"Bezeq" the Israel Telecommunication Corp. Limited Restated Annual Report for 2005
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August 14, 2006 "Bezeq" The Israel Telecommunication Corp. Limited Restated Annual Report for 2005* Chapter A – Description of Company Operations Chapter B – Directors' Report on the State of the Company's Affairs Chapter C – Financial Statements (Restated) Chapter D – Additional Details About the Corporation The information contained in this annual report constitutes a translation of the annual report published by the Company. The Hebrew version was submitted by the Company to the relevant authorities pursuant to Israeli law, and represents the binding version and the only one having legal effect. This translation was prepared for convenience purposes only. * The annual report was prepared in accordance with the Securities Regulations (Periodic and immediate reports), 5730-1970 Table of Contents Page Chapter A – Description of Company Operations 1. Description of General Development of Group Operations ............................ 1 1.1 Group Activity and Description of its Business Development ................................ 1 1.2 Areas of Activity...................................................................................................... 2 1.3 Investments in Equity and Stock Transactions ...................................................... 3 1.4 Distribution of Dividends......................................................................................... 4 1.5 Financial Information on the Group's Areas of Activity .......................................... 6 1.6 General Environment and Effect of External Factors on Group Activity ................ 9 2. Fixed-Line Domestic Communications – “Bezeq” – The Israel Telecommunications Corp. Limited ( “the Company”).................................. 10 2.1 General Information Regarding the Area of Operations ...................................... 10 2.2 Products and Services ......................................................................................... 13 2.3 Breakdown of Revenues and Profitability of Products and Services ................... 16 2.4 Customers ............................................................................................................ 16 2.5 Marketing, Distribution and Service ..................................................................... 16 2.6 Competition .......................................................................................................... 17 2.7 Fixed Assets and Facilities................................................................................... 25 2.8 Intangible Assets.................................................................................................. 28 2.9 Human Capital...................................................................................................... 29 2.10 Raw Materials and Suppliers, Purchase of Equipment and Suppliers................. 32 2.11 Working Capital .................................................................................................... 33 2.12 Investments .......................................................................................................... 33 2.13 Financing.............................................................................................................. 33 2.14 Taxation................................................................................................................ 35 2.15 Environmental Protection ..................................................................................... 35 2.16 Limitations and Regulation of Company Activity.................................................. 36 2.17 Substantial Agreements ....................................................................................... 48 2.18 Legal Proceedings................................................................................................ 51 2.19 Business Strategies and Goals ............................................................................ 51 2.20 Events or Issues not within the Ordinary Course of Business ............................. 53 2.21 Risk Factors ......................................................................................................... 54 3. Mobile Radio Telephone – Pelephone Communications Ltd. “Pelephone”).... 56 3.1 General Information on Field of Activity ............................................................... 56 3.2 Products and Services ......................................................................................... 59 3.3 Segmentation of Revenues and Profitability from Products and Services........... 60 3.4 New Products ....................................................................................................... 60 3.5 Customers ............................................................................................................ 61 3.6 Marketing, Distribution and Service ..................................................................... 61 3.7 Competition .......................................................................................................... 61 3.8 Seasonal Fluctuations.......................................................................................... 63 3.9 Fixed Assets and Facilities................................................................................... 63 3.10 Intangible Assets.................................................................................................. 64 3.11 Human Capital...................................................................................................... 65 3.12 Products and Suppliers ........................................................................................ 66 - i - 3.13 Working Capital .................................................................................................... 66 3.14 Investment in Investee Companies and in a Partnership..................................... 67 3.15 Financing.............................................................................................................. 67 3.16 Taxation................................................................................................................ 71 3.17 Environmental quality........................................................................................... 71 3.18 Restrictions on and Control of Pelephone’s actions ............................................ 71 3.19 Legal Proceedings................................................................................................ 79 3.20 Business Strategies and Goals ............................................................................ 79 3.21 Development Outlook for the Coming Year ......................................................... 79 3.22 Risk Factors ......................................................................................................... 80 4. International Communications and Internet Services – Bezeq International Ltd. ( “Bezeq International”)........................................... 83 4.1 General................................................................................................................. 83 4.2 Products and Services ......................................................................................... 85 4.3 Revenues ............................................................................................................. 85 4.4 New Products ....................................................................................................... 86 4.5 Marketing, Distribution and Service ..................................................................... 86 4.6 Competition .......................................................................................................... 86 4.7 Seasonal Fluctuations.......................................................................................... 88 4.8 Fixed Assets and Facilities................................................................................... 88 4.9 Intangible Assets.................................................................................................. 89 4.10 Human Capital...................................................................................................... 89 4.11 Suppliers .............................................................................................................. 89 4.12 Working Capital .................................................................................................... 90 4.13 Credit Policy ......................................................................................................... 90 4.14 Investments .......................................................................................................... 90 4.15 Financing.............................................................................................................. 91 4.16 Taxation................................................................................................................ 91 4.17 Restrictions on and Supervision of Bezeq International's Operations ................. 91 4.18 Joint Venture Agreements.................................................................................... 92 4.19 Legal proceedings................................................................................................ 92 4.20 Goals, Business Strategy and Expected Development ....................................... 95 4.21 Risk Factors ......................................................................................................... 96 5. Multi-channel Television – DBS Satellite Services