any network will not be charged to the initiator of the call;
290 Amendment No. 56 291 Amendment No. 39 292 Amendment No. 39 293 Amendment No. 70
"A Special Telephone Number at a Composed Tariff"- a national or network telephone number in an unusual numbering plan, for which the call tariff to it is a composed tariff;
"A Special Telephone Number at a Regular Tariff" – a national294 or network295 telephone number in an unusual numbering plan, for which the call tariff to it does not exceed the normal tariff;
"Unusual Numbering Plan"- a numbering plan that is not a regular numbering form;
"Usual Numbering Plan"-a numbering plan of geographic numbers and national numbers in accordance with the definitions in the numbering plan296.
"Composed Tariff"- a tariff composed of a regular tariff in addition to a tariff for service provided by the Licensee or someone on his behalf or a service provider;
"A Regular Tariff"- a tariff per minute for a call to telephone numbers in a regular numbering plan, in accordance with the subscriber's tariff plan.
(b) The Licensee will not charge a subscriber that calls destinations with free of charge numbers and shall not count the minutes of the call to those destinations as part of a limited package.
(c) The Licensee may charge a subscriber that calls destinations with special telephone numbers at regular tariffs and shall count the minutes of the call to those destinations as part of a limited package or as part of an unlimited package. For the avoidance of doubt, the Licensee may not charge a subscriber for calling destinations with special telephone numbers at regular tariffs any additional payment beyond the payment that he pays for a package of minutes, as long as the subscriber has not exceeded his quota of plan minutes. If the subscriber exceeds his quota of plan minutes, the Licensee may charge him for calling the said destinations in accordance with a tariff that does not exceed the regular tariff. In addition to the aforesaid, the Licensee may not distinguish between the tariffs that he charges the subscriber for calling telephone numbers with regular numbering plans and for calling special telephone numbers at regular tariffs, including by determining separate minute packages.
(d) If the charge for calls to destinations with special telephone numbers is done in accordance with a composed tariff, the Licensee shall count the minutes of the calls to said destinations as part of a limited plan or as part of any unlimited plan, for which the subscriber pays.
The Licensee may charge the subscriber for the services that are provided as part of calling telephone numbers that are charged according to a composed tariff, whether the charge is per minute of the call or whether the charge is a constant charge for a call, in addition to the regular payment for the package of minutes.
294 A telephone number that can be accessed from any network. 295 A telephone number that can be accessed only from the Licensee's network. 296 For example numbers in the 03-XXXXXXX, 05Y-XXXXXXX and 07Z-XXXXXXX 75A. Completion of a Call in another Public Telecommunication Network297
The payment which the Licensee shall collect for Call Completion shall not be greater than the interconnect tariff set forth in the Telecommunications Regulations (Payments for Interconnection) 57600-2000.
75B. Completion of a Short Message Service (SMS) in another MRT Network298
The Licensee may charge a Subscriber for transferring a Short Message Service, from Terminal Equipment connected to the Network to Terminal Equipment connected to an MRT system of another MRT licensee, payment that shall not exceed the payment the Licensee charges Subscribers for transferring a Short Message Service, from Terminal Equipment connected to the Network, to Terminal Equipment connected to the Network, in addition to a charge that shall not exceed the fee for transferring a Short Message Service as set forth in the Communication Regulations (Telecommunications and Broadcasting) (Payments for Interconnection), 2000.
In this Article- “Short Message Service”- (SMS) - A telecommunication message that includes writing, including letters or signs, that are transferred from Terminal Equipment connected to the Network, to Terminal Equipment connected to the Network or connected to an MRT system of another MRT licensee.”
75C. Temporary Provision299
Notwithstanding the above-mentioned in Article 75B, for the period beginning 9 May 2004 until 9 February 2005300, the following provisions shall apply:
(a) The Licensee may charge a Subscriber for transferring a Short Message Service, to Terminal Equipment connected to an MRT system of another MRT licensee ("Message between Networks"), payment that shall not exceed the payment the Licensee charges Subscribers for transferring a Short Message Service, from Terminal Equipment connected to the Network to Terminal Equipment connected to the Network, in addition to a charge that shall not exceed the fee for transferring a Short Message Service as set forth in the Communications Regulations (Telecommunications and Broadcasting) (Payments for Interconnection), 2000 minus a reduction in the amount of 0.7%301.
(b) The Licensee may charge a Subscriber payment for a Short Message Service Between Networks as set forth in sub-section (a) even if the transfer to the receiving Subscriber has not been completed.
297 Amendment No. 23 298 Amendment No. 23 299 Amendment No. 24 300 Amendment No. 27 301 The reduction in the amount of 0.7% is based on reports received from some of the MRT operators, regarding the rate of Short Message Services between Networks that did not reach their destination. Article 75C was set as a temporary provision, during which time the MRT operators shall carry out the necessary adjustments between their MRT networks and interconnection arrangements for the complete application of Article 75B of their license. For the avoidance of doubt, it should be clear that this temporary provision is set for a limited period of time only, due to the difficulties that MRT operators experienced regarding the possibility to receive information regarding the inability to complete a Short Message Service in another MRT network. However, it should not be inferred from this temporary arrangement to the matter of allowing collection of payment for a Short Message Service that did not reach it's destination, and it does not detract from the Ministry's basic position that as a rule, no payment shall be charged for a Telecommunication Service that was not completed.
Section B1 – Service Package in Israel302
30375D. Notice of Utilization of Services304 in Israel305
75D.1 Cancelled.306
75D.2 Notices regarding utilization of a service package
(a) If a subscriber purchases a service or a package of services for which a unit quota has been set, the Licensee shall notify the subscriber by SMS of his utilization ratio of the Quota of Units, when the subscriber utilizes 75% and 100% of the Quota of Units in the service package or of each of the services included therein. The SMS shall be sent to the subscriber as close to the time that the subscriber reaches each of the said utilization ratios. The SMS shall be sent to the subscriber’s telephone number and to an additional telephone number, insofar as the subscriber defined one at the time of his engagement with the Licensee. The SMS shall be sent at no charge, and shall include the utilization ratio of the package or the service, the date when the subscriber reached the said utilization ratio, while specifying the date and time when the utilization ratio was determined, the tariff for exceeding the service package or each of the services included therein, insofar as a deviation is permitted, and the last day of the billing period. The said information shall be specified as relevant according to the following:
(1) call minutes;
(2) SMSs;
(3) cellular data (in MB);
(4) integrated call minutes and SMSs;
(5) integrated call minutes, SMSs and cellular data.
In this regard, “service package” – a number of services being marketed to subscribers as a package at a fixed monthly payment, including domestic calls, an international call service, SMS service or cellular data service, when an inclusive Quota of Units is defined for the package,307 or if a particular Quota of Units has been defined for each of the services included therein,308 or if the subscriber set a consumption maximum for the package in order to control consumption.
302 Amendment No. 87 303 Amendment No. 57 304 Amendment No. 87 305 Amendment No. 72 306 Amendment No. 87 307For example: in a package including 100 units of call minutes, SMSs and cellular data (in MB) for NIS 15, the subscriber shall receive an SMS according to his consumption in relation to all of the aforesaid services. For example: an SMS shall be sent after 75 units have been utilized and an additional warning message after 100 units have been utilized. 308For example: in a package including 100 call minutes, 100 SMSs and 50 MB of cellular data for NIS 20, the subscriber shall receive an SMS according to his consumption in relation to each of the aforesaid services. For example: an SMS shall be sent after 75 call minutes have been utilized and an additional warning message after 100 call minutes have been utilized. (b) Insofar as at issue is a international call service, the Licensee shall send notices as stated to the subscriber via the international system through which the calls are directed abroad.
(c) Insofar as at issue is a telephone line blocked from receiving SMSs, then voice messages shall be sent to the subscriber instead of SMSs. After hearing the voice message for the first time, the subscriber shall be given an option to hear it again by pressing a particular key, and the message shall be replayed for the subscriber as many times as he wants.
(d) The Licensee shall enable every pre-paid subscriber to receive updates at any time, free of charge, of the balance available to him and the expiration date of the budget available to him, by dialing a designated telephone number, after which the subscriber shall receive the said information either by voice message or by SMS.
75D.3 Consumption of a cellular data service by a subscriber who purchased a cellular data service
(a) When the subscriber reaches 100% utilization of the quota defined for the cellular data service, the Licensee shall suspend the cellular data service or slow the surfing speed. The Licensee shall sent an SMS to the subscriber at no charge, advising him about the suspension or slowdown of the service. If the Licensee enables the subscriber to continue surfing at a slower surfing speed, then it is not allowed to charge the subscriber for any additional payment beyond the fixed monthly payment for the cellular data service.
(b) The Licensee may continue providing the cellular data service to a subscriber for an additional payment after he utilizes 100% of the quota defined for the cellular data service, provided that the subscriber requested this explicitly, as specified in clause 60.6, during the billing period when he utilized 100% of the quota defined for the cellular data service; the Licensee shall document the subscriber’s explicit request as stated, shall retain the documentation in its possession, and shall make it available for delivery or forwarding to the Manager, upon his request, within five (5) workdays of the submission of the request.
When engaging in the engagement with the Licensee, the subscriber may refuse to continue receiving the cellular data service for an additional payment after he utilizes 100% of the quota defined for the cellular data service prior to the end of the billing period.
This shall be conspicuously stated in the advertisements of the relevant plans on the Licensee’s website, insofar as they are advertised on the website, and by a representative of the Licensee when conducting a sale conversation.
For example: in a package including 100 call minutes, 100 SMSs and 50 MB of cellular data for NIS 20, the subscriber shall receive an SMS according to his consumption in relation to each of the aforesaid services. For example: an SMS shall be sent after 75 call minutes have been utilized and an additional warning message after 100 call minutes have been utilized. (c) If a subscriber purchases a package that includes cellular data, which is comprised of a basic cellular data package and of additional cellular data packages for utilization if he utilizes all of the basic cellular data package before the end of the billing period, for which a quantity of service units and a price has been defined, the subscriber may completely cancel the purchase of the additional cellular data packages that it purchased at any time, in writing or orally, and the Licensee shall stop providing him the additional cellular data packages and shall no longer charge him in respect thereof as of the date of his request and thereafter.
This shall be conspicuously stated in the advertisements of the relevant plans on the Licensee’s website, insofar as they are advertised on the website, and by a representative of the Licensee when conducting a sale conversation.
(d) If a subscriber purchases a package that includes a basic cellular data package, the subscriber may ask the Licensee to block the access to the cellular data service at any time, in writing or orally, and the Licensee shall comply with his request.
75D.4 Consumption of a cellular data service by a subscriber who did not purchase a cellular data service
(a) The Licensee shall block cellular data surfing for a Non-Business Subscriber from who did not purchase a cellular data service with a surfing volume defined in an agreement between him and the Licensee.
(b) If the Licensee blocks the cellular data service as stated in subclause (a), the subscriber may contact the Licensee via telephone call with a service representative for the purpose of reconnecting the cellular data service, and the Licensee shall charge the subscriber according to the surfing volume that he ordered or consumed. The Licensee’s representative must advise the subscriber of the cellular data tariff per 1 MB. The subscriber’s request and documentation thereof shall be done as stated in clause 60.6.309
309Amendment No. 87 Section B2 – International Roaming Service Package310
31175E Charges for International Roaming Services
75E.1 Definitions312 in this article:
"arrangement"- - a package or plan that includes cellular data or calls or SMSs;313 “cellular data arrangement” - package or plan that includes cellular data;314 “call or SMS arrangement” - package or plan that includes calls or SMSs;315 "cellular data offer316"- - an offer of three packages or various plans that the Licensee may have that include data that have been offered to the Licensee's subscribers in the month preceding the month in which the package offers were sent to the subscriber; “call or SMS arrangement offer” - an offer of three packages or various plans including a call or SMS service, insofar as the Licensee offers them, which have been offered to the Licensee's subscribers in the month preceding the date on which the arrangement offers was sent to the subscriber.317 "package" - a limited quantity of service units, that can be used during a limited period through international roaming abroad, that are sold at a known and predetermined price and is valid for certain destinations "abroad or destination" - a country, including a vessel at sea and an aircraft; "Mb" - Mbyte
“blocked subscriber” - subscriber who did not request constant access to cellular data services on the service access form; “open subscriber” - subscriber who requested constant access to cellular data services on the service access form;318 cellular data or cellular data service" - cellular data service abroad "plan" - a tariff plan for a limited period of time or for a specific trip abroad319 for the use of services through international roaming abroad (for example: voice service, sending and receiving sms and cellular data) to destinations included in the plan and the payment for the services shall be made in accordance with the use; the service tariffs included in the plan are different from the tariffs for these services for a subscriber that did not enroll in the plan; the plan can determine a set payment that does not depend on usage
310 Amendment No. 87 311 Amendment No. 72 312 Amendment No. 87 313 Amendment No. 87 314 Amendment No. 87 315 Amendment No. 87 316 Amendment No. 87 317 Amendment No. 87 318 Amendment No. 87 319 Amendment No. 73 “Full tariff” - tariff per call minute, for an SMS and for 1 MB other than within the scope of an arrangement; “Discount tariff” - tariff per call minute, for an SMS and for 1 MB within the scope of an arrangement.320
75E.2 Notices about utilization of an international roaming service package and about a full tariff for calls and SMSs
(a) An arrangement that a subscriber purchases shall come into effect on the date defined by the subscriber at the time of his purchase.
(b) (1) The Licensee shall send test messages to a subscriber who purchases an arrangement, when the subscriber utilizes 75% and 100% of each of the following:
((a)) the number of service units or the defined sum of money defined for payment in respect of consumption of the services;
((b)) the period of validity of the arrangement.
(2) The test messages shall be sent at no charge, as close to the time that the subscriber reaches the said utilization ratio; the SMSs shall include notice to the subscriber that he reached the utilization ratios as stated, the number of service units remaining, the number of days remaining until the expiration of the validity of the arrangement, the calculation date of the utilization (date and time), the tariff for exceeding the arrangement, insofar as a deviation is permitted.
(3) In this clause, “service units” shall be according to the following:
((a)) calls – call minutes;
((b)) SMSs – the number of SMSs sent;
((c)) cellular data – the cellular data volumes in MB or GB.
(4) In packages bundling call services, SMSs or cellular data, the utilization ratio of the package shall be calculated according to the said service units.
(5) The Licensee shall send an SMS to a subscriber who did not purchase a call or SMS arrangement, or if the arrangement that he purchased does not include the destination he contacted, at no charge, immediately upon the subscriber reaching any destination as stated, that shall state that outgoing calls, incoming calls and the sending of SMSs shall involve payment according to the Full Tariff. The SMS shall also include a call or SMS arrangement offer.
320 Amendment No. 87 (6) The Licensee shall document the SMSs referred to in this clause, as specified in clause 60.6(c), shall retain the documentation in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the day they were sent.
321
(c) 322Notwithstanding the aforesaid in article 75E.2 (a)-
1) The Licensee shall be exempt from sending an SMS to a subscriber regarding the utilization of the package that he purchased, as set forth in article 75E.2(b)(1)323 if the following apply:
(a) The subscriber purchased the package before March 31, 2014;
(b) The subscriber specifically agreed in writing to waive the receipt of an SMS as set forth in article 75E.2(b)(1)324;
(c) The Licensee proved to the satisfaction of the Director that a technological limitation that is not under its control prevents it from receiving an online indication or close to an online indication with respect to the execution of calls by direct dialing.
2) If a subscriber uses MRT equipment that does not support SMSs, including tablets with SIM cards and cellular modems, the Licensee will require the subscriber when he purchases the package an alternative means of communication (for example whatsapp, viber, skype applications, email or voice mail) ("alternative means"); if the subscriber provided alternative means, the Licensee will send the messages regarding said package utilization in article 75E.2(b)(1)325by alternative means.
75E.3 Blocking of cellular data service to a Non-Business Subscriber, to a Split Business Subscriber with cellular data via international roaming, to a blocked Business Subscriber and to a subscriber without a cellular data arrangement
(a) If a Non-Business Subscriber or a Split Business Subscriber that is charged in respect of cellular data service via international roaming (hereinafter – “Split Business Subscriber with Cellular Data Service via International Roaming”) or a blocked Business Subscriber purchases a package that includes cellular data, the Licensee shall block the access to the cellular data service after the full utilization of the package or upon the expiration of the validity of the package, whichever is earlier, at no charge, and the subscriber shall not be required to pay any payment whatsoever for the cellular data service beyond the payment known in advance for the package that it purchased. The Licensee shall send an SMS to the subscriber, at no charge, about the blocking as stated, shortly before the blocking date. The SMS shall include a cellular data arrangement offer.
321 Amendment No. 87 322 Amendment No. 73 323 Amendment No. 87 324 Amendment No. 87 325 Amendment No. 87
If a Non-Business Subscriber or a Split Business Subscriber with Cellular Data Service via International Roaming or a blocked Business Subscriber purchases a package that includes cellular data, which is comprised of a basic cellular data package and additional cellular data packages for utilization after the full utilization of the basic cellular data package, for which a number of service units and price has been defined for each of them, or which is comprised of a basic cellular data package, when after its full utilization or until it expires, the subscriber is charged according to a discount tariff, the subscriber may cancel the purchase of the additional cellular data packages that he purchased or the additional cellular data at a discount tariff that he purchased, at any time, in writing or orally, and the Licensee shall stop providing him the additional cellular data packages or the additional cellular data at a discount rate and shall no longer charge him in respect of cellular data as of the date of his request and thereafter.
The Licensee shall document the subscriber’s explicit request as stated, as specified in clause 60.6(c), shall retain the documentation in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the submission of the request.
When engaging in the order of the service from the Licensee, a Non-Business Subscriber or a Split Business Subscriber with Cellular Data Service via International Roaming or a blocked Business Subscriber may refuse to continue receiving the cellular data service for an additional payment after he utilizes 100% of the basic package defined for the cellular data service, as specified in clause 75E.2(b)(1).
This shall be conspicuously stated in the advertisements of the relevant plans on the Licensee’s website and by a representative of the Licensee when conducting a sale conversation.
(b) The Licensee shall block the access to cellular data service to any subscriber, at no charge, immediately upon his arrival abroad, unless the subscriber has fulfilled the conditions specified hereunder:
(1) the subscriber has a cellular data arrangement;
(2) the subscriber asked to be an open subscriber.326
(c) If a subscriber does not fulfill one of the conditions specified in subclause (b), and the Licensee did not block the subscriber to cellular data service, then the Licensee shall not charge the subscriber in respect of cellular data service.
326An “open” status on the service access form, without a cellular data arrangement, is relevant solely to a Business Subscriber; a Non-Business Subscriber and a Split Business Subscriber with Cellular Data via International Roaming, without a cellular data arrangement, shall be blocked from cellular data as the defult mode. (d) The Licensee shall block, at no charge, the access to cellular data service, as stated in subclause (b) and shall not charge a Non-Business Subscriber or a Split Business Subscriber with Cellular Data Service via International Roaming or a blocked Business Subscriber in respect of cellular data service, as stated in subclause (c), at any time that the subscriber, as stated, who purchased a cellular data arrangement, reaches a destination that is not included in the cellular data arrangement. The Licensee shall again reinstate the cellular data service immediately and automatically to the subscriber, as stated, and without the subscriber having to perform any manual operation, at any time that the subscriber is located in a destination that is included in the cellular data arrangement.
(e) The Licensee shall send an SMS to the subscriber as stated, at no charge, about the blocking as stated in subclauses (b) and (d), shortly before the blocking date, and shall specify the reason for the blocking and the ways to contact the Licensee in order to open the blocking. The SMS shall include a cellular data arrangement.
(f) The ordering of cellular data service by a blocked Business Subscriber, while it is abroad, after its access to the cellular data service had been blocked, in order to enable him access to cellular data service without purchasing a cellular data arrangement, shall be carried out through a telephone conversation with a representative of the Licensee, who shall advise the subscriber about the full tariff for cellular data per 1 MB. The access to the cellular data service shall be opened after the subscriber confirms the full tariff for cellular data that was quoted to him. Clause 60.6 shall apply to documentation of the order, and the documentation shall also include the subscriber’s verified identification particulars and his confirmation, as stated.327
75E.4 Cancelled.328
75E.5 Blocking of cellular data service to an open Business Subscriber329
(a) The Licensee shall send a test message, at no charge, to an open Business Subscriber who did not purchase a cellular data arrangement, or if the cellular data arrangement that he purchased does not include the country to which he arrived, immediately upon his arrival abroad, which shall include a warning about possible consumption of chargeable cellular data service, without the subscriber initiating any action to consume cellular data, and the message shall also include the tariffs for cellular data without a purchase of a cellular data arrangement. The SMS shall also include a cellular data arrangement offer.
The Licensee shall document the sending of the said SMS to the Business Subscriber, as specified in clause 60.6(c), shall retain the documentation in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the sending of the SMSs.
327Amendment No. 87 328Amendment No. 87 329Amendment No. 87
(b) The Licensee shall send SMSs, at no charge, to an open Business Subscriber who purchased only a basic package whereby the tariff after the full utilization of the package is a discount tariff or a full tariff, and the messages shall include notice regarding the package utilization ratio, as stated in clause 75E.2(b), and the tariff, as stated.
The Licensee shall document its sending of the said SMSs to the Business Subscriber, and about the subscriber sending the said SMSs to the Licensee, if sent, as specified in clause 60.6(c), shall retain the documentation in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the sending of the SMSs.330
75E.6 The Licensee will notify its subscribers in the telephone bill following the date of signature of the license amendment, with respect to the possibility to request to be blocked for cellular data by filling out a "service access form" that appears on the Licensee's website. The subscriber may send the said form to the Licensee by regular mail, e-mail, fax or by an online form on the Licensee's website, if the Licensee's website supports this possibility.
75E.7 The Licensee shall display on its website information regarding the subscriber's ability to block access to cellular data also through the handset, as long as said blockage does not block the ability to roam in Israel.
75E.8 The Licensee shall display on its website information about services that consume chargeable data volume without an active initiated action by the subscriber, for example: automatic synchronization of e-mail and updates of different applications.
75E.9 Charges for international roaming services according to a rate per unit shall be done retroactively in the telephone bill, after consuming the services and not in advance. If a subscriber purchases an arrangement that includes a payment that is known in advance, the charge will be done for this payment in the bill for the period during which the transaction became effective.
75E.10 Without derogating from the aforesaid in Article 55A, Article 60.6 shall apply to "remote sales transactions" of services through international roaming services.
75E.11 The Licensee will send as soon as possible, free of charge, an SMS to each subscriber that purchases services through a remote sales transaction of services through international roaming services, that includes the main points of the transaction, and no later than the end of the day on which the remote sales transaction was made.
Insofar as the transaction for the purchase of calls or SMSs does not include destinations abroad, the said SMS shall advise that outgoing calls and the sending of SMSs to destinations abroad shall be charged according to the Full Tariff.
330Amendment No. 87 The Licensee shall document the sending of the said SMS, as specified in clause 60.6(c), shall retain the documentation in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the transaction execution date.331
In addition, the Licensee will note information regarding the said " remote sales transaction " in the telephone bill following the date of the execution of the transaction, in accordance with the billing period of the subscriber, that includes the telephone number for which the transaction was executed, the date of the transaction, the amount and types of services that were purchased through international roaming services, the number of days allocated for the use of the services, the date and time of beginning of provision of the services, the price of the services purchased, the price according to which the charge will be done for consuming the services beyond the package, if a package is purchased and the manner of rounding up every amount consumed (hereinafter- "transaction details").
The Licensee shall retain a copy of the Telephone Bill that specifies the details of the transaction in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the transaction execution date.
75E.12 In a transaction for the purchase of services through international roaming services that was done in the presence of the Licensee's representative and the subscriber, the subscriber shall be given at the time of the agreement execution a printed confirmation that includes the transaction details. The Licensee shall retain a copy of the confirmation as stated in its possession and shall make it available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the transaction execution date.332
75E.13 The Licensee will publish on its website all of the arrangements being marketed333 to private subscribers as well as the tariffs of all international roaming services for subscribers without arrangements, for all the destinations for which the Licensee has an international roaming agreement. The Licensee will not charge a subscriber for international roaming services that was done at a destination that was not published as set forth above before the charge.
75E.14 The tariff for cellular data will be noted by the Licensee every place where it is noted in units of NIS 1 per Mb.
75E.15 The cellular data tariff for 1 Mb for a subscriber that does not have a cellular data334 arrangement will be lower than the price of the cheapest package offered by the Licensee.
75E.16 The purchase of a cellular data335 arrangement, in Israel or abroad, does not change the default listed in the updated service order form except for the period of that cellular data336 arrangement.
331Amendment No. 87 332 Amendment No. 87 333 Amendment No. 87 334 Amendment No. 87 335 Amendment No. 87 336 Amendment No. 87 76. Publication of Tariffs
76.1 The Licensee shall make available to anyone who requests, at the service offices and referral centers, and without charge, full and detailed information regarding updated tariffs for all its services including payment for Call Completion; the Director may instruct the Licensee in regard to the manner and form in which tariffs are to be published, as aforesaid.
76.2 The Licensee shall specify in every account statement sent to the Subscriber, the Basket Of Services for which the Subscriber is being charged.
76.3 The Director may at any time require the Licensee to furnish him with details of the tariffs that it charges.
77. Deleted337
77A. Prevention of Fraud
77A.1 The Licensee shall take appropriate and reasonable steps to prevent fraud and shall establish a system for supervision and follow-up, in order to ensure, as far as possible, that calls for which a Subscriber is charged are in fact made from the Terminal Equipment that is connected to the MRT system of the Licensee in the Subscriber’s name.
77A.2 The Licensee shall disconnect the Subscriber’s Terminal Equipment from service after receipt at its service offices of a notification from the Subscriber that the Terminal Equipment has been lost or stolen, or that a suspicion exists that another is making calls though it without having received permission to do so; the Subscriber is permitted to give notification as stated by telephone or in writing, including fax and electronic mail; upon receipt of the telephone notification or immediately following receipt of written notice the Licensee shall verify its reliability, and shall disconnect the service.
77A.3 The Licensee shall cooperate with other Licenses in locating and preventing fraud.
337 Amendment No 41
Section C – Amendments to Tariffs
78. Change in Tariffs338
78.1 Subject to that stated in clause 75, the Licensee may change a tariff or a number of the service units being allotted for a billing period (hereinafter – “the Number of Units”) of any service or bundle of services (hereinafter in this clause – “service”) that it defines, provided:
(a) that it sent written notice to the Director between fourteen (14) and twenty-one (21) days before the effective date, in which it specifies the name of the service, the tariff or the new Number of Units, and their effective date, and the tariff or Number of Units prior to the change. The obligation to send notice of a change to the Director shall not apply to a change defined from the outset in the engagement agreement, when the subscriber subscribed to the service or the service bundle.
(b) that it sent prior written notice to every subscriber who subscribed to the service, specifying the name of the service, the tariff or the new Number of Units, and their effective date, and the tariff or Number of Units prior to the change, between fourteen (14) and twenty-one (21) days before the effective date.
Notwithstanding that stated, with regard to a tariff reduction, the Licensee may send the notice to the subscriber up to one month after the reduction.
For the purposes of this section, “change” means – any change in tariff that could cause an increase or decrease in the pre-VAT payment that a subscriber must pay for the Licensee’s services or any reduction in the number of service units allotted for a billing period, without a change in tariff.
(c) Notice as stated in subclause (b) shall be sent to a subscriber who has access to the receipt of SMS services via SMS and, to a subscriber blocked from the receipt of SMS services, by voice message. After hearing the voice message for the first time, the subscriber shall be given an option to hear it again by pressing a particular key, and the message shall be replayed for the subscriber as many times as he wants.
(d) The Licensee shall retain documentation of the sending of the notice as follows:
(1) a printout of the log from the server of the short message service center (SMSC), as specified in clause 60.6(c);
(2) recording of the voice message as specified in clause 106A.
338 Amendment No. 41 The Licensee shall make the documentation of the sending of the notice available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the sending thereof.
(e) The obligation to send notice of a change to a subscriber shall also apply to a change defined from the outset in the engagement agreement, when the subscriber subscribes to a service or to a service bundle or to a tariff plan.
(f) The Licensee shall specify in the telephone bill that a change came into effect during his billing period, under the “bill details,” as specified in clause 9(a) in Appendix E.1, the tariff or the new Number of Units and the effective date, and the tariff or Number of Units prior to the change.
The Licensee shall make a copy of the Telephone Bill available for delivery or forwarding to the Director, upon his request, within five (5) workdays of its production date.
(g) Insofar as the Licensee provided a service to a subscriber that is other than a voice or SMS or cellular data service, at a discount or for free for a defined period, including a service that is other than a telecommunications service, the Licensee shall send an SMS to the subscriber about the change in the tariff, as specified in clause 78.1(b), in which the subscriber shall be asked to send a reply SMS to the said SMS, which includes the digit zero (0), and this, if he is no longer interested in continuing to receive the service for a charge. If the subscriber sends an SMS to the Licensee, which includes the digit zero (0), then it is no longer allowed to continue or to start charging the subscriber in respect of the said service at the end of the said period. Documentation of the sending of the SMS by the Licensee to the subscriber shall be done as specified in clause 60.6(c), and the contents of the SMS shall be documented.
The Licensee shall make the said documentation available for delivery or forwarding to the Director, upon his request, within five (5) workdays of the sending of the SMS.339
79. Commencement of Increase or Reduction of a Tariff
If the amount of any tariff for MRT services pursuant to the provisions of the license has been raised or lowered, the increase or decrease shall not apply to payments made for such a service prior to the date of commencement of the increase or decrease; the increase or decrease shall apply only with regard to payments for MRT services that were provided to the Subscriber after the date of the increase of decrease. The provisions of this clause shall not apply in the case of an amendment of a tariff pursuant to the instructions of the Minister under clause 83.
80. Late Payments
80.1 The Licensee may charge a Subscriber interest, linkage and collection costs for payments for MRT services not paid by the Subscriber on the due date as specified in the payment notice that was sent to the Subscriber, in accordance with the service contract340 between them (hereinafter: the “date of payment”).
339 Amendment No. 87 80.2 Deleted341.
80.3 The amount of interest charged shall not be greater than the amount set out in the definition of “interest linkage” in section 1 of the Interest Linkage Adjudication Law 5721-1961, together with linkage for the period between the date on which the payment is due and the date of actual payment of the specified amount.
80.4 The Licensee shall be permitted to charge a Subscriber with payment for collection costs for a payment for services provided to the Subscriber that were not paid on the due date (hereinafter- "the amount due") on condition that at least fourteen (14) days have elapsed from the payment date, except in the case of non-payment due to refusal by a bank or credit card company to pay a charge which the Licensee has authorization to collect; The amount of collection costs that the Licensee will charge, shall be reasonable and relatative in regard to the amount due and the actions that the Licensee must take to collect the said amount.
For this matter, "collections costs"-including legal actions that the Licensee or anyone on the Licensee's behalf takes to collect the amount due before filing an application with the courts.342
340 Amendment No. 32 341 Amendment No. 41 342 Amendment No. 32 Section D – Miscellaneous
81. Connection Fee343
(a) A connection fee and a SIM card fee shall be uniform, regardless of the type or model of the Terminal Equipment, the type of SIM card, the generation of the network technology to which the subscriber’s Terminal Equipment shall be connected, etc.344
(b) The Licensee may, should it resolve to charge a Connection Fee as defined in Paragraph 74(A), to charge the subscriber for a Connection Fee only for the initial connection of the Subscriber to the MRT System and provision of MRT System and provision of MRT services, or forconnection after the conclusion of an engagement pursuant to clause 69D.. 345
(c) The Licensee is not allowed to collect a connection fee from a subscriber as long as the connection of the Terminal Equipment has not been completed, including activation of the SIM card.346
81A. SIM card fee
(a) The SIM card fee must be reasonable relative to the cost of the SIM card to the Licensee.
(b) The SIM card fee shall be uniform regardless of the type or model of the Terminal Equipment, the type of SIM card, the generation of the network technology to which the subscriber’s Terminal Equipment shall be connected, etc.
(c) The SIM card fee shall not be included in the price of the Terminal Equipment, and shall be presented separately in the engagement agreement, in the subscriber’s telephone bill and in advertisements of a tariff plan on the Licensee’s website, if advertised
(d) Insofar as the Licensee shall charge the subscriber for a SIM card fee, it shall be allowed to collect the payment from him only as a one-time payment in the first telephone bill after the delivery or sending of the SIM card. If the Licensee does not do so, it shall not be allowed to collect the said payment from the subscriber subsequently, and it shall not be allowed to collect the said payment from the subscriber, or any other payment, if he does not return the SIM card as a result of termination of the engagement betweeen them.
(e) The Licensee is not allowed to collect a SIM card fee from the subscriber in respect of a replacement of the SIM card, due to a malfunction in it.
343 Amendment No. 87 344 Amendment No. 87 345 Amendment No. 87 346 Amendment No. 87 (f) The Licensee is not allowed to discriminate against a subscriber during the collection of a SIM card fee because he did not purchase the Terminal Equipment from it.
(g) Insofar as a subscriber has a SIM card that was issued to him by the Licensee, which had been used by the subscriber in the past and was disconnected due to the termination of the engagement, and the subscriber asks to activate it in order to resume being a subscriber of the Licensee, the Licensee shall do so and it shall not be allowed to collect a SIM card fee from the subscriber.347
82. Collection of a Connection348 Fee In Installments
The Licensee is permitted to collect the Collection Fee set out in Paragraph 82 for connection to the MRT System in a number of payments, on dates agreed with the Subscriber and in amounts set out in the service contract.
83. Harm to Competition or to Consumers
(a) If the Minister finds that one of the Licensee’s tariffs or a demand for payment to, or via the Licensee contravene the provisions of the License, then the Minister shall notify the License of such, specifying the required amendment and that in the event it is not amended the Minister shall exercise his authority pursuant to sections 5 and 15 of the Law; the Licensee shall furnish the Minister with written notification specifying the amended tariff and shall act to refund the extra amount, if any, to Subscribers charged according to the tariff prior to its amendment.
(b) If the Minister finds that one of the Licensee’s tariffs or a demand for payment to, or via, the Licensee are not reasonable or may cause harm to competition or to consumers, then the Minister shall notify the Licensee of such specifying the required amendment and that if it is not amended the Minister shall exercise his authority pursuant to sections 5 and 15 of the Law; the Licensee shall furnish the Minister with written notification specifying the amended tariff.
83A349 Overcharging
(a) The Licensee is allowed to collect payments from a subscriber only in conformity with that specified in its engagement agreement with the subscriber, and in conformity with the provisions of clauses 74.3(c) – 74.3(f)350;
(b) If a subscriber submits a complaint to the Licensee that the Licensee collected a sum in addition to the sum that it is allowed to collect pursuant to the engagement agreement (hereinafter – “Overcharge”), the Licensee shall clarify the subscriber’s complaint within ten (10) workdays of the date of receipt of the complaint. For the purposes of this clause, “complaint” – whether written or oral, including a subscriber’s inquiry to the Licensee to clarify the details of the charges; “date of receipt of the complaint” – in relation to a written complaint – the date of receipt of the complaint by the Licensee and, in relation to an oral complaint – the day the complaint was voiced to the Licensee.
347 Amendment No. 87 348 Amendment No. 87 349 Amendment No. 57 350 Amendment No. 87
The Licensee shall document the contents of the complaint in its information system immediately upon its submission, and the outcome of the clarification of the complaint, immediately upon completing the clarification, and shall make this documentation available for delivery or forwarding to the Director, upon his request, within five (5) workdays of completing the clarification of the complaint.351
(c) If the Licensee found that it had overcharged the subscriber, the Licensee shall refund the subscriber for the overcharge in a single payment, unconditionally, and shall refund the VAT in respect of the said sum, plus “linkage differentials and interest,” as defined in section 1 of the Award of Interest and Linkage Law, 5721 – 1961, from the collection and until the date of the actual refund, as specified hereunder:
(1) If the sum of the refund is higher than NIS fifty (50), the refund shall be transferred directly to the subscriber’s means of payment (bank account or credit card) within four (4) workdays of the end of the period prescribed in subclause (b). Notwithstanding that stated, the Licensee may refund the said refund to a Business Subscriber by crediting the next telephone bill, if the Business Subscriber expressly agrees to this.
(2) If the sum of the refund is NIS fifty (50) or less, the Licensee shall refund the refund by crediting the next telephone bill after the end of the period prescribed in subclause (b). If the sum of the refund exceeds the sum for payment in the next telephone bill as stated, the balance shall be transferred directly to the subscriber’s means of payment, within four (4) workdays of sending the telephone bill to the subscriber; the matter of the offset of the balance of the refund from the telephone bill or the matter of the transfer of the balance of the refund to the means of payment shall be stated in the relevant telephone bill;
(3) Notwithstanding that stated in subclauses (1) and (2), the sum of the refund to a pre-paid subscriber shall be refunded by increasing the balance available to the subscriber.352
(d) The Licensee shall issue a written response to the subscriber of his complaint within twenty-one (21) workdays of the date of receipt of the complaint. The response to the complaint shall include details of the rationale for rejecting the complaint and, insofar as the rationale relates to the terms of the engagement agreement, then the Licensee shall attach it to its response, refer to the clause therein pursuant whereto the charge was included in the telephone bill, and details of the mode of its calculation, or specifying the sum of the refund and details of its mode of calculation.
351 Amendment No. 87 352 Amendment No. 87 (e) (1) The Licensee shall document any subscriber complaint in its information system regarding an Overcharge, that was submitted in writing or orally.
(2) The Licensee shall retain a copy of its response, as stated in subclause (d), in its possession; if the Licensee sent its response via electronic mail or facsimile, the Licensee shall retain a copy of its response and a copy of the transmission confirmation (hereinafter – “Copy of its Response”).
(3) The Licensee shall make the complaint and the Copy of its Response available for delivery or forwarding to the Director, upon his request, within five (5) workdays of sending the response to the subscriber.353
353 Amendment No. 87
Chapter G - Payments from the Licensee, Liability, Insurance and Guarantee
Section A - Royalties and Payments
84. Royalties
84.1 354The Licensee shall pay royalties as set out in the Telecommunications Regulations (Royalties), 5761-2001 or any other regulations that may replace those (hereinafter: the “Royalty Regulations”).
84.2 The Licensee shall attach two copies of an unaudited quarterly income statement, signed by the Licensee and approved by an accountant, to any payment of royalties under this clause; such statement shall include details of the calculation of dutiable income in accordance with the Royalty Regulations, and any other detail upon which the Licensee based the sum of the royalties.
84.3 Upon submission of an annual audited statement of income, signed by the Licensee’s accountant (hereinafter: the “Audited Statement”), the Licensee shall submit a statement set out by quarters, detailing the correspondence between the income in respect of which it paid royalties and the income appearing in the Audited Statement (hereinafter: the “Adjusted Statement”).
84.4 Where it becomes apparent that the sum of royalties that the Licensee was required to pay under the Adjusted Statement is higher than the sum paid by it for the quarter to which the Audited Statement relates, the Licensee shall pay royalty differentials, together with interest and linkage differentials as set out in the Royalty Regulations.
84.5 Where it becomes apparent that the sum of royalties that the Licensee is required to pay under the Adjusted Statement is lower than the sum paid by it for the quarter to which the Audited Statement relates, the Licensee shall be credited with the sum of the surplus payment; surplus payments to which the Licensee is entitled shall be set off, upon written approval by the Director, against the next royalties payment, and interest and linkage differentials shall be calculated in accordance with the last index published prior to the date of the setoff, as aforesaid; for these purposes, interest and linkage differentials shall be as set out in the Royalty Regulations.
85. Delay in Payment of Royalties
The Licensee shall pay linkage differentials, arrearage interest and collection costs as set out in the Royalty Regulations, on royalties not paid in the time prescribed for their payment under said regulations.
86. Manner of Payment of Royalties
Royalties and linkage differentials, arrearage interest, and collection fees therefor, shall be paid to the accountant of the Ministry of Communications by way of bank transfer into the account of the Ministry of Communications.
87. Other Obligatory Payments
The royalties under this section shall be in addition to any fee, tax or other obligatory payment that the Licensee is required to pay under the provisions of any law.
354 Amendment No. 14
Section B - Liability and Insurance
88. Definition of the Scope of Liability
In this section:
“Use of the License” - The establishment of an MRT System, its installation, subsistence, maintenance or operation, either by the Licensee or through its agent, including its employees, contractors, agents or representatives.
89. Liability of the Licensee
89.1 The Licensee will be liable, pursuant to all laws, for any case of death, damage or loss caused to a person or his property, either directly or indirectly, from Use of the License or as a result of its use.
89.2 In using the License, the Licensee will take all reasonable steps to prevent damage or loss to a person or his property, and should damage or loss be incurred as a result of the Use of the License, the Licensee will repair the damage at its expense and compensate the injured party, all pursuant to all laws, with the exception of a case regarding which the Minister has granted it immunity as set out in Paragraph 90.
89.3 For the avoidance of doubt, the provisions of this paragraph do not place liability on the Licensee beyond the damage liability set out in the regular Civil Wrongs Laws or detract from such liability.
90. Immunity from Liability
90.1 The Minister may, on request from the Licensee, grant it the immunities enumerated in Section 9 of the Law, wholly or partially, subject to the provisions of Paragraph 90.3.
90.2 The Licensee will detail in its request the immunities it requests and the reasons for so doing. 90.3 If the Minister is satisfied by the need to grant the Licensee immunities in accordance with Section 9 of the Law, he will publish his decision in the Official Gazette.
91. Drawing Up an Insurance Contract
91.1 The Licensee, at its own expense, will draw up an insurance contract with an authorized insurer in accordance with the provisions of Paragraph 92, and it will be presented to the Director at the award of the License.
91.2 The Licensee will indemnify the State for all financial liability, as set out in Paragraph 89.1, that the State will be bound to any third party as a result of the Use of the License; indemnification in accordance with this paragraph will be insured by the Licensee in liability insurance.
91.3 The Licensee will insure itself, including its employees and contractors, against any financial liability as set out in Paragraph 89.1, which might bind it pursuant to all laws as a result of damage caused to person or his property, from Use of the License and against any loss or damage caused to the MRT system, wholly or partially, from Use of the License, and including third party risk.
91.4 The Licensee will provide the Director with a legal opinion, written by an attorney specializing in insurance, that confirms that the insurance policy covers all the requirements set out in Paragraphs 91.2 and 91.3; the Licensee will append to the said legal opinion a copy of the insurance contract and its annexes; the said documents will be submitted to the Director within seven (7) days from the signing of the insurance contract and will be appended to this License as Appendix G to the Second Annex.
92. Conditions in the Insurance Contract
92.1 The insurance contract will determine the period of insurance and will contain a condition stipulating that at the end of the set period, the insurance will be automatically extended.
92.2 Once a year, the Licensee will present to the Director confirmation from the insurer that the insurance contract is valid, that the Licensee is not in arrears with insurance premium payments and that there are no pending notices regarding cancellation, suspension, limitation, amendment or termination of validity of the insurance contract.
92.3 The insurance contract will contain a stipulation, according to which in any event of the insurer wishing to cancel the insurance contract as a result of non-payment of insurance fees, he must inform the Director in advance, no less than ninety (90) days before he intends to actually cancel the contract (hereinafter in this paragraph “Cancellation Notice”).
92.4 Should a Cancellation Notice be sent as set out in Paragraph 92.3, the Licensee will take immediate action to remove the cause of the cancellation, or will take immediate action to obtain an alternative insurance contract as set out in Paragraph 92.6, and notify the Director of the action it has taken; should the cause of the cancellation be non-payment of insurance fees by the Licensee, the Director may make payment of said fees in its place, and may foreclose the bank guarantee or any part thereof to cover the expense incurred by payment of the insurance fees, or collect them in any other way.
92.5 Should the Licensee request the cancellation of the insurance contract, it will inform the Director in this matter within forty five (45) days at least before it intends to actually cancel the contract. 92.6 Should the Licensee agree to cancellation of the insurance contract by the insurer, or it has requested to do so itself, the Licensee will draw up an insurance contract with another authorized insurer in such a way that the new insurance contract will go into effect at the same time as the validity of the previous contract expires; the new insurance contract will be submitted to the Director, together with the legal opinion set out in Paragraph 91.4, at least thirty (30) days before it goes into effect, and it will be subject to the instructions in the paragraphs of this section.
93. Remedy for Breach of Insurance Conditions
Should the Licensee not draw up an insurance contract, or if it becomes clear that the insurance contract it drew up has been cancelled or it has expired, and the Licensee has not drawn up a new insurance contract as set out in Paragraph 92.6, the Director may execute the insurance in its place and pay the insurance fees, and may foreclose the bank guarantee to cover the expense incurred by payment of the insurance fees, or collect them in any other way; all of the above without derogating from the authority to cancel, limit or suspend the License because of non-execution of the insurance according to the conditions of this License by the Licensee.
Section C - Guarantee for Fulfilling the Conditions of the License
94. The Guarantee and its Objective
94.1 355The Licensee shall forward to the Director General an unconditional bank guarantee from an Israeli bank/ autonomic insurance from an Israeli company (hereinafter – the "Guarantee") in favor of the State of Israel in NIS to ensure the fulfillment of the conditions of the License; the Guarantee amount, its phrasing and undertaking to extend the Guarantee shall be as stated in Appendix H to the Second Annex. .
94.2 The guarantee is used to ensure the fulfillment of the License conditions by the Licensee and their enforcement, and also for compensation and indemnification of the State for any damage, payment, loss or expense incurred or which may be incurred by the State, either directly or indirectly, as a result of non-compliance with the License conditions, wholly or partly, on their due dates and in full, or as a result of revocation of the License, its limitation or suspension.
95. Foreclosing the Guarantee
95.1 Without derogating from the generality of Paragraph 94.2, the Director may foreclose the guarantee, wholly or partly, if damage has been caused as a result of non-compliance with the conditions of the License, including every one of the following cases:
(A) Loss of income from royalties was caused to the State by a lack of income from subscriber payments, and as a result of the following:
(1) Non-operation of the MRT Services on the dates set in the schedule set by the Director, or as the Director approved;
(2) Termination of services, their suspension or limitation;
(3) Limitation of the License or its suspension;
(B) An insurance contract in accordance with Paragraphs 91 and 92 was not drawn up, insurance fees were not paid or the said insurance contract expired or was cancelled;
(C) 356The Licensee charges its Subscribers with payments in contravention of the provisions of clause 75;
(D) The Licensee does not meet the coverage and quality requirements of the service as set out in Appendix B 357and Appendix E does not meet the requirements regarding the Passive Components and the cellular radio centers as stated in Clause 19.2C, or the Licensee constantly terminates, suspends or limits the service contrary to the provisions of the License;
(E) Cancelled;
(F) The Licensee constantly or maliciously breaches one of the provisions, conditions or requirements of the License;
355 Amendment No. 83 356Amendment No. 14 357 Amendment No. 83
(G) A claim is filed, or a demand for payment of compensation and damages against the State for a breach of a condition of the License or deficient implementation of the License or due to the cancellation of the License, and also if expenses have been incurred by the State as a result of the said claim or demand; foreclosure of the guarantee to cover the sum of the said claim will only be executed after the verdict in the said claim has become final;
(H) Royalties have not been paid on time and in full in accordance with Paragraph 74;
(I) Expenses or damages were incurred by the State as a result of the cancellation of the License;
(J) Deleted358;
(K) The Licensee has not completed the guarantee payments as set out in Paragraphs 96.2 and 97.2.
(L) The Licensee has not presented reports and notices as specified in Paragraphs 103, 104, 105, on the due date.
359(M)The Licensee has not paid the license fee on the date required, in accordance with the provisions of clause 40.1 of the terms and conditions of Tender No. 1/01.
(N) A monetary sanction under the Law has been imposed upon the Licensee and the sum required has not been paid on time, provided that a sum higher than the sum of the sanction shall not be forfeited
95.2 The Director may foreclose the guarantee in accordance with this section even for an expected breach of the License conditions or frustration of the License conditions that justify, in his considered opinion, early foreclosure of the guarantee.
96. Method of Foreclosure
96.1 The Director may foreclose the guarantee, wholly or partly, up to the sum specified therein, on condition that he has warned the Licensee that if within the period determined in the warning, the Licensee does not correct the act or omission that is the subject of the warning, the guarantee will be foreclosed, wholly or partly.
96.2 Should the entire sum of the guarantee or a part thereof be foreclosed, the Licensee will, on receiving the demand from the Director, immediately provide a new guarantee or make up the remainder to the sum of the original guarantee; failure to make up the sum of the guarantee will constitute a serious breach of the License conditions, and the Director may - without derogating from his authority to revoke the License, limit it or suspend it - foreclose any remainder of the sum of the guarantee;
96.3 Regarding the Director’s decision to foreclose the guarantee, wholly or partly, the Licensee may appeal to the Minister within fifteen (15) days from the day he was notified of the Director’s decision.
______358 Amendment No. 41 359 Amendment No. 14
97. The Period of Validity of the Guarantee
97.1 The guarantee will be valid during the entire period of validity of the License and also during two years after the validity of the License expires.
97.2 Should the Director see that the Licensee has not cleared all its obligations in accordance with the License, and this within sixty (60) days prior to the expiry of the guarantee, the Director may demand that the Licensee extend the validity of the guarantee for a period determined by the Director or submit a new guarantee as aforesaid, and the provisions of this section will apply to the new guarantee as well; should the Licensee not submit a new guarantee as set out above, the Director may foreclose the guarantee.
97.3 Should the Director approve receipt of a new guarantee, the validity of which may be extended from time to time in accordance with his demand, the Licensee will extend its validity, before the end of the expected period, and this for a period ordered by the Director; should the Director not exempt the Licensee from the obligation to extend the period of validity, and the validity of the guarantee has not been extended on the said date, the Director may foreclose the guarantee without prior warning.
98. Preservation of Remedies
98.1 Foreclosure of the guarantee, wholly or partly, does not derogate from the authority to revoke the License, limit it or suspend it.
98.2 The sum of the guarantee does not limit the scope of the Licensee’s liability to the State for full payment of damages caused to it, and the obligation of payment applies to the Licensee in accordance with the License or all laws.
98.3 The whole or partial foreclosure of the guarantee does not derogate from the right of the Director to claim from the Licensee, through any other course, payment of damages it is obliged to cover in accordance with this License or to employ other remedies available to it according to all laws.
Chapter H - Supervision and Reporting
Section A - Supervision of the Licensee’s Activities
99. Authority for Supervision
The Director or a person authorized by him may supervise the activities of the Licensee in all matters pertaining to the implementation of the License and the observation of the provisions of the Law, the Ordinance and the Regulations therein.
100. Confidentiality
The Director and any person engaged in supervision activities on his behalf over the Licensee, will not disclose any information or document that comes into their hands in the course of their duties, to a person not authorized to receive them, unless they have been made public, or if the disclosure is necessary for the purpose of fulfilling their duties in accordance with this License and in accordance with all laws.
101. Entering Premises and Inspection of Documents
For the purposes of the supervision as set out in this section, the Director may:
(A) Enter, at any reasonable time, any installation or office serving the Licensee for the purpose of provision of its services in accordance with this License;
(B) Conduct measurements and tests in the MRT System and he may examine any record, document, plan, account book, ledger or data base, regular or computerized, of the Licensee or whomever is employed by it in the matters on which the Director has the said supervisory authority; the Director may examine and copy them in any way he deems fit.
102. Cooperation
The Licensee will cooperate with the Director in all matters concerning the execution of the supervision over its said activities, and without detracting from the generality of the above, it will enable them the execution set out in Paragraphs 100 and 101 and will provide them, on request, any information in its possession or under its control that is required for execution of the supervision. Section B - Reporting and Fault Repair
103. Obligation to Submit Reports360
103.1 The licensee shall submit to the director the reports detailed in this license, in a format and on the dates set forth in this section.
103.2 Each report should reflect the correct and relevent facts regarding the subject of the report so that they are updated to the report period.
103.3 A report should be submitted in two (2) copies, printed and formattted in a manner that is easy to read and will bear the date of its compilation and the signature of the licensee or anyone that has been authorized to do so; the report should be submitted in a format to be advised by the director, including regarding the contents, the structure and the method of submission of the report.
103.4 The director may require the licensee to redraft or supplement a report it has submitted, including in cases where the director has found that it is lacks necessary details or other details that in the director’s opinion the licensee should have included in the report.
104. Types of Report and their Submission Date361
104.1 The licensee shall submit to the director upon his request or at least annually, at the end of the calender year, and no later than ninety (90) days, the annual reports that describe the activities during the period from the month of January until the month of December, of the previous year:
(a) An audited financial statement signed by an accountant
(b) A subscriber report, including the following data:
1) The amount of private and business subscribers as well as post-paid and pre-paid subscribers;
2) The scope of income in the segmentation set forth in sub-article (1), so that the income from interconnect appears separately for each one, and in addition, a division according to airtime and value added services.
(c) A report regarding use of frequencies in accordance with Chapter 4 section C;
(d) Annex A- “The Licensee’s Details” updated, at the beginning of the month of January, as detailed in article 20.1;
(e) 362Outline engineering report- an engineering report for the erection, development and upgrade of the network in the format set forth in Appendix B.
360 Amendment No. 41 361 Amendment No. 41
104.2 The licensee shall submit to the director on a quarterly basis, and no later than one month after the end of the quarter, the following reports:
(a) A reviewed quarterly financial statement, signed by an accountant;
(b) A reviewed quarterly income report, signed by an accountant, that includes all of the income that bears royalty payments;
(c) A traffic report-in a format to be advised by the director.
104.3 The licensee shall submit to the director a report for extraordinary events, as set forth in regulation 8 of the Supervision Regulations.
104.4 The licensee shall submit to the director the following reports, upon his request:
(a) Deleted363
(b) A fault report- that contains a summary of the network faults, details of the amount of faults and the accumulated time of each type of fault, an analysis of the faults and details of the steps taken to rectify them;
(c) A quality of service report-an analysis of the licensee meeting the requirements in articles 49 through 51 and Chapter E the level of service for a subscriber, during the period of the report;
(d) A complaint report- that contains details of all the written complaints that were submitted by subscribers regarding service including the subject of the complaint, the dates it was received and was responded to in writing, the manner in which it was handled, and details of the actions of the complaint officer;
(e) Details of the licensee’s tariffs;
(f) Deleted364
(g) A lien report- the licensee shall report immediately to the director in any case of an attachment or lien on one of the licensee's assets or in case of a lien on the means of control in the licensee, exercise of such a lien or termination of any right of the licensee over the asset;achment or lien on one of the licensee's assets or in case of a lien on the means of control in the licensee; exercise of such liens or termination of any right of the licensee over the asset; In addition, the licensee shall submit to the director, upon his request, a report that sets out all of the afore-mentioned liens;
(h) A subscriber summary report, income and minutes according to private and business subscribers, and in each category-a division of subscribers according to plans priced as “all inclusive” tariff and subscribers in plans priced separately for payment of “airtime” and interconnect, in a format to be advised by the director;
362 Amendment No. 71 363 Amendment N. 71 364 Amendment No. 71
(i) A harassing subscriber report as set forth in article 65A.9;
(j) Any additional data that should be required in order to supervise the activities of the licensee as well as any necessary information that the office requires in order to administer telecommunication matters.
104.5 The director may add or remove periodic, quarterly or annual reports as well as require the licensee to submit special reports, as advised.
105. Notice of Defect365
105.1 If the Director found defects or deficiencies in the Licensee’s activities, the Director shall notify it of this in writing (in this clause – “the Director’s Notice” or “the Notice.”
105.2 The Licensee shall deliver its response to the Director in writing, within the timeframe defined by the Director in the Notice. If the Director did not define a timeframe for the Licensee’s response, the Licensee shall deliver its response to the Director by no later than thirty (30) days of its receipt of the Director’s notice. In its response, the Licensee shall specify the means it took to rectify the defects and deficiences specified in the Notice and to prevent their recurrence.366
106. Deleted367
106A. Retention of documents and recordings
(a) The Licensee shall retain documents and recordings in its possession concerning the terms of the engagement with the subscriber for the entire duration of the engagement and for one year after the termination of the engagement.
(b) The Licensee shall deliver or forward to the Director, upon his request, any document or recording concerning the terms of the engagement with the subscriber, and this, on the date, in the format and in the mode that the Director shall instruct.368
______365 Amendment No. 41 366 Amendment No. 87 367 Amendment No. 41 368 Amendment No. 87
Chapter I - Miscellaneous
107. The License as an Exhaustive Document
107.1 The rights of the Licensee, its obligations and powers in all matters pertaining to the establishment, subsistence and operation of the MRT System and the provision of services through it, originate in this License and they derive from it and are in accordance with it only.
107.2 The Licensee will be precluded from claiming the existence of any right, obligation or authority based on information, promise, undertaking, representation, proposal, publication, minutes, discussion or declaration that were made outside the License, either in writing or orally, either prior to the award of the License or after it was awarded, with the exception of the interpretation provided by the Minister in accordance with Paragraph 6.
108. Holding the License Documents and their Return
108.1 The Licensee will hold the License documents in an office and will allow the public to examine their true and updated copies; should a License condition be changed, the Licensee will append the text of the change to the said License documents.
108.2 369Where the License and the documents related to it are on public display, the public shall not have the opportunity to inspect the following documents, contained in the Second Annex of the License:
(a) Appendix A – Details of the Licensee; (b) Appendix B-The engineering plan that is attached to Appendix B370; (c) Deleted371 (d) Appendix G – Insurance Contract; (e) Appendix H – Bank Guarantee; (f) Appendix I – Letters of Undertaking; (g) Appendix K – Special Services for Security Forces; (h) Appendix L – Security Instructions.
108.3 The License documents are the property of the State and are entrusted to the Licensee for the period of the License’s validity; should the License be revoked or expire, the Licensee will return the License and all its documents to the Director.
372108.4 The Licensee shall allow the public to inspect the documents of the License via the internet; the Licensee may also do so through the Ministry of Communications’ internet site as long as the Ministry of Communications publishes the License on its internet site.
369 Amendment No. 14 370 Amendment No. 41 371 Amendment No. 41 372 Amendment No. 14
373108.5 The Ministry may publish the License, other than the Appendices set out in clause 108.2, on such date and in such manner as it sees fit.
109. Deferment of Date
109.1 If an obligation imposed on the Licensee in this License has a set date for its fulfillment, the Licensee will fulfill it on that date.
109.2 The Director may, upon the Licensee’s request, defer a date set as stated above, if he deems that fulfillment of the obligation on that date is impossible for reasons of force majeure.
110. Responsibility
The approval or supervisory authority conferred upon the Minister or the Director in accordance with this License, including the employment of the said authority, does not impose on them any responsibility whatsoever, that is imposed in accordance with this License on the Licensee, and it does not harm or detract or remove or diminish the responsibility of the Licensee as stated above.
111. Dispatch of Notice
111.1 A notice pertaining to this License or its implementation will be given in writing and be delivered by hand or by registered mail with confirmation of receipt; a notice dispatched by registered mail as stated above shall be deemed to have reached its destination within forty-eight (48) hours of its dispatch.
111.2 Any notice from the Licensee to the Minister will be delivered or dispatched through the Director.
111.3 For the purpose of receiving notices in accordance with this paragraph, the Licensee’s address is: 8 Amal Street, Afek Industrial Park, P.O. Box 435, Rosh Ha’ayin, P.O. Box 48103374; the Licensee will inform the Director of any change of address immediately.
112. Operation in the 375Judea and Samaria Civil Administration Area
112.1 The Licensee shall contact the communications staff officer in the Judea and Samaria Civil Administration Area for the allocation of frequencies, the expansion of its license in the Judea and Samaria areas, for the expansion of the MRT system and for the provision of 4th Generation services in the areas in which the authorities in the telecommunications sector are of the Civil Administration.
112.2 The Licensee will operate in the Judea and Samaria areas in accordance with the license and frequencies allocation from the communications staff officer of the Civil Administration; the frequency allocation and the license in the Judea and Samaria area, including the deployment, the minimum requirements and the service level to the subscriber shall be mostly based on the allocation terms in Israel and the provisions of this license, mutatis mutandis, as shall be determined by the Civil Administration manager and in accordance with the law and the Security Legislation applicable to the Judea and Samaria areas, including the need to receive an individual approval for the establishment of each telecommunications facility.
113.376 Cancelled.377
______373 Amendment No. 14 374 Amendment No. 4 375 Amendment No. 83 376 Amendment No. 57 377 Amendment No. 87
Exhibit 10.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (Nos. 333-101652, 333-137102, 333-153419, 333-206420, 333-207946 and 333-210151) of Partner Communications Company Ltd. of our report dated March 29, 2017 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 20-F. We also consent to the reference to us under the heading Selected Financial Data in this Form 20-F.
/s/ Kesselman & Kesselman Tel-Aviv, Israel Certified Public Accountants (lsr.) March 29, 2017 A member firm of PricewaterhouseCoopers International Limited
Exhibit 10.2
March 13, 2017
Partner Communications Company Ltd. 8 Amal Street Afeq Industrial Park Rosh-Ha’ayin 48103 Israel
Dear Sirs:
We hereby consent to the use of our name, Giza Singer Even ltd, with regards to the Impairment Valuation Studies as of December 31, 2015 and as of December 31, 2014 in Partner Communications Company Ltd (Partner) Consolidated Financial Statements as of December 31, 2016, and in Partner's Form 20-F for the year ended December 31, 2016.
By /s/
Giza Singer Even LTD.
Name: Nir Harush Title: Partner Exhibit 10.3
19/03/2017
Partner Communications Company Ltd. 8 Amal Street Afeq Industrial Park Rosh-Ha’ayin 48103 Israel
Dear Sirs:
On behalf of BDO Ziv Haft Consulting & Management Ltd, Amot Bituach Building 46- 48 Menachem Begin Av. Tel-Aviv (the “Consultant”), I hereby confirm that the Consultant has reviewed the information set forth in the Annual Report on Form 20-F for the year ended December 31, 2016 (the “Form 20-F”), for Partner Communications Company Ltd., under Note 4(a)(4) "Assessing the recoverable amount of goodwill for impairment tests", Note 13(1) "Goodwill impairment tests", Item 5A.1f "Impairment test of Fixed-Line Goodwill as of December 31, 2014, 2015 and 2016", and Item 5A.1r. "Critical accounting estimates and assumptions" in the Form 20-F all with respect to testing for impairment of assets and the results thereof.
The Consultant hereby confirms the information referred to above and consents to being named in the Form 20-F as an “expert”.
By /s/
BDO Consulting Group Name: Moti Dattelkramer Title: Partner Exhibit 12.(a).1
I, Isaac Benbenisti, certify that:
(1) I have reviewed this annual report on Form 20-F of Partner Communications Company Ltd.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
(4) The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and (5) The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
Date: March 30, 2017 By: /s/ Isaac Benbenisti —————————————— Isaac Benbenisti Chief Executive Officer
Exhibit 12.(a).2
I, Ziv Leitman, certify that:
(1) I have reviewed this annual report on Form 20-F of Partner Communications Company Ltd.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
(4) The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and (5) The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
Date: March 30, 2017 By: /s/ Ziv Leitman —————————————— Ziv Leitman Chief Financial Officer
Exhibit 13.(a).1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Partner Communications Company Ltd. (the "Company") on Form 20-F for the period ending December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify that to the best of our knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 30, 2017
By: /s/ Isaac Benbenisti —————————————— Name: Isaac Benbenisti Title: Chief Executive Officer
Date: March 30, 2017
By: /s/ Ziv Leitman —————————————— Name: Ziv Leitman Title: Chief Financial Officer